This course has been developed in collaboration with Project Sampatti. Sampatti is an organisation that focuses on financial literacy. Check out their website if you find this course helpful.
Course Writers:
Riya Gupta
Shayori Dey
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1) Rupay Card:
What is a RuPay Card?
It is a card payment system in India, introduced by the National Payment Corporation of India (NPCI) which is accepted all over India (both in rural and urban areas). Before this, there was no homegrown online payment system; banks had to depend on foreign alternatives like Visa and MasterCard. They charged very high fees as they were issued by international companies. Since its launch, it has experienced a huge growth due to its low rate and offering a wide range of options- Rupay debit card, Rupay credit card and prepaid and contactless credit card.
What are the various types of RuPay Cards?
RuPay can be categorised as Credit, Debit and Prepaid cards. Based on transaction limits (it is the limit set by banks on the maximum amount of money that you can withdraw in a day) it is further classified into the following-
RuPay Classic Credit Card also provides accident insurance coverage (you are paid directly by the insurance company when you’ve involved in an accident) of 1 lakh
RuPay Platinum Credit Card ( with accidental insurance coverage of 2 lakhs)
RuPay Select Credit Card ( accidental insurance coverage of upto 5 lakhs)
What are the advantages of a RuPay card?
Direct link with government schemes and added benefits.
Highly secure system with phishing (type of theft) prevention technology.
Low transaction time and cost.
Accessible system which can assist people from poor economic backgrounds or from rural areas where financial systems are less evolved.
How can you get a RuPay Card?
All public, private, regional rural banks and co-operative banks in India issue RuPay debit cards ( Central Bank of India, Bank of India, HDFC Bank, ICICI Bank, State Bank of India, Union Bank of India and Punjab National Bank, Axis Bank etc.)
Each bank provides different incentives - HDFC Bank offers you benefits like cashback of 5 per cent on utility bills and accidental death insurance up to Rs 2 lakhs etc. Kotak Bank provides free accident insurance of 1lakh. Punjab National Bank gives a wide range of other alternatives to you like the Mudra Debit Cards (Entrepreneurs involved in small scale business who’ve taken loan from bank for covering day to day expenses/ working capital loan) which are issued against the Mudra loan account. It has also issued a debit card associated with the Kissan called the RuPay Kisan Card which will only be issued to Kisan Credit Card account holders.
You can open an average savings account or an account under the (PMJDY) Prime Minister Jan Dhan Yojana scheme.
What are the documents/details you need to get a RuPay Card?
Identification Proof
Address Proof
2 Passport size photographs
A form filled up at one’s branch along with the KYC requirements
2) Provident Fund:
What is a Provident Fund?
Provident fund is a mandatory welfare scheme arranged to provide monetary benefits to all paid individuals after their retirement. It is in accordance with the rules of the Employees Provident Fund and Miscellaneous Provision Act of 1952 and is supervised by the Employee Provident Fund Organisation of India.
What is covered under this scheme?
An amount is deducted from your monthly salary (employee’s contribution)
Your employer also contributes a certain percentage of your salary to the Provident Fund, besides the usual income(employer’s contribution).
The secured money is subsequently handled by the government and you can eventually withdraw that money once you retire or your surviving families (in case of an unfortunate event) if certain conditions are satisfied.
This scheme is profitable for all employees for developing a cover after their retirement while at the same time ingraining money saving habits in an individual.
Why are people in the Informal Sector unaware of the PF Scheme?
Individuals with low income, self-employed or working in very small companies, on a part time basis (migrant workers) in industries like agriculture and construction work are unaware of such programmes and their subsequent benefits.
Devoid of proper education, they lack official registration documents to prevent them from being exploited and are constantly changing jobs. Some live and work in the rural areas where financial organizations are either broken or totally non-existent.
Since, it is a compulsion on employees to deposit a part of their salaries in the provident funds account, it restricts them financially as their cash in hand is considerably reduced, amount of the same which could’ve been used for something more important to them.
The money put down cannot be encashed until retirement or if a case of dire requirement comes up.
Though this is a form of time deposit, the person gets the entire amount on retirement. But due to ever-increasing inflation, the purchasing power of that amount gets diminished. The savings amount would also appear meagre and would probably not last very long.
Criterias for premature withdrawal of funds:
Marriage
Education of children
Mortgage
Health emergency
Conclusion:
While forced savings of a percentage of salaries do help employees after retirement or in emergency, these might also have negative financial implications on her/him in the present scenario.
The best and perhaps the most lucrative benefit remains the tax-free amount the individual gets post-retirement.
A common advice usually would be to not withdraw your funds before they attain maturity unless it is absolutely necessary because they will become your primary source of funds post-retirement. In a world where every individual needs financial independence, no one would want to become dependent on someone else for their needs.
3) Interest Rate:
Before understanding what are interest rates, it's important to understand who you are as the word has dual meaning for consumers and debtors. For consumers, it is the rate that the bank pays the individual for lending it to others and on your saving accounts. For debtors, it means the additional cost on their borrowing which has to be paid in addition to the principal capital sanctioned.
Why is it levied?
These rates are applied because lenders require a return for the duration of the time that their money was lent and not available to them.
Interest rates apply to most of the borrowing and lending transactions. These could be taken for the purpose of business, car purchase, home loan or for paying college tuition.
If the risk associated with the loan is high then interest rate would be high and vice-versa.
For example- a home loan is taken by giving the ownership deep of the house to the lender but in case of personal loans or loans without collateral, there is no guarantee of payback, hence to keep recovering their amount, lenders charge a higher rate of interest.
Most loans levy a simple leasing charge which is nothing but principal amount multiplied by the duration of the loan and the interest rate. In the case of simple interest, the cumulative amount to be repaid is generally lower than that in the case of compound interest. This amount can be paid back either as a lump-sum or in monthly or quarterly installments. (Eg, in case of car loan, assume you have taken a loan of Rs 5,00,000 with the interest rate being 5% and it is for 5 years. So, your interest per year will be 5,00,000 x 0.05= 25,000 per year. Then your EMI will amount to 25,000/12 which is Rs 2,083).
But many lenders including banks may levy the compound interest. This is called so because it is not only charged against the borrowed amount but against the accumulated interest. (Eg, in student loans, any interest payment you deficit will be added to your total amount, after this the interest is charged on the whole, larger amount. The same thing goes for credit cards).
Interest rates are chosen after keeping certain crucial factors in mind, such as the current state of the economy, predictions of inflation and social demands at hand. The Reserve Bank of India is tasked with stipulating the interest rate.
4) Loans:
Loan refers to a sum of money lent to another party for future repayment. In some cases, an interest or finance charge is also added to the principal value loaned. The debtor has to pay back the total amount, which is principal plus interest.
Loans can be taken by giving the creditor a collateral which can be sold in case of failure of payment.
Need for loans:
Higher education, car, house, business funding, etc.
Sources of Loans:
Personal Funds or Family Financing:
Many entrepreneurs when starting a business rely on their own capital or on the contributions of friends and family members.
Documents Required:
Generally, no documents are required and loans are given on the basis of trust or availability of capital.
Bank Funding:
People consider this a better option because appropriate interest rates, higher loan amounts and the repayment duration is also relatively longer.
These loans are difficult to get, the sanctioned amount might take a long time to reach and the bank may restrict the use of funds.
Documents Required:
ID Proof, Address Proof, Salary slips, ITR files, Completed application form, Collateral details
Steps to acquire loans-
Go to the website of your bank and apply online. You can visit the nearest branch of your bank and fill an submit the form then and there with the complete list of documents.
Private Investment or Venture Capital:
Businesses going for this option would be expected to give part-ownership to the lender in exchange for the funds. Since these investors have part ownership, they want the business to grow, they provide mentoring and networking opportunities to help the entrepreneurs grow.
Normally, this type of a loan is disbursed by business giants after an extensive pitch and steps may vary from business to business.
Types of Loans:
Term Loan:
It is a loan from a bank for a specified amount of time with a fixed repayment schedule along with a fixed or floating interest rate.
This loan requires a collateral and has an extensive approval process to minimise the risk of default.
These loans range from short-term to long-term loans.
The documents required and the procedure is same as that of Bank Funding.
Secured Loan:
These loans are backed by collaterals which work as a guarantee of loan payback.
Two examples for these loans can be home loan and car loans. The lender holds the deed to the house and the car papers until the amount has been repaid.
Unsecured Loan:
These loans are not backed by any kind of collateral. These loans have a higher amount of interest because the risk of non-repayment is higher as compared to secured loans.
For example- a person takes a loan for any undisclosed reason but does not give any collateral, the lender will have no guarantee if no guarantee if the money lent will be paid back. Therefore the lender can charge as high as 15% interest rate p.a.
Credit cards and Signature loans are two examples for unsecured loans.
Revolving Loans:
This is mostly arranged between banks and businesses. Here, a maximum amount is finalised and the business can use the funds at any given point of time. The rate of repayment of such loans is faster because it is structured around a cash sweep.
If an x amount has been sanctioned but the business doesn’t heed to use it right away, they can use it when the need arises. They will keep paying back with the profits they earn. When the total sanctioned amount has been exhausted, they will get a new loan again.
The documents and steps are same as that of bank funding except you need to show the lender your profits and corporate tax filings also here.
It involves a continuous cycle of borrowing, spending and repaying until the term of the revolver ends.
5) Will:
What is a will?
Will is a legally prepared and bound document that expresses an individual’s wishes on the distribution of one’s assets and wealth after their death and appoint guardians for minor children.
For example, if tomorrow you were to contract a terminal illness and you’d want to ensure the safety of your family and assets; a will would help you to distribute your property, decide the guardian of your minor children or name an adult who’d manage your assets for your children.
Who can produce a will?
According to the Indian Succession Act of 1925, anyone who is above the age of 18 and with a sound mind can produce a will with the signatures of two present witnesses.
Everyone should have a written will especially if you’ve a family to look after or own assets that require orderly distribution.
What should the will contain?
The document should clearly state your final wishes by declaring that it wasn’t an impulsive decision and precisely planned with your consent and under your supervision.
Naming the person who will look over your property and in charge of ensuring that your wishes are honoured (Executor)
Naming the people who will inherit your valuables and property after your death. (Beneficiaries) who can be your family members/ close relatives/ organizations that you were associated with.
It should have your signature as well that of the two witnesses to ensure its validity.
Types of Wills
Simple Will
The most common will is also called the simple will. It's a formal written will often prepared by or with a lawyer comprising all legal requirements.
You can state the names of the people who will receive your property and the guardians of minor children.
Anyone who is willing to produce a will often goes with this type given its simple accessibility and basic structure.
It is written, and signed by the testator in the presence of witnesses.
It is rarely ever challenged in legal courts given its reliable nature and fulfilment of legal prerequisites.
Living will
It's unique in its approach because it allows you to choose the kind of medical treatment you’d want in case you become unfit if your pre-existing medical conditions aggravate.
It provides you with coverage if you’re unable to fend for yourself in the near future and someone needs to make decisions on your behalf.
More than two wills can exist at the same time, because they serve different purposes. For example- A living will can co-exist with a simple will at the same time.
6) Savings Account:
It is an account held in any financial institution which pays the account holder a modest interest. Since these accounts are generally held in banks, their reliability and safety makes this a great option for short-term deposits.
Need for Savings account:
The money in these accounts is used by the institutions to lend to those in need. The interest paid by the banks to the account holders is generally lower than the interest they charge on the repayment of the loans.
Steps to get savings account:
Visit the nearest branch of any bank or visit their website to fill the form for a savings account.
Keep identity documents like Aadhar Card, PAN Card, Address Proof or Form 16 handy with you, along with 2 recent passport size pictures.
After the form along with the documents is submitted, you will receive further information from the bank.
You will also be getting a debit card which will be delivered to your address.
Senior Citizen Savings Scheme Account:
Who is it for?
This welfare scheme has been provided specifically for senior citizens i.e. citizens above the age of 60.
What is its need?
It has been initiated to make them self-sufficient in terms of money. It has the highest rate of interest, 7.8% , than any of the other savings schemes or accounts.
Deposit limit:
The minimum amount that can be deposited is Rs 1000 and the maximum amount is Rs 15 Lakh.
Time Limit:
It is liked a fixed deposit account and has a time limit of 5 years and if the savings are broken before that then some percentage is deducted from the deposited amount.
Public Provident Fund:
Who is it for?
This fund is a sort of forced savings of employees.
What is its need?
So that after retirement the employees do not feel any dearth of finances.
Deposit limit:
A certain amount is cut from the salary and deposited in the provident fund. The minimum deposit in a year is Rs 500 and the maximum deposit can be Rs 1,50,000.
Additional Facilities:
Loan facility is available on these deposits after the 3rd Year. The interest earned on this account is not subject to any tax.
7) Insurance:
WHAT IS AN INSURANCE?
It is a contract between you (Insured) and an insurance company (Insurer) wherein the burden of the financial loss you experience due to life’s ups and downs is beared by the latter in exchange of a small fees.
You pay a small amount every month for a fixed number of years (premium) which the family receives on an unfortunate event such as loss of life, major health issues, accidents etc.
It is quite impossible to prevent such losses, but insurance ensures compensation for the damage caused.
What is the need for insurance?
Medical insurance aids families during health emergencies while catering to different types of health risks as hospital fees can get exorbitantly high.
Insurance provides a risk mitigating mechanism to you to help restore balance in life and acts as a safety net for you to financially protect yourself against life’s insecurities.
What documents are required for insurance?
Identity proof is any document that verifies your identity. (Aadhar card, PAN, Driving License)
Address proof which states your residential address. (Ration Card, Passport, Driving License, Aadhar Card)
Age proof states your date of birth as many policies have fixed entry age. (Birth Certificate, Passport, Aadhar Card)
Passport size photograph of applicant.
Proposal form of the insurance you’d like to apply for, filled and signed.
HEALTH AND LIFE INSURANCE
What is life insurance?
This policy secures the financial future of your family after death. This coverage amount provides complete financial protection to replace income loss and create a buffer which can be put to use by your family for future prospects.
What types of life insurance do you need and when?
Term Insurance Plan
If you’ve opted for a term insurance plan, your family would receive the financial deposit if your death occurs within the specified period. (Eg. Within 30 years from date of purchase)
It provides higher coverage for lower premium amounts, but money wouldn’t be paid to you if you survive the term.
If you suffer from some incurable disease, this plan would be highly beneficial.
Endowment Plan
This policy not only covers for your life but also provides maturity benefits, death benefits as a portion of the premium amount is dedicated to it while the remaining is invested by your insurance provider.
Unlike a Term Insurance Plan, it still pays a sum of money to you if you’re alive after the agreed period of time while simultaneously encouraging you to maintain savings.
If you’re willing to invest over a long tenure, build a cover for yourself over the time; an Endowment Plan would be highly beneficial.
Whole Life Insurance
It provides life coverage for your entire lifetime, rather than a predetermined term.
It is the most basic and most common.
What is Health Insurance?
It has become a necessity in recent times to avert oneself from financial crisis during health emergencies and with rising inflation in the system one must have some financial cover.
What type of Health Insurance do you need and when?
Individual Health Insurance
This offers you cover on an individual basis and offers an individual sum insured limit for you/ insured person.
The amount of deduction of the of Individual Health Insurance is much less than that of Family/Senior Citizen Plans
If you’re in your 20’s without family it’s a hassle-free affair.
If you’re a person with pre-existing health complications and the cost of treatment is high, this plan would be highly beneficial.
Family Floater Insurance Plans
This plan covers the entire family members at a single premium. It is hassle-free as one does not need to deal with different policies and is cost effective.
Sum insured is much higher as it covers the entire family, this would ensure there is no shortage of fund if in case more than one person falls ill at the same time.
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