Finergo Episode 23 Dt 11may09

04 KALEIDOSCOPE

Ask your query I tried to apply for a personal loan in two banks – an MNC bank and the other an Indian bank. Both of them rejected my applications without any explanation. A few of my colleagues too have faced this situation. I tried finding out and got to hear of something called Sibil. What is it and why did my loan application get rejected? Srivathsan Raghavan, Tiruvallur

Your loan could have got rejected because of a poor credit history. CIBIL (not SIBIL) is the short for Credit Information Bureau (India) Limited. CIBIL prepares a document called Credit information report, which is like a track record of your credit history. “When you approach a financial institution for credit, your application will be evaluated on the basis of your past payment history, existing credit lines and other factors such as income and security. In this case, a good CIR is one of the best indicators of the level of risk you present to the credit grantor. A CIR that reflects a good past payment history may lead to credit being granted on better terms. On the other hand, a CIR, which indicates that a borrower has been delinquent on several occasions, could lead to denial of or extremely expensive credit” ( www.cibil.com) To put it in simpler terms, if you have bounced cheques, delayed payment of loans, defaulted on credit card payments, done settlement on loan/credit card, your name will reflect badly on the CIR. Even two or three instances of delayed payment or bounced cheques could spoil your CIR and get your name on the database of CIBIL. Once your name is in the list it takes a long time to get out of it.

ERGO Monday, May 11, 2009

Choosing a financial consultant Keep these pointers in mind

(For queries on personal finance, email [email protected] with the subject line ‘Doctor’)

Mini Quiz Q1: FDI is Fixed Deposits in India Fixed Date Interest Foreign Direct Investment Fully Distributed Income Q2: FII stands for Foreign Institutional Investor Fixed Investment Instruments Foreign Individual Investor Fixed Income Insurance (Send your answers to [email protected] or SMS your answers to 92813 98889. For example if you choose A as the answer to question 1 and B as the answer to question 2 type it as 1A2B and send it. Winner will be chosen by lucky draw from all correct answers. Winner gets a Parker pen) Answers for last week’s mini-quiz Planning Commission Foreign Currency Non Resident

Word in Word Max New York launches new product Amidst all the fears gripping investors about returns of their investments, Max New York Life Insurance Company has launched a new product called the Max New York Life Smart Xpress, a flexible unit-linked insurance plan (ULIP). The product claims to offer secure returns even in times of market volatility. It offers eight fund options including the money market fund. One of the key features of this fund is to guarantee protection of NAV regardless of the date of entry, switches and redirection with no exit barrier. The customer can ensure steady and safe returns on his investments in this fund during volatile markets as it guarantees NAV higher than the previous day and a lock-in at the highest NAV ensuring that the NAV of the fund never falls.

One-to-one interaction with your financial consultant helps NATHIYA C

Spend time to understand needs Any sales person who is specialised or who has only products to sell – insurance agents, mutual fund agents, postal agents, real estate brokers, etc. – will tend to say the product they sell is the panacea for all financial problems. Beware! To my knowledge no single financial product can take care of all needs. The reason being each of us has needs that are very unique. This way understanding our needs will be the first thing that the consultant has to do.

Qualification and experience Does he/she have the required licenses and qualifications (CA, CFP, ACS, etc) to advice the person on the subject? I have met a number of people selling insurance through the multi-level marketing mode. I would not look at these people for expert advice. Today, in India CFPCM is the highest professional certification related to personal finance. Experience adds a lot of value.

Payment method There are three common methods that ‘consultants’ charge for their services: Commission only: This is a lot risky for the clients, as the sales people tend to sell only those products that gives them the

highest commission. The product may not necessarily be the best for the client. One of my friend had lost 100 per cent of the Rs.1 lakh in an insurance plan as first year charges. The plan was sold by his bank manager. Flat fees: This is a good option for the client. The fees may be based on hourly basis or case to case basis. The good thing here is that the consultant will not be bothered about the actual place where you take the product. So there will not be any conflict of interest for any financial product like loans, investments, insurance, land, etc. Flat Fees Plus Percentage of Actual Funds Handled: One drawback of the flat fees system, i.e. on-going support is taken care. The consultant charges flat fees and then a percentage of the actual financial transactions. Again conflict of interest is eliminated as the consultant is not worried about where / whom you want to give the actual business to.

Personal comfort Another important need is the personal comfort that you feel with your consultant. Have a one-to-one talk with the person. Meet a number of people before you decide to start the actual work. Some of our clients don’t even discuss their salaries with their parents. But to serve them better, they need to share a lot of confidential information. Happy Financial Planning! ■