An individual is unaware of many hidden charges that eat into his hard earned money, leaving him with less to invest and less to earn. As it is a known fact that,“someone’s pain is someone’s gain” and it aptly fits the financial services jargon. An individual is sold such policies, houses or loans which gives maximum return or commission to the bankers, real estate agents, insurance agents, etc. Here are the top 10 charges which an individual must know and be precautions while making any financial commitments.
1. Interest income lost to penalty for not maintaining the average bank balance.
Many banks offer a higher interest rate on savings account balance or sweep-in facility. However, they also require the account holder to maintain an average quarterly/monthly balance. Failure to maintain this balance can be penalizing and stiff and can wipe out an entire year’s gain earned in the form of interest.
2. Credit card is free only for *
Credit card companies/banks entice new customers by offering them free credit cards.But there is nothing called free lunch. Don’t believe the salesperson till you see the offer in writing. The free offer is usually for the *first year and thereafter annual fee from the second year will be levied which you are usually not told about.
3. Direct plans of mutual funds have lower charges
Less intermediary means less commission and fees and hence more savings for investing in funds. Launched in January,2013, direct mutual fund plans are sold without an intermediary and, hence, have lower charges. This boosts the investor’s returns as the investment also increases. In the past 4 months, the direct plans of some equity funds have given returns that are 35-40 basis points higher than those of their regular versions.
4. Personal accident cover is cheaper and necessary
A young person has more chances of dying due to an accident than by natural causes. At an annual premium of Rs. 400 for a Rs. 5 lakh cover, a personal accident cover is the cheapest form of insurance. However, very few insurance agents take interest because the commission earned from this low-cost product is considerably small.
5. Gold funds charge higher than gold ETFs
Both invest in the same underlying product, but still gold funds have higher charges when compared to gold ETFs. Gold funds charge around 1% a year, while ETF’s charge 0.5%. To add topain the gold funds invest in ETFs, and hence adds another layer of expenses and eats into the returns.
6. Top up plan to enhance your medical cover.
Most salaried employee have medical cover from their employer, but if you feel that it is insufficient, then, you don’t need to buy another full-fledged cover. Just buy a top-up plan that will act as filler when existing plan is exhausted. A top-up medical cover of Rs 3 lakh with a deductible of Rs 2 lakh costs about Rs 4,000, compared with Rs 7,000 charged by a normal plan.
7. You don’t need life insurance if you don’t have dependents.
Life insurance is meant to replace your income and provide financial assistance to your dependents if something unwanted happens to you. If you have no dependent on your income, you don’t need a life cover. Some insurance policies are sold as retirement tools, but this objective is better achieved by bank deposits and other saving options.
8. There’s no guarantee your apartment will be ready on time.
The real estate sector is facing a severe cash crunch and projects are being delayed by 2-3 years. The brochure may claim that construction is in full swing and the estate agent may even give tentative dates, but don’t believe them till you see the progress on the ground.
9. Extended warranty for car or other electronic product is of no real use.
This is one of best used trick by companies to extract money from pocket of each consumer who buys their product, whether it’s a car, ac, or any electronic product.
The 1-2 year warranty offered on a new car can be extended by another year or so for a small charge. However, this is rarely invoked. If a manufacturing defect hasn’t showed up in 1-2 years of driving, it is unlikely to surface later. Also, the company may evade responsibility by attributing the problem to normal wear and tear. Don’t fall in this trap, I have fallen not once but twice in this trap and gained nothing.
10. Low rate on home loan is for *
Many a times we fall trap to low rates of interest on housing loan, one of the biggest commitment an individual makes in his lifetime. Housing finance companies attract customers by offering low rates of interest. However, you need to go through the fine print carefully because the low rate could only be an introductory offer, which could be raised after *12 months. Bank’s always have the power to change their policy without any intimation. Always check the bank’s base rate and how your rate is linked to it.
