Month: May 2020

There are hundreds of people around who can share their property investment ideas with us. Almost everyone, at some stage in their life, has experienced a property dealing. 

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We’ve seen our parents, elder siblings etc buy a property. It has enriched our knowledge. Even listening about property dealing from friends also adds to our knowledge base. But nothing is more valuable than self indulgence.

Which are those deeper insights about property investment which experienced buyers use as their guide? How a beginner can invest in real estate in India as a pro?

This is what we are going to discuss in this article. But before that, lets’ refresh some basics about the property market in India.

Rich and wealthy invest in real estate directly. They own multiple residential or commercial properties. Steady and decent capital appreciation of their real estate property is common.

But the part which makes property investment so dear is its capability of generating stable short term income. The short term income is generated in form of “monthly rents“. 

The rate at which the rental income grows, generally beats inflation in long term. This is specially true for Metro, Tier1, and Tier 2 Cities. As the monthly yield of property grows, this also pushes the overall property price up. 

What is shown in the above infographic? Real estate investment generates assured returns. The returns are in form of rent and capital appreciation.

The rental yield (fixed income) grows with time. Generally this growth keeps pace with the inflation. Capital appreciation will happen due to demand growth. India being a growing and young population, demand for property keeps rising.

This dual effect (of assured rent and value growth) makes the real estate sector generate unparalleled returns, unlike any other asset.

Property investment is one of the best inflation hedge. This is the reason why big investors like Robert Kiyosaki and Donald Trump has special liking for it.

Tread With Caution

Why? Because, except for few Indian cities, real estate market has not really matured in India? Why I say so? Because we still see random development of properties in majority cities in India. 

A good real estate property must be developed, sold, and maintained as per a master plan incorporating all facilities.

Unless property has a master plan, its long term value appreciation is doubtful. In most cases, value of such properties depreciates with time.

The problem is, most of the properties are by either unplanned or are developed by below-par developers. This makes real estate investing in India slightly risky.

for a beginner, it is essential to know what to look at in a property. Investing in real estate cannot be done just on basis of aesthetics. Proportional weightage must be given to at least 14 parameters listed below:

Price

• Affordability: If one’s affordability is Rs.35 Lakhs, and the property on offer is costing Rs.40 Lakhs, it is clearly not affordable. This is one reason why affordability calculation in step #1 is essential before making a commitment.

Vicinity

• Location: Property investment must be done in a location which is known to the investor. Investing in an unknown city/town shall be avoided. Location of property within the city is also important. A property which has schools, markets, hospitals nearby is preferable.
• Transportation: Approach road is important. If there is a broad and paved road connecting the property, it’s a big thumbs up. Public transport connectivity like metro, bus depot, auto rickshaw stand, Ola/Uber connectivity also adds to the value.
• Negatives: Special attention must be given to the drawbacks of the property. Typical ones can be like busy roads, too close to railway station or airport, traffic noise, remote location, old society etc. These factors cause hardships & also lowers the quality of life of the residents.

Specification

• Type of House: If the preference is a row house, multi-storeyed apartment will not work and vice versa. Before venturing out for property search, type of house must be finalised.
• New or Used: Second hand homes can be great value for money. They have an advantage of ready possession and established locality. They may also have pre-built facilities like internet, heaters, wood work, modular kitchens etc. But a new property also comes with its own advantages.
• Number of bedroom: For a small family, even a studio apartment is enough. For others, requirement may range from 1/2BHK to higher size flats. I personally like evaluating property first on basis of their size (in SQFT), and then on the number of bedrooms it can offer.
• Open Floor: There are some properties which has slots & pockets for wardrobes, cabinets, fridge etc. Such homes offer better ‘open floor space management’ after the furnitures are put in place. Generally speaking, a house must be able to accommodate your special furnitures (like over , bicycle, pram etc).
• Parking: If you own a car, two wheeler etc the property must offer an adequate parking facility.

Other Features

• Communication: If the property has facilities already laid for services like cable TV and broadband etc, it can save few bucks. Generally speaking, look for mobile & internet connectivity in the area. There are some areas which has inherently poor mobile network connectivity.
• Extension: Over a period of time, owners like to extend their living space. Properties which has provisions for extension may prove handy in times to come.
• Gardening: For some, building a hanging garden in their balcony is a big plus. If you are looking for a row house, check if the open space provides the possibility of gardening. Property with such provisions becomes desirable.
• Present Condition: Check the ‘built condition’ of the property. If it is a new property, no problem. But in a second hand house, rework or repairs may be required. Being aware of this extra cost before taking the possession is advisable.
• Condition on Outside: Apartment may be good from inside, but the outside building is equally good? Make sure to check the property from outside. Scan the painting, cracks, seepage, loose wirings, encroachments, quality of parking etc.
• Security: These days the societies are plagued with random thefts and pilferages. Make sure to check if the property has a dedicated security protection.

Main factors that affect the housing market

• Economic growth. Demand for housing is dependent upon income. With higher economic growth and rising incomes, people will be able to spend more on houses; this will increase demand and push up prices. In fact, demand for housing is often noted to be income elastic (luxury good); rising incomes leading to a bigger % of income being spent on houses. Similarly, in a recession, falling incomes will mean people can’t afford to buy and those who lose their job may fall behind on their mortgage payments and end up with their home repossessed.
• Unemployment. Related to economic growth is unemployment. When unemployment is rising, fewer people will be able to afford a house. But, even the fear of unemployment may discourage people from entering the property market.

• Interest rates. Interest rates affect the cost of monthly mortgage payments. A period of high-interest rates will increase cost of mortgage payments and will cause lower demand for buying a house. High-interest rates make renting relatively more attractive compared to buying. Interest rates have a bigger effect if homeowners have large variable mortgages. For example, in 1990-92, the sharp rise in interest rates caused a very steep fall in INDIA house prices because many homeowners couldn’t afford the rise in interest rates.
• Consumer confidence. Confidence is important for determining whether people want to take the risk of taking out a mortgage. In particular expectations towards the housing market is important; if people fear house prices could fall, people will defer buying.
• Mortgage availability. In the boom years of 1996-2006, many banks were very keen to lend mortgages. They allowed people to borrow large income multiples (e.g. five times income). Also, banks required very low deposits (e.g. 100% mortgages). This ease of getting a mortgage meant that demand for housing increased as more people were now able to buy. However, since the credit crunch of 2007, banks and building societies struggled to raise funds for lending on the money markets. Therefore, they have tightened their lending criteria requiring a bigger deposit to buy a house. This has reduced the availability of mortgages and demand fell.
• Supply. A shortage of supply pushes up prices. Excess supply will cause prices to fall. For example, in the Irish property boom of 1996-2006, an estimated 700,000 new houses were built. When the property market collapsed, the market was left with a fundamental oversupply. Vacancy rates reached 15%, and with supply greater than demand, prices fell.

• Affordability/house prices to earnings. The ratio of house prices to earnings influences the demand. As house prices rise relative to income, you would expect fewer people to be able to afford. For example, in the 2007 boom, the ratio of house prices to income rose to 5. At this level, house prices were relatively expensive, and we saw a correction with house prices falling.
• Geographical factors. Many housing markets are highly geographical. For example, national house prices may be falling, but some areas (e.g. London, Oxford) may still see rising prices. Desirable areas can buck market trends as demand is high, and supply limited. For example, houses near good schools or a good rail link may have a significant premium to other areas.

A	B
Job	Work that you do mainly to earn money
Career	Is a commitment to work in a field that you find interesting and fulfilling
Standard of living	A measure of quality of life based on the amounts and kinds of goods and services a person can buy
Trends	Developments that mark changes in a particular area-indicate that some people are making career decisions that allow them to spend more time with their families or to enjoy their hobbies and interests
Potential earning power	The amount of money you may earn over time.
Aptitudes	Are the natural abilities that people possess
Interest inventories	Are tests that help you identify the activities you enjoy the most.
Demographic trends	Are ways in which groups of people change over time?
Service industries	Those that provide services for a fee, will offer some of the greatest employment potential in coming years
Internship	Is a position in which a person receives training by working with people who are experienced in a particular field
Cooperative education	Programs allow students to enhance classroom learning with part-time work related to their majors and interests
Networking	Is a way of making and using contacts to get job information and advice
Informational interview	A meeting with someone who works in your area of interest who can provide you with practical information about the career or company you’re considering
Resume	one page document that summarizes a person’s skills, education, experience, and achievements
Cover letter	Sent with the resume to provide information about your qualifications and why you are interested in the job. Also, to help you get an interview.
Cafeteria-style employee benefits	Programs that allow workers to choose the benefits that best meet their personal needs.
Pension plan	A retirement plan that is funded at least in part by an employer
Mentor	An experienced employee who serves as a teacher and counselor for a less experienced person.

Need for Career Planning:

Career Planning is necessary due to the following reasons:

1. To attract competent persons and to retain them in the organization.
2. To provide suitable promotional opportunities.
3. To enable the employees to develop and take them ready to meet the future challenges.
4. To increase the utilization of managerial reserves within an organization.
5. To correct employee placement.
6. To reduce employee dissatisfaction and turnover.
7. To improve motivation and morale.

Process of Career Planning:

The following are the steps in Career Planning:

1. Analysis of individual skills, knowledge, abilities, aptitudes etc.
2. Analysis of career opportunities both within and outside the organization.
3. Analysis of career demands on the incumbent in terms of skills, knowledge, abilities, aptitude etc., and in terms of qualifications, experience and training received etc.
4. Relating specific jobs to different career opportunities.
5. Establishing realistic goals both short-term and long-term.
6. Formulating career strategy covering areas of change and adjustment.
7. Preparing and implementing action plan including acquiring resources for achieving goals.

Pre-requisites for the success of career planning.

1. Strong commitment of the top management in career planning, succession planning and development.
2. Organization should develop, expand and diversify its activities at a phased manner.
3. Organization should frame clear corporate goals.
4. Organization should have self-motivated, committed and hard working employees.
5. Organization’s goal in selection should be selecting the most suitable man and place him in the right job.
6. Organization should take care of the proper age composition in manpower planning and in selection.
7. Organization should take steps to minimize career stress.
8. Organization should have fair promotion policy.
9. Organization should publicize widely the career planning and development programmes.

Advantages of Career Planning:

For Individuals:

1. The process of career planning helps the individual to have the knowledge of various career opportunities, his priorities etc.
2. This knowledge helps him select the career that is suitable to his life styles, preferences, family environment, scope for self-development etc.
3. It helps the organization identify internal employees who can be promoted.
4. Internal promotions, upgradation and transfers motivate the employees, boost up their morale and also result in increased job satisfaction.
5. Increased job satisfaction enhances employee commitment and creates a sense of belongingness and loyalty to the organization.

1. Successful Money Management

A. Money management: The day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security.

B. Opportunity Cost and Money Management

1. 1. 1. Spending money on current living expenses reduces the amount you can use for saving and investing for long-term financial security.
      2. Saving and investing for the future reduce the amount you can spend now.
      3. Buying on credit results in payments later and reduces the amount of future income available for spending.
      4. Using savings for purchases results in lost interest earnings and an inability to use savings for other purposes.
      5. Comparison shopping can save you money and improve the quality of your purchases but uses up something of value you cannot replace: your time.

C. Components of Money Management

1. 1. 1. Personal Financial Records and Documents
      2. Personal Financial Statements
      3. A Budget or Spending Plan

   2. A System for Personal Financial Records

            3. Personal Financial Statements

A. The Personal Balance Sheet: Where are You Now?

Items of Value – Amounts Owed = Net Worth

B. Evaluating Your Financial Positiion

If you are a traditional college student, don’t be surprised if your net worth is negative.

C. The Cash Flow Statement: Where Did Your Money Go?

Total Cash Received during the time period – Cash Outflow during the time period = Cash Surplus or Deficit

Personal finance is the process of planning and managing personal financial activities such as income generation, spending, saving, investing, and protection. The process of managing one’s personal finances can be summarized in a budget or financial plan. This guide will analyze the most common and important aspects of individual financial management.

Areas of Personal Finance

In this guide, we are going to focus on breaking down the most important areas of personal finance and explore each of them in more detail so you have a comprehensive understanding of the topic.

As shown below, the main areas of personal finance are income, spending, saving, investing, and protection. Each of these areas will be examined in more detail below. 

1. Income

Income refers to a source of cash inflow that an individual receives and then uses to support themselves and their family. It is the starting point for our financial planning process.

Common sources of income are:

• Salaries
• Bonuses
• Hourly wages
• Pensions
• Dividends

These sources of income all generate cash that an individual can use to either spend, save, or invest. In this sense, income can be thought of as the first step in our personal finance roadmap.

2. Spending

Spending includes all types of expenses an individual incurs related to buying goods and services or anything that is consumable (i.e., not an investment). All spending falls into two categories: cash (paid for with cash on hand) and credit (paid for by borrowing money). The majority of most people’s income is allocated to spending.

Common sources of spending are:

• Rent
• Mortgage payments
• Taxes
• Food
• Entertainment
• Travel
• Credit card payments

The expenses listed above all reduce the amount of cash an individual has available for saving and investing. If expenses are greater than income, the individual has a deficit. Managing expenses is just as important as generating income, and typically people have more control over their discretionary expenses than their income. Good spending habits are critical for good personal finance management.

3. Saving

Saving refers to excess cash that is retained for future investing or spending. If there is a surplus between what a person earns as income and what they spend, the difference can be directed towards savings or investments. Managing savings is a critical area of personal finance.

Common forms of savings include:

• Physical cash
• Savings bank account
• Checking bank account
• Money market securities

 Most people keep at least some savings to manage their cash flow and the short-term difference between their income and expenses. Having too much savings, however, can actually be viewed as a bad thing since it earns little to no return compared to investments.

4. Investing

Investing relates to the purchase of assets that are expected to generate a rate of return, with the hope that over time the individual will receive back more money than they originally invested. Investing carries risk, and not all assets actually end up producing a positive rate of return. This is where we see the relationship between risk and return.

Common forms of investing include:

• Stocks
• Bonds
• Mutual funds
• Real estate
• Private companies
• Commodities
• Art

Investing is the most complicated area of personal finance and is one of the areas where people get the most professional advice. There are vast differences in risk and reward between different investments, and most people seek help with this area of their financial plan.

5. Protection

Personal protection refers to a wide range of products that can be used to guard against an unforeseen and adverse event.

Common protection products include:

• Life insurance
• Health insurance
• Estate planning

This is another area of personal finance where people typically seek professional advice and which can become quite complicated. There is a whole series of analysis that needs to be done to properly assess an individual’s insurance and estate planning needs.

The Personal Finance Planning Process

Good financial management comes down to having a solid plan and sticking to it. All of the above areas of personal finance can be wrapped into a budget or a formal financial plan.

These plans are commonly prepared by personal bankers and investment advisors who work with their clients to understand their needs and goals and develop an appropriate course of action.

Generally speaking, the main components of the financial planning process are:

• Assessment
• Goals
• Plan development
• Execution
• Monitoring and reassessment

The first thing an Indian taxpayer must know about is Section 80C. Among the various exemptions that the Income Tax Act offers to Indian taxpayers, Section 80C is one of the most popularly known exemption. This particular section alone exempts tax up to an outer limit of Rs1.50 lakh per financial year on a series of contributions.

Broadly, there are two types of contributions that are eligible for exemption under Section 80C. First, there are specific investments such as Public Provident Fund (PPF), long-term deposits, National Savings Certificate (NSC), and equity-linked savings scheme (ELSS), where you can invest for long-term growth and get tax benefits.

Second, there are also select payments such as premium on life insurance, tuition fees for your children, and principal repayment of home loan that are eligible for exemption under Section 80C. This exemption is applicable to each financial year and the total eligible contribution is directly deducted from the taxable income.

Let us look at some key investments and payments that are eligible for Section 80C exemption and some of their unique features.

EPF and PPF contributions

Employee contributions to the Employee Provident Fund (EPF) are mandated to be at 12% of the basic salary plus dearness allowance (DA) and the employer matches this contribution. However, only the employee’s contribution is eligible for Section 80C benefits. On the other hand, Public Provident Fund (PPF) rates are fixed by the Finance Ministry and they are instruments of high safety. PPF has a minimum lock-in period of 5 years and loans can be taken against PPF after this lock-in period is completed. Withdrawals are permitted from the seventh year onwards and the interest on PPF and the final redemption is entirely exempt from tax.

ELSS contribution

These specific tax-saving equity funds (with a 3-year lock-in period) have become quite popular over the last few years. Unlike PPF and bank FDs, where the returns are regulated, ELSS funds are a market-linked product. Dividends on ELSS are tax-free in the hands of the investor but are subject to Dividend Distribution Tax (DDT) at 10%. Effective April 2018, any LTCG earned on ELSS funds above Rs1 lakh is subject to tax at 10% without the benefit of indexation. ELSS remains a good instrument for combining tax-saving and wealth creation.

Long-term bank fixed deposits

These are like normal bank FDs but are subject to a mandatory lock-in of 5 years. The rates of interest are also at par with the bank FD rates. Only the contribution to these long-term FDs qualify for exemption under Section 80C. It needs to be noted that any interest that is received on such FDs will be treated as taxable income and taxed at your peak rate.

National Savings Certificates (NSC)

The NSC requires very minimal documentation and can be purchased at your neighbourhood post office. The interest rates on NSC are also announced by the government from time to time. NSC contributions are subject to a minimum lock-in period of 5 years. The interest is not paid out each year but is accrued and paid out on redemption. However, even though you do not receive the interest, you need to show the accrued interest each year in your tax returns and pay tax on the same.

Life insurance and ULIP premiums

Life insurance contributions are eligible irrespective of whether it is a term policy, an endowment policy, a money-back policy, or a ULIP. Any death benefit received or proceeds received on maturity, including bonuses, are fully exempt from tax in the hands of the recipient. In the case of ULIPs, the tax exemption is calculated differently. Section 80C exemption on ULIPs is available on the lower of the two (10% of the sum assured or actual premium paid). Even if ULIP has an equity component, there is no LTCG tax on redemption.

Tuition fees and home loan principal

With the rising costs of education, the Income Tax Act has extended the benefits of Section 80C to tuition fees paid for two children. This exemption is only available to annual tuition fees and not to any donation, capitation fees, or building fund.
On the other hand, while home loan interest is exempt under Section 24 of the Income Tax Act, the principal component is exempt under Section 80C. Interestingly, in the year of completion of your property, the stamp duty and registration charges can also be claimed as part of home loan principal under Section 80C.

National Pension Scheme (NPS)

Contributions made by an employee towards the National Pension Scheme (NPS) is allowed as a deduction under Section 80CCD, an adjunct of Section 80C. The advantage of the NPS contribution is that even if you have exhausted your limit of Rs1.50 lakh under Section 80C, the NPS contribution entitles you to an additional exemption of Rs50,000, thus taking your total exemption limit to Rs2 lakh. This extra benefit is not only for NPS but also for contributions made to APY schemes.

When selecting your Section 80C investments and contributions, you need to focus on the returns, risk, wealth creation potential, levels of tax benefits, and liquidity so that you make the best of both tax-saving and wealth creation.

Individual Credit Rating:

Always the financier should assess the repaying capacity of the customer before advancing money. To assess the credibility and repayment capacity of a customer several methods are made use of. Those methods which are used to assess the credit worthiness and repaying capacity of a customer are called consumer credit scoring methods or credit rating methods.

These methods provide standards for accepting or rejecting a customer and assess the credit worthiness of a customer. Some of the commonly used methods are Dunham Greenberg Formula, Specific Fixed Formula and Machinery Risk Formula. In India, the largest credit rating agency for individual consumer finance is Credit Bureau of Information India Ltd. (CBIL)

A. Dunham Greenberg Formula:

This method is based the customer’s i) Employment Record, ii) income level, iii) Financial Position, iv) Type of Security Offered and v) Past Payment Record. It gives more importance to the customer’s income level and past records. Under this method points are allotted to the various aspects/parameters of the customer. It is ranked out of a total of 100. An applicant scoring more than 70 points is considered as one with good credit standing.

The points allotted to various aspects are:

Parameters	Credit Score
Applicnts employment record	20
Appicant’s income	25
Applicants finance	10
Type of security offered	20
Past payment method	25
Total	100

B. Specific Fixed Formula:

This method is another credit rating formula. It give emphasis to i) Age, ii) Gender, iii) Stability of Residence, iv) Occupation, v) Type of Industry, vi) Stability of Employment and vii) Assets of the Customer in assessing the credit worthiness of a customer. Specific scores are allotted to each of these parameters. The borrowers getting a score more than 3.5, is ranked as ‘excellent borrower’ and those getting more than 2.5 but less than 3.5 is ranked as ‘marginal borrower’.

The method of scoring is as follows:

Parameters	Credit Score
Age	0.1-0.5
Gender	04
Stability of residence	0.042-0.42
Occupation	0.16-0.55
Industry	0.21
Stability of employment	0.059-0.59
Assets	0.20 – 0.45

C. Machinery Risk Formula:

This method is based upon the amount of down payment, monthly income and length of service. Basically this method is based upon the present financial position and future income earning capacity of the customer. Generally this method is used in government Departments to advance loans to its employees. The loan amount to be sanctioned is calculated using the following formula.

Loan amount = Down payment + (0.124 x monthly income) + (6.45 x length of service in months)

Cost Aspects of Consumer Finance:

Like any other mode of finance, consumer finance also has certain costs. Normally financiers charge interest for the capital, service charges for the services rendered and other charges. The financiers used to charge the customer for all the services rendered to the customer. Generally service charges will be collected as percentage of borrowings. Interest will be disclosed either on flat rate of interest or yearly declining balances rate, net interest rate, etc.

The effective rates of interest for consumer finance are higher than other modes of finance. This is because consumer finance is provided based on the integrity and credibility of the customer alone. As the banker is undertaking higher risk, a higher rate of interest is charged as a premium for the extra risk undertaken.

Interest comprises of risk free rate of interest for the capital and a premium for default in future payment of premium. In India there is no ceiling as to the maximum rate of interest. Financiers charge different rate of interest as per the policies and practices of their organization. On an average, in India, the effective rate of interest on consumer finance ranges from 20 percent to 30 percent.

Other charges include documentation fees, processing fees, management fees, examination fees, service charges, brokerage, collection costs etc. Moreover financiers used to take deposits/ guarantee as a precaution against possible default in payment of installments. Interest, service charges, other charges, security deposit, guarantee etc. makes consumer finance costlier. However because of the practical convenience and feasibility of schemes attracts more and more people to consumer credit schemes.

Consumer Credit Portfolio Management:

Consumer credit portfolio refers to the combination of various consumer credits granted by an organization. Consumer credits may be classified according to the tenure of repayment, amount of credit, type of customers, mode of credit, type of security offered, etc. The degree of risk and return varies in each case. The total of all consumer credit granted by an organization to various parties under various forms upon different terms and securities is called its consumer credit portfolio.

Like any other business, consumer financing is also a business set up to make profit. Thus profit maximization is its objective. The ultimate aim of portfolio management is to maximize profit. The portfolio must be perfect, balanced and well managed. The evaluation of the existing consumer credit portfolio, for its credibility, forms of credit, the amount of credit, the risk involved, and to make suggestions wherever necessary, so as to achieve the organizational objective can be termed as consumer credit portfolio management.

It shall not give much stress to any particular type of credit alone. It shall keep a balanced portfolio comprising of all types of credits. The tenure of the credits is to be closely watched. A prudential trade off shall be kept between secured and unsecured credits. Both have their own merits and demerits.

Secured credits are sure to get back but have lower rate return. Unsecured ones are risky but have higher return. The total credit to a single customer is to be checked frequently, as undue credit to one may land the customer in difficulty and thereby the financier as well. For assessing the credibility of the advances scientific tools may be used to analyze the credit worthiness of the customer.

Following are the features of Consumer credit:

1. Consumer credit is a method of financing semi-durables and durables.
2. It assists consumers to acquire assets.
3. Consumers get possession of the assets immediately when a fraction of the price is paid.
4. The balance payment is payable in installments over an agreed span of time.
5. The duration of the finance normally ranges between three months to five years,
6. It is an agreement between parties to the contract.
7. When there are only two parties to the contract, it is called a Bipartite Agreement (the customer and the dealer cum financier) and where there are three parties, such agreements are called Tripartite Agreements (the customer, the dealer and the financier.)
8. The structure of financing may by way of hire-purchase, conditional sale or credit sale. In the case of both hire purchase and conditional sale, ownership of the asset is transferred only on completion of all the terms of agreement. But in the case of credit sale ownership is transferred immediately on payment of first installment.
9. Generally advances are made on the security of the asset itself and
10. It involves down payment normally ranging from 20 to 25% of the asset price.

Forms/Types of Consumer Credit:

1. Revolving Credit:

It is an ongoing credit arrangement. It is similar to overdraft facility. Here a credit limit will be sanctioned to the customer and the customer can avail credit to the extent of credit limit sanctioned by the financier. Credit Card facility is an excellent example of revolving credit.

2. Cash Loan:

In this form, the buyer consumer gets loan amount from bank or non- banking financial institutions for purchasing the required goods from seller. Banker acts as lender. Lender and seller are different. Lender does not have the responsibilities of a seller

3. Secured Credit:

In this form, the financier advances money on the security of appropriate collateral. The collateral may be in the form of personal or real assets. If the customer makes default in payments, the financier has the right to appropriate the collateral. This kind of consumer credit is called secured consumer credit.

4. Unsecured Credit:

When financier advances fund without any security, such advances are called unsecured consumer credit. This type of credit is granted only to reputed customers.

5. Fixed Credit:

In this form of financing, finance is made available to the customer as term loan for a fixed period of time i.e., for a period of one to five years. Monthly installment loan, hire purchase etc. are the examples.

Advantages of Consumer Finance:

1. Compulsory Savings:

Consumer credit promotes compulsory savings habit among the people. To make periodical installments knowingly or unknowingly, people cut short their other expenditures and save. These savings ultimately fetch them ownership of an asset in course of time. Thus consumer credit adds to the savings habit of people.

2. Convenience:

Considering the nature and type of customers, consumer credit facility offers schemes to the convenience and satisfaction of the customers. Walk in and drive out, pay as you earn, everything at the door step, one time processing etc. are examples.

3. Emergencies:

Consumer credit facility is available to meet personal requirements like family requirements, festival requirements, emergencies etc. The credit facility is not strictly restricted to purchasing of consumer durables alone. In ordinary course of life people come across number of urgent financial requirements, for which consumer credit offers a better solution.

4. Assists to Meet Targets:

In all business activities, there will be targets to be achieved by the executives. Most people abstain/ postpone purchasing for want of sufficient fund. When the dealer themselves arrange for fund people get attracted and purchase take place in large quantity. Thus it assists to meet sales targets and profit targets.

5. Assists to Make Dreams to Reality:

A car, a TV, a washing machine, a computer, a laptop, a mobile phone, etc. is undoubtedly a dream of an average human being. But people may not purchase because of fund problem. In those cases consumer credit facilitates an opportunity to possess and own those dreams on convenient terms.

6. Enhances Living Standard:

Consumer credit enhances living standard of the people by providing latest articles and amenities at reasonable and affordable terms.

7. Accelerates Industrial Investments:

Demand for consumer durables enhances further investment in the consumer durables industry. Thus provides more and more employment opportunities in the country.

8. Promotes Economic Development:

Demand for consumer durables, further investments in consumer durables industry, increased living standard of people, improved employment opportunities and income etc. improves economic development of the country.

9. Economies of Large Scale Production:

Increased demand leads to large scale production. Large scale operations lead to the economies of large scale operation. This in turn leads to lower prices.

10. National Importance:

Consumer credit is of national importance in India. Unless there is such a convenient mode of financing, total demand for consumer durables will be far lesser. Poor demand lead to lower production, which in turn lead to poor employment opportunity and lower income level. All these finally land the economy in trouble.

Disadvantages of Consumer Finance:

1. Promotes Blind Buying:

Facility to purchase at somebody else’s money tempts people to buy and buy goods blindly. This may land these people to debt trap within a short while.

2. Leads to Insolvency:

Blind buying of goods make these people insolvent/bankrupt within a shorter span of time. This ultimately spoils their life in the long run.

3. Consumer Credit is Costlier:

Along with the convenience that it offers it charge the customer for all these conveniences offered. Thus it becomes costlier when compared to other forms of finance.

4. Artificial Boom:

The economic development posed by the impact of consumer credit is not real but artificial. Economy will take years to stabilize the artificial boom claimed by the proponents of consumer credit.

5. Bad Debts Risk:

By whatever name called credit is always risky so is the case with consumer credit as well. Defaults are a major threat to consumer credit. Once there is a default, repossession and other legal formalities are difficult.

6. Causes Economic Instability:

Artificial boom and depression leads to economic instability and causes chaos in the economic progress. It will be difficult for the real ordinary business man to identify real progress and artificial progress.

Types of Saving Schemes in India

National Savings Certificate (NSC)

The National Savings Certificate is a scheme offered by the Government of India for fixed income investment that can be opened with any post office. It involves a savings bond that proves to be tax-efficient for the investor. It is best suited mainly for small to mid-income investors with a low risk appetite. This is similar to other fixed income investments like PPF (Public Provident Fund) and Post Office Fixed Deposits.

However, being a safe and low-risk investment also implies that it does not ensure high returns, especially when the capital market is volatile. You can purchase an NSC in your name or hold a joint account with another adult or buy it for a minor. However, the government makes this scheme available only to individuals of Indian nationality. Therefore, HUFs (Hindu Undivided Families) and NRIs (Non-Resident Indians) are not eligible to invest in NSCs.

Salient features and benefits of NSC Savings Scheme:

• They are of two types based on their maturity periods of 5 years and 10 years.
• NSCs do not have any maximum limits of purchase. However, investments of only up to INR 1.5 lakhs attracts tax benefits under Section 80C of the Income Tax Act, 1961.
• The current rate of interest on NSCs is 6.8% per annum applicable from 01.04.2020. This interest rate is added to the investment and then compounded annually and serves as a stable source of regular income.
• You can start with an investment as small as INR 100 and increase the amount as per your convenience.
• Acceptable as collateral by banks and financial institutions as well as security for secured loans.
• Acts as financial security and support for the nominee on the unforeseen demise of the investor.
• The entire maturity value is payable to the investor when the investment completes its maturity tenure. However, since TDS on NSC pay-outs are applicable, NSC is not completely tax-free.
• Investors are not eligible for premature withdrawal unless under exceptional circumstances like sudden death of the investor or legal order from the court.

National Savings Scheme (NSS)

National Savings Scheme (NSS), backed by the Government of India, offers the entire sum assured after the completion of its maturity tenure. The applicable rate of interest is compounded annually. It also gives you the flexibility to extend the term as per your investment objectives. It is also tax deductible under Section 80 C of the Income Tax Act, 1961.

Salient features and benefits of NSS Savings Scheme:

• Offers fixed assured returns after it completes the maturity term. However, they are not market-linked like some other government schemes.
• The rates on small saving schemes are revised and updated every quarter every quarter. This implies that you will be eligible for higher interest rates.
• NSS schemes like PPF, Sukanya Samriddhi Yojana, NSC etc., attract tax exemptions of up to INR 1.5 lakhs under Section 80C of Income Tax Act, 1961. Besides, interest on Sukanya Samriddhi Yojana and PPF and Sukanya Samriddhi Yojana is also tax-free.
• Investors are not eligible for premature withdrawal unless under exceptional circumstances like sudden death of the investor.

Public Provident Fund (PPF)

This scheme was introduced by the National Savings Institute, under the Finance Ministry of India, in 1968. It is an effective savings instrument, specifically for tax savings.

Salient features and benefits of PPF Savings Scheme:

• Attracts an interest rate of 7.1% per year applicable from 01.04.2020, which is then compounded annually.
• Applicable on a minimum annual investment of INR 500 and a maximum of INR 1,50,000.
• Payable in lump sum or through a maximum of 12 deposits in one financial year.
• Maturity period varies from a minimum tenure of 15 years and can be extended up to a maximum of 5 more years, as per the discretion of the investor.
• Offers further flexibility as it can be moved from one post office or bank to another.
• Not applicable on joint accounts.
• Investors are eligible for tax deductions under Sec. 80C of the IT Act, 1961. Besides, accumulated interest is completely tax-free.
• The accumulated savings is accepted by banks and financial institutions as security and collateral during loan application from the third financial year.

Post Office Savings Scheme

Being one of the most secure and reliable saving schemes, it is the most suitable for investors who have a low-risk appetite. Besides assuring investors of high returns, the process is streamlined, quick and hassle-free. It is accompanied by the inherent features of high-end investment and saving schemes in India.

The following are the products of Post Office Savings Scheme:

• Post Office Savings Account
• 5 Years Post Office Recurring Deposit Account
• Post Office Time Deposit Account
• Post Office Monthly Income Account Scheme
• Senior Citizens Saving Scheme
• 15 Years Public Provident Fund Account
• National Savings Certificates (NSC)- 5 Years NSC (VIII Issue) and 10 Years NSC (IX Issue)
• Kisan Vikas Patra (KVP)
• Sukanya Samriddhi Account

Senior Citizens Savings Scheme (SCSS)

Senior Citizens Savings Scheme was especially planned keeping in mind the unique needs of senior citizens in India, that is, individuals of at least 60 years of age. However, individuals between 55 years and 60 years who have retired or have opted for Voluntary Retirement Scheme (VRS) are also eligible to apply for Senior Citizens Savings Scheme, but only when the savings scheme account has been issued within one month of the receipt of their retirement benefits.

Salient features and benefits of Senior Citizens’ Savings Scheme:

• The rate of interest for Senior Citizens Savings Scheme is 7.4% quarterly applicable from 01.04.2020, payable on any one of these days in a financial year – 31st March 30th June, 30th Sept and 31st. December.
• The tenure of the saving schemes is 5 years.
• Investors are eligible for making a maximum of one deposit into the saving schemes and in multiples of INR 1,000.
• The maximum amount cannot be more than INR 15 lakhs.
• The account is transferrable from one bank or post office to another.
• The savings scheme account can be closed before the completion of its full tenure, provided the investor pays 1.5% of the deposit amount in the first year and 1.0% of the amount in the second year.
• The tenure can be further extended to a maximum of 3 years after the minimum maturity term of 5 years, as per the discretion of the investor. If the investor wants to withdraw the amount after the completion of 1 year of this extended term, the savings scheme account can be closed prematurely without any deductions.
• The accumulated interest attracts TDS, deducted at source, if the interest exceeds INR 10,000 annually.
• The accounts of this savings scheme enable investors to avail tax deductions under Section 80C of Income Tax Act, 1961.

Kisan Vikas Patra (KVP)

Kisan Vikas Patra (KVP), launched in the year 1988, is one of the most preferred saving schemes from the Indian Postal Department. Post its initial phenomenal success, this savings scheme was discontinued in 2011 as a result of it being misused. It was re-introduced in 2014 after experiencing high demand.

Salient features and benefits of KVP Savings Scheme:

• What attracts the applicant to this savings scheme is that the principal amount doubles in 124 months at an interest rate of 6.9%.
• This is available only in the multiples of INR 1,000, INR 5,000, INR 10,000 and INR 50,000, INR 1,000 being the minimum purchase value. It does not have a maximum limit.

• It can be encashed prematurely after 2½ years from the issuance date.
• The account of this savings scheme can be transferred from one bank or post office to another, and from one individual to another.

Sukanya Samriddhi Yojana (SSY)

Introduced by the Indian Ministry of Finance, the Sukanya Samriddhi Yojana (SSY) savings scheme was launched by the honourable Prime Minister of India, Mr. Narendra Modi, to financially secure the future of the girl child and support her future ambitions. Salient features and benefits of SSY Savings Scheme:

• Attracts an annual rate of interest of 7.6% applicable from 01.04.2020 on the principal amount, one of the highest in a savings scheme of its kind.
• The account for this savings scheme can be opened at any post office or authorised bank in India.
• Deposits can be made in denominations of INR 100. However, the initial deposit applicable ranges from a minimum of INR 1,000 to a maximum of INR 1,50,000 per year.
• The maturity term is 21 years from the issuance date and the account holder has to pay into the account for a total term of 14 years.
• This savings scheme account can be transferred from one bank or post office to another bank or post office anywhere within India.

Atal Pension Yojana

Named after the respected former Prime Minister of India, Shri Atal Bihari Vajpayee, this savings scheme is designed to cater to the welfare of the weaker sections of the society. It is also applicable to individuals, especially those working in the unorganised sectors, who require the financial support from a government-sponsored welfare program. This serves as a robust pension plan for their post-retirement years. Applicants pay a very low premium and enjoy the fruits of a robust and reliable pension plan.

Salient features of the Atal Pension Yojana Savings Scheme:

• A robust retirement plan that acts as a steady source of income for the weaker sections of the society and people working in the unorganised sector, which does not offer a pension option.
• Indian citizens between the age groups of 18 years and 40 years are eligible to apply.
• Involves a very low premium amount, but it has to be paid for a minimum duration of 20 years. However, the higher the premium amount, the higher will be the payable pension amount.
• It is mandatory for the applicant to hold an active savings bank account.
• The applicant cannot be a policyholder of any other statutory saving schemes.

Employees Provident Fund (EPF)

The Employees Provident Fund (EPF), introduced by the Employees’ Provident Fund Organisation (EPFO), involves the working Indian population to make a compulsory financial contribution into a Provident Fund (PF) account. This enables them to plan their retirement fund in advance. Alternately, it also offers them the benefit of financial security during unforeseen emergencies as well as planned financial objectives. EPF is one of the most popular and much-favoured government-sponsored savings scheme of a vast majority of the Indian population working in the organised sector.

Salient features and benefits of EPF Savings Scheme:

• In this savings scheme, the employer and employee contribute 12% of the employee’s monthly salary into this provident fund account every month.
• The annual rate of interest on the funds accumulated in the EPF account throughout the year is decided by the government and usually ranges between 8% and 12%.
• The interest is credited to the employee’s account on 1st April of every financial year.
• The EPFO office generates annual reports through the concerned employer that the employee is employed with, to enable him/her to clear the bearings on the amount accumulated in the EPF account.

National Pension System (NPS)

The National Pension System is a savings scheme that focuses on serving as reliable and secure source of monthly income after retirement. To avail this benefit, employees have to make a small premium payment towards NPS while they are gainfully employed. The lump sum, accumulated throughout the tenure of the scheme, is broken down through an annuity plan, and paid to the applicant every month post-retirement.

Salient features and benefits of NPS Savings Scheme: _ Acts as a secure source of monthly income for retired employees of state and central government organisations, employees of MNCs, and Indian citizens employed in the unorganised sectors.

• For employees of the central or state government organisations, the applicable deduction from the individual’s monthly income is 10% and an equal contribution from the government.
• For employees of MNCs or those from the unorganised sectors, NPS is similar to any other long-term saving schemes that benefits applicants after the completion of the pre-determined tenure, as per the terms of the scheme.

Voluntary Provident Fund (VPF)

As suggested by the name of this savings scheme, employed Indian citizens can opt for out of their individual willingness.

Salient features and benefits of VPF Savings Scheme:

• The applicant willingly contributes up to 100% of their basic salary and dearness allowance towards their respective Employee Provident Fund (EPF), as opposed to the usual 12%.
• As per the financial year 2013 – 14, applicants were eligible for an interest rate of 8.75% on the accumulated funds.
• Any activity in an applicant’s VPF will have a direct impact on his/her EPF account too, and vice versa.

Deposit Scheme for Retiring Government Employees

This savings scheme, targeted at the retiring employees of the public sector, is particularly well-known for its hassle-free application and documentation procedure.

Salient features and benefits of this savings scheme:

• The necessary documents required during the application process to be eligible for this saving schemes are locally payable cheque, DD, etc., along with a certificate from the employer.
• The interest accrued is payable from the date of deposit to 30th June or 31st December of the same year, and subsequently followed by half-yearly payments on 30th June or 31st December.
• Withdrawals cannot be made by applicants during the first year of the opening of the account. However, the applicant will be eligible for withdrawals after the completion of one year.

Pradhan Mantri Jan Dhan Yojana

This savings scheme has been launched by the Government of India in 2014, especially for those Indian citizens who do not have a bank account in India. This offers cost-effective solutions related to accessing financial services like banking, remittance, insurance, pension, etc.

Salient features and benefits of Pradhan Mantri Jan Dhan Yojana Savings Scheme:

• Account holders are eligible for an accidental insurance cover of INR 1 lakh and a life cover of INR 30,000, payable on the death of the beneficiary.
• Account holders are eligible for an overdraft facility of up to INR 5,000, applicable to not more than one account per household.
• This savings scheme is tailor-made for Indian citizens below the poverty line, empowering them to make the most of this saving schemes through reinvestments.
• Maintaining a minimum balance in the account is not mandatory.
• Account holders can avail interest on their deposits.
• Account holders can avail seamless access to insurance policies and pension.
• Beneficiaries of government schemes are eligible for Direct Benefit Transfer.
• Mobile banking facility further makes this saving schemes user-friendly.

Advantages of Saving Schemes in India

Let’s look at some of the primary benefits of savings schemes in India:

Robust savings schemes

The public and private sector banking schemes from the Government of India offer a robust and secure savings instrument for individuals with varied financial objectives.

Hassle-free services

These saving schemes are customised to offer streamlined and seamless application and maintenance.

Extensive range of savings schemes

The government offers a wide range of saving schemes to cater to the varied needs and financial goals of Indians citizens across different sections of the society. For instance, Sukanya Samriddhi Yojana focuses on the financial support for the girl child, while Pradhan Matri Jan Dhan Yojana is especially designed for citizens below the poverty line.

Long-term financial strategies

The saving schemes are safe investment instruments that enable applicants to meet long-term financial goals like child’s higher education, child’s marriage, retirement plan, etc.

Payment method types

Credit Cards

As a global payment solution, credit cards are the most common way for customers to pay online. Merchants can reach out to an international market with credit cards, by integrating a payment gateway into their business. Credit card users are mostly from the North America and Europe, with Asia Pacific following suit.

Mobile Payments

A popular payment method in countries with low credit card and banking penetration, mobile payments offer a quick solution for customers to purchase on e-commerce websites. Mobile payments are also commonly used on donation portals, browser games, and social media networks such as dating sites, where customer can pay with SMS. Majority of mobile payments are done in the Asia Pacific, with 64 million users expected by the year 2016.

Bank Transfers

Customers enrolled in an internet banking facility can do a bank transfer to pay for online purchases. A bank transfer assures customers that their funds are safely used, since each transaction needs to be authenticated and approved first by the customer’s internet banking credentials before a purchase happens.

e-wallets

An ewallet stores a customer’s personal data and funds, which are then used to purchase from online stores. Signing up for an ewallet is fast and easy, with customers required just to submit their information once for purchases. Additionally, ewallets can also function in combination with mobile wallets through the use of smart technology such as NFC (near field communication) devices. By tapping on an NFC terminal, mobile phones can instantly transfer funds stored in the phone.

Prepaid Cards

An alternative payment method, commonly used by minors or customers with no bank accounts. Prepaid cards come in different stored values for customers to choose from. Online gaming companies usually make use of prepaid cards as their prefered payment method, with virtual currency stored in prepaid cards for a player to use for in-game transactions. Some examples of prepaid cards are Mint, Ticketsurf, Paysafecard, and Telco Card. It appears that age rather than income is the trait that affects the adoption of prepaid cards, according to Troy Land’s research.

Direct Deposit

Direct deposits are when customers instruct their banks to pull funds out of their accounts to complete online payments. Customers usually inform their banks on when funds should be pulled out of their accounts, by setting a schedule through them. A direct deposit is a common payment method for subscription-type services such as online classes or purchases made with high prices.

Cash

Fiat, or physical cash, is a payment method often used for physical goods and cash-on-delivery transactions. Paying with cash does come with several risks, such as no guarantee of an actual sale during a delivery, and theft.

Marketing is concerned with the introduction and promotion of products and services to the potential customers. It plays a prominent part in an organization as everything from sales to success depends on it. Through marketing, a business can get a chance to be discovered and recognized by a large group of people and influence them to opt for its products and services. However, what actually drives consumers to choose a particular product over others is a question which is often overlooked by marketers.

1. Engage with your Audience Online and Offline

In this digital world, everyone is hyper-connected and consume content on multiple platforms and devices. Companies can start a conversation on various social media platforms and engage their audience in it. However, consumers have now become more skeptical of businesses and more cautious with their spending on a particular product or service. So, it is important to engage customers in conversations where they perceive your message and intentions as sincere. Also, businesses should inspire them to advocate their product and service on their behalf by engaging them offline.

2. Understand the Needs of your Potential Customers

To influence consumers’ decisions about purchasing a product or service, companies need to understand their requirements and identify how to deliver a marketing message that appeals to them. Many businesses believe that they can use social media to influence or change the way customers think. But they can only win over people by creating mobile-friendly content that fits their needs and preferences. If they are not sure what consumers are looking for, then they should directly ask them through various social media platforms or emails.

3. Apply the Golden Rule

Being attractive has its perks, and it can increase a business’ likability and its trustworthiness. Striking website design has the power to influence customers and compel them to buy products and services of a particular company. Out of some of the most fantastic design techniques that are used to make a website look captivating, one is the Golden Ration. It is a design concept that is concerned with proportions in areas, such as art, design, and architecture. It can be used to work out the most visually appealing font size, proportions, margins, column widths, and line heights.

4. Use the Foot-in-the-Door Technique

This concept is used to increase compliance rates and influence consumers to make a purchase decision. In simple words, it is a tactic that aims at getting a person to a bigger request by making them agree to a modest request first. Businesses use these techniques to influence consumers behavior by asking them for something small in the first place. If they comply with their first small request, then they will be more likely to feel obliged to act consistently to the next and more significant request. So, by using this compliance tactic, companies can make the customers opt for their products and services.

5. Be Available 24/7 for your Customers

If companies want to influence consumer behavior, then they need to focus on making emotional connections with them through positive customer experiences. And that’s possible when they are available for their consumers twenty-four hours a day, and seven days a week to resolve their queries. A study found that 42% of customers who complain on social media platforms expect a response within 60 minutes. Further, 57% expect the response time at night and on weekends.

So, these were a few strategies that businesses can use to influence consumer behavior and make them choose their product or service over others. Since we are living in the digital world, more focus should be made on online marketing strategies than offline because people are good at tuning out brand-related content on social media platforms, like Facebook, Twitter, and LinkedIn.

Marketing strategies and tactics are normally based on explicit and implicit beliefs about consumer behavior. Decisions based on explicit assumptions and sound theory and research are more likely to be successful than the decisions based solely on implicit intuition.

Knowledge of consumer behavior can be an important competitive advantage while formulating marketing strategies. It can greatly reduce the odds of bad decisions and market failures. The principles of consumer behavior are useful in many areas of marketing, some of which are listed below:

Analyzing Market Opportunity

Consumer behavior helps in identifying the unfulfilled needs and wants of consumers. This requires scanning the trends and conditions operating in the market area, customer’s lifestyles, income levels and growing influences.

Selecting Target Market

The scanning and evaluating of market opportunities helps in identifying different consumer segments with different and exceptional wants and needs. Identifying these groups, learning how to make buying decisions enables the marketer to design products or services as per the requirements.

Example: Consumer studies show that many existing and potential shampoo users did not want to buy shampoo packs priced at Rs 60 or more. They would rather prefer a low price packet/sachet containing sufficient quantity for one or two washes. This resulted in companies introducing shampoo sachets at a minimal price which has provided unbelievable returns and the trick paid off wonderfully well.

Marketing-Mix Decisions

Once the unfulfilled needs and wants are identified, the marketer has to determine the precise mix of four P’s, i.e., Product, Price, Place, and Promotion.

Product

A marketer needs to design products or services that would satisfy the unsatisfied needs or wants of consumers. Decisions taken for the product are related to size, shape, and features. The marketer also has to decide about packaging, important aspects of service, warranties, conditions, and accessories.

Example: Nestle first introduced Maggi noodles in masala and capsicum flavors. Subsequently, keeping consumer preferences in other regions in mind, the company introduced Garlic, Sambar, Atta Maggi, Soupy noodles, and other flavours.

Price

The second important component of marketing mix is price. Marketers must decide what price to be charged for a product or service, to stay competitive in a tough market. These decisions influence the flow of returns to the company.

Place

The next decision is related to the distribution channel, i.e., where and how to offer the products and services at the final stage. The following decisions are taken regarding the distribution mix −

• Are the products to be sold through all the retail outlets or only through the selected ones?
• Should the marketer use only the existing outlets that sell the competing brands? Or, should they indulge in new elite outlets selling only the marketer’s brands?
• Is the location of the retail outlets important from the customers’ point of view?
• Should the company think of direct marketing and selling?

Promotion

Promotion deals with building a relationship with the consumers through the channels of marketing communication. Some of the popular promotion techniques include advertising, personal selling, sales promotion, publicity, and direct marketing and selling.

The marketer has to decide which method would be most suitable to effectively reach the consumers. Should it be advertising alone or should it be combined with sales promotion techniques? The company has to know its target consumers, their location, their taste and preferences, which media do they have access to, lifestyles, etc.