Is your credit card making you broke?

A CREDIT card nestles a lot of hidden costs – so if you aren’t careful, your monthly statement can come as a huge shock.

Here is a checklist of reasons why you may incur unnecessary credit card expenses:

You don’t pay the minimum amount due
Whether you do it knowingly or unknowingly, you will end up paying a late payment fee. This fee varies from bank to bank. If you do not pay for two consecutive months, you become a defaulter. Collection strategy then varies, depending on his risk score arrived ad from the amount outstanding, past record, individual profile/ profession. Further transactions will be blocked.

You revolve your balance
Banks give you this option to pay a minimum prescribed amount and carry forward the rest to the next billing period. In this case, you will pay an interest on the outstanding amount. But the catch lies here: when you carry a balance from month to month, there is no grace period on new purchases with most cards.

Your payment cheque bounces
You would have to bear a fee for dishonoured cheques. If you go beyond the due date, you become a delinquent case, and your risk profile shoots up. Also, all charges will be applicable – a fee for a bounced cheque, a late payment fee and monthly interest on outstanding amount.

You cross your credit limit
Your credit limit is the maximum amount that you can spend using your credit card, as dictated by your income profile. But should you decide that you need to spend more, the banks are too clever to block further transactions. Instead they let you spend, and then charge you – perhaps as much as 5% on the exceeded amount.

You transfer your balance from other cards
Some banks make an offer where you pay absolutely no interest or a very low interest, but the dream run doesn’t last long. Most banks let you not pay or pay low interest on the transferred amount for a stipulated period of about three months. Beyond that, you start paying the normal interest. So, if you have transferred your balance, pay off the dues within the stipulated time.

Other precautions you can take:

Do not withdraw cash with your credit card
Apart from paying the regular interest of 2.95%, you will also have to pay a one-time fee of about 2-2.5% for making a cash advance. Moreover, the cash advance fee is higher if you withdraw from an ATM that doesn’t belong to the bank whose credit card you hold. Also remember, when you withdraw cash, you start paying interest from there on, as against getting a free credit period.

You forget to pay your annual charges
In case you decide not to use your credit card further and you don’t pay the annual charges, you are in for trouble. Remember, you need to get in touch with the bank and intimate them that you don’t want the card any further. Otherwise, you will unnecessarily have to pay the annual fee and a penalty, in case you cross the due date.

Bank	Late Payment (Rs)	Bounced Cheque (Rs)	Overlimit Charges (Rs)	Cash Advance Fee (Rs)
ICICI Bank	30% of min outstanding	250 /cheque	5% on overlimit amount	2.5% on advanced amount
HDFC Bank	150	2% of cheque amount	2.5% on overlimit amount	2% on advanced amount
HSBC	30% of min amount due	200	300 per month	2.5% on advanced amount
StanChart	30% of min amount due	200	250 per instance	2.5% on advanced amount

Source: Moneycontrol

Investing in mutual funds?

MOST of us have an inner rebel. That’s why often fall for the guy mother warned us against. Or continue smoking even when told not to.

So, it’s no wonder that when mutual fund advertisements worth millions of dollars, tell us to ‘Please read the offer document (OD) carefully before investing’, we still don’t! This is understandable; after all it’s a 100-page document filled with jargon. But in the long run, you will be the loser, if you don’t.

The Securities and Exchange Board of India (SEBI) have even come out with an abridged version called the Key Information Memorandum, which stipulates standard sections and disclosures in all ODs.

An OD is critical because it tells you whether your money is in the right hands, at the right place and at the right time. Your financial advisor will have a copy, and the company web site should have it online, too.

If you still don’t want to read the whole document, take the easy way out. wealth scopes out 10 must-reads in the OD.

1. Date of issue
Verify that you have the latest edition of the OD (an OD must be updated once a year, at least).

2. The minimum investment
Mutual funds differ both in the minimum initial investment required, and the minimum for subsequent investments.

For example, equity funds may stipulate Rs 5,000, while institutional premium liquid plans may stipulate Rs 10,000,000 (Rs 10 crore) as the minimum amount.

3. Why invest
The goal of each fund must be clearly defined, from income to long-term capital appreciation. You, the investor, must be sure that the fund’s objective matches with your’s.

4. Investment policy
An OD will outline general strategies implemented by the fund managers. You will learn what types of investments will be included, such as government bonds (with ratings) or stocks, considered appropriate. Be sure to check if it offers adequate diversification.

5. Risk factors
Every investment involves some level of risk. Look for descriptions of the risks associated with investments in the fund (like credit risk, market risk or interest-rate risk) and decide if it matches your risk appetite.

For example, a mutual fund Monthly Income Plan (MIP) invests mainly in bonds and gilts (up to 90 per cent) with a sprinkling of equity(10 per cent) to generate capital appreciation. This is passed on to customers as monthly income.

But remember: it is subject to availability of distributable surplus. In 2004, many mutual fund customers underestimated this market risk and were caught by surprise when the MIPs gave low/negative returns.

They may have been better off with a a Post Office MIP that assures an 8 per cent monthly income payment for its six-year tenure.

6. Past record
ODs contain selected per-share data, which includes the net asset value and total return for different time periods, since the fund’s inception.

Performance data listed in an OD are based on standard formulae established by the SEBI and enable investors to make comparisons with other funds. So investors should check track records over a period of time that matches their own investment horizon but always remember that ‘past performance is not an indication of future performance’.

Additionally, investors must check that the benchmark chosen by the fund to compare its relative performance is appropriate. In addition, investors should keep in mind that many of the returns presented in historical data don’t account for tax. They must look at any fine print in these sections, as they should say whether or not taxes have been taken into account.

7. Fees and expenses
Fool.com quotes: Mutual funds have two goals: to make money for themselves and for you, usually in that order.

Entry loads, exit loads, switching charges, annual recurring expenses, management fees, investor servicing costs — these all add up over time. The OD lists the limits on these fees and also shows the impact these have had on the fund investment historically.

8. Pedigree or vintage?
Who will you be trusting with your money? This section details the education and work experience of the key management of the fund company, including the Chief Executive Officer (CEO) and fund managers. For example, you need to watch out for the fund that has been in operation significantly longer than the fund manager has been managing it.

The performance can be credited to the previous manager. Check the performance of the current manager by looking into his or her past performance with other funds with similar investment goals and strategies.

9. Tax benefits information
Mutual funds enjoy significant tax benefits under Section 23 D and Sec 115. For example, equity funds enjoy the status of being free from long terms capital gains and dividend distribution tax.

A close reading of the tax benefits available to the fund investors will enable them to plan their taxes better and to enhance their post tax returns.

10. Investor services
You may have access to certain services, such as automatic reinvestment of dividends and systematic investment/withdrawal plans. This section of the OD, usually towards the back of the publication, will describe these services and how you can take advantage of them.

Now, you can decide if this mutual fund is for you. So, if you’re an information junkie, you can get more of it from the fund’s annual report, which is available directly from the fund company or with a financial planner.

Go right ahead and rebel against your parents, politicians, the Government, fundamentalists etc. But if you rebel against sound advice then you’re just a rebel without a cause!

Author: Ajay Bagga
Source:Money Control