Category: CAGR Knowledge Series

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Things To Know Before Buying A Credit Card

Applying for your first credit card is a huge milestone in your financial journey and can often prove to be a daunting task. Understandably, since there are over a hundred different cards available in the market and very little guidance on how to go about it. 

brown wallet

We believe credit cards are powerful financial tools, if used rationally, that can benefit you in multiple different ways and help build a strong credit history as well. If this is your first time applying for a credit card, let us be your voice of reason and take you through some of the things that you must know before applying for one.

  • Different types of credit cards 

There is a whole list of credit cards that one needs to be aware of before purchase. From beginner level credit cards to travel credit cards, here are some of the credit cards available in India: Basic Credit Cards (given to entry level customers) Secure Credit Cards (for those who have a poor credit history)No Annual Fee Credit Cards (does not levy an annual fee for the usage of the credit card) Low-Interest Credit Cards (those that offer a lower interest rate as compared to the other cards from a similar category) Balance Transfer Credit Cards (low-interest rate for a specified period of time) Rewards Credit Cards (offers some kind of rewards for every rupee you spend with the card) Cashback Credit Cards ( offer a certain percentage of the purchase amount) Travel Credit Cards (offers benefits such as travel insurance, global acceptance, favourable currency conversion rates) Entertainment Credit Cards (provide discounts and offers on entertainment-related spends)Premium Credit Cards (for high income individuals) and much more. 

  • Rate of Interest 

Interest rate is of the main reasons that banks issue credit cards. The interest rate on a credit card is usually higher than that on loans. Credit cards follow the daily compounding interest rate which is based on the Annual Percentage Rate (APR). Based on the type of card you choose you’ll find yourself paying either a fixed or a variable interest rate. 

  • Interest-free period 

An interest-free period is a duration from the date of the transaction to the payment due date, something that is offered by most credit cards. If the full payment is made within this period then there is nothing extra that you have to pay to the bank. However, payment post this interest-free period comes with an applicable interest fee which is usually on the higher side. It’s advisable to make the entire payment within this period to avoid any extra fees. 

  • Fees and charges 

This is probably considered one of the most important elements of a credit card agreement. Fees and charges help you determine how much you will be paying for the card, withdrawing cash from the ATM, or upon failing to make the payments. Some of the important fees to know about : annual fee, late payment fee, over-the-limit fee, cash advance fee, balance transfer fee and foreign transaction fee. These fees again differ based on the card issuer so it is important to have a clear understanding of these before proceeding with the application. 

  • Minimum payment 

As part of the credit card agreement with your bank and the transactions against your card, you will be required to either make the full payment or the minimum payment that has been agreed upon. The minimum payment is calculated against the interest amount with one percent principle or on a certain percentage of your current balance. This calculation differs based on the card issuer and hence it is important to understand how your card issuer is going to calculate it. 

  • Credit limit 

The maximum amount that you are eligible to borrow is known as the credit limit. This credit limit is set by your issuer based on your qualifications and eligibility criteria. Be mindful about not reaching or getting close to the credit limit since it will then affect your credit utilization ratio which in turn can damage your credit score. Credit card issuers generally review your account on a quarterly, half-yearly or annual basis and either increase or decrease your credit limit. 

  • Perks 

A credit card generally brings with it certain rewards like points, cashback offers and other discounts and deals. Most of these perks come as an introductory offer to attract buyers but over time you will end up accumulating points that you can redeem in various forms. Check for the offers that different cards have to offer and analyze which ones are going to be beneficial for you. 

The important things to know do not end with this list but this is the bare minimum that you must know. While selecting a card, you might feel overwhelmed with the different options available but let your spending habits and your real need for a credit card guide you towards choosing the right one for you.  Always remember, everyone’s financial journey is different and what works for someone else might not work for you. 

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5 Money Mantras for 2021

2020 might possibly be the most dynamic teacher we have had in our lives. The year really pushed us to take a step back and take a long, hard look at how our lives are built, the foundation of everyday lives and the framework of how we go about doing it. While the importance of health and a clean lifestyle was brought to the fore, so was the discussion around financial health. 2020 was a year filled with challenges; while the market took a hit, we also saw one of the best equity rallies in a long time! Job security, savings, health insurance and more were the talk of the town, and with good reason. Job security, savings, health insurance and more were the talk of the town, and with good reason. 

This is precisely why we’ve come up with 5 simple yet incredibly effective Money Mantras for 2021, to ensure smooth sailing and a strong back-up plan. Read on to know more. 

BUILD A BUDGET

One of the easiest yet effective things you could do for your money right now is starting to build a budget. It’s the ultimate tool to help you control your expenses and channel your finances towards achieving any goals you might have set. Budgets, at their core, exist on a balance—if you want to spend more on something, you’ll have to forfeit or spend less on something else. This simple practice gradually teaches you how to prioritise your earnings and spend them wisely on things that actually matter. Usually a budget is a combination of your household, transport, personal and miscellaneous purchases. Nowadays, there are many budget-calculating apps that you can download to help you track your expenses—or better yet, talk to your financial advisor for a more detailed approach. 

INVEST IN A GOOD HEALTH INSURANCE

As mentioned earlier, health insurance is the topmost priority in today’s time, and should be treated as such. A good health insurance should cover the basics—this includes hospital charges, pre & post hospitalization included. It should also cover not just you, but your family as well, ensuring that should you ever require the help of your insurance, paying the bill will be the last thing going through your mind. One of the biggest blunders we as a customer make, is to simply assume that we will not require health insurance until we are much older. However, on the contrary, being well-prepared when it comes to your health from an early stage in life will only pay off in the long run.  

BUILD AN EMERGENCY FUND 

Out of all the financial years so far, if 2020 has not convinced you to build yourself an emergency fund, we doubt what else will! If you’ve been thinking about starting your emergency fund, there’s no better time to do so than now. This will help you face potential job cuts/salary cuts, household damage repair and any medical emergencies with the reassurance that you have your emergency fund to help you out. 

DIVERSIFY YOUR INVESTMENT PORTFOLIO

It’s never a good idea to put all your eggs in one basket. The same goes for your investments—diversifying your portfolio will help you stay afloat in the event of an unexpected market crash. And the best part is: it’s not that hard to implement. Diversification operates on a simple idea, that an investment portfolio consisting of different investment types will essentially lead to optimizing the risk. A well-diversified portfolio might include- cash, bonds, stocks, mutual funds, exchange-traded funds. To know more you can contact us and find just the right diversification model for you. 

CURB IMPULSE PURCHASES

Our last point ties back to where we started: setting a budget! When you know you have a budget that allows you a certain amount of expenditure, it automatically helps you steer clear of purchases that you really do not need. One of the best ways to figure out whether what you want to buy is something you really need is to give yourself a waiting period: give it 24 hours or sleep on it. If you still feel the need to purchase it, then compare prices online to pick the best one. If not, you’ll realize that what you almost spent your money on was simply a phase. 

Although these Money Mantras look simple, their impact is anything but. Stay consistent with your budgeting, investing & savings, and trust us—you’ll see your bank account flourishing in due time. For more information, get in touch with us at cagrfunds@gmail.com

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PPFAS – CAGRfunds conviction recommendation

PPFAS Fund Report

Parag Parikh Long Term Equity Fund (PPLTE) is the only equity fund that is managed by the investment team of PPFAS. As a recent entrant in the Mutual Fund Industry (fund was launched in May 2013), it is not the most popular fund in the market. At least we do not see people including them in the “Top 10 Funds to invest in 2019” list (Frankly, we find such lists to be very silly).

There are several reasons why we believe that PPLTE is a good addition to the portfolio for investors who exhibit all of the following traits:

a) Looking to add equity exposure
b) Willing to not withdraw their investments for 7-8 years
c) Keen to add some overseas diversification to their investments
d) Unwilling to risk capital erosion in lieu of high returns
e) Want to prioritize downside protection for times when markets don’t seem to be too ecstatic

If you think you are the one we are referring to, you should contact us to check if this is a worthy addition to your existing portfolio.

Reasons why we like PPLTE

Sector Allocation

PPFAS Sector Allocation

Several things stand out when we look at the sector allocation of this fund.

a) 22% of the corpus is kept in liquid resources, waiting to be deployed when opportunities emerge. Some might say that this will drag returns down (since liquid resources at best earn you around 6-7%), but let us tell you that investing in businesses at a price that seems affordable is better than buying something expensive. Also, investing when one finds good businesses to invest in is also an important consideration for long term wealth generation

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” – Warren Buffet

b) Substantial overseas exposure (~28%) adds to geographical diversification (orange bars are completely overseas). Out of this total overseas exposure, around 9.7% is in Google and 4.3% in Facebook. That adds to some real diversification to your portfolio! (Source: PPFAS Feb – March Factsheet)

Skin in the game

7.07% of the AUM represents own equity of the key persons in the fund management team. When people who are managing our funds have invested their own savings into the same, we know the commitment is for real. It is a good corporate governance practice to have their own financial being is linked with that of the investors. We give them a big thumbs up for this one.

Out-performance with focus on downside protection

As can be seen from the chart below, the fund has outperformed its benchmark (Nifty / BSE 500 TRI) at all times considering point to point returns. In terms of Alpha, the fund ranks #2 within the Multi-Cap category. PPFAS Performance comparison

However, out-performance is not what excites us. Active funds, after all, are supposed to out-perform their respective benchmarks.

What seems interesting and commendable to us is the ability of the fund to protect the downside during times of correction. Let us look at the 3 year rolling returns of the fund. The highest rolling return is 25% and the lowest that the fund has given over a 3 year period is 10%.

PPFAS Rolling Returns

This means a lot of things for you as an investor if you would have held your investment for a 3 year period at any point in time:

a) You would have generated a CAGR of at least 10% even if you would have exited at the very low point of the market which was some time in the second half of the last year

b) You would not have seen a negative return for a 3 year period on your portfolio EVER

c) You would not have lost your peace of mind over losing your money

For investors who are uncomfortable with too much volatility, the above means a lot. We believe that the reason the fund has been able to demonstrate this performance is because of its patient and down to earth fund managers – Rajeev Thakkar and Raunak Onkar. Although this is not a guarantee for the future, the above track record during testing times gives additional comfort to investors.

Mr. Thakkar is quite active on twitter and we suggest you follow him to understand his ideology if you are an existing investor or are likely to become one.

In case you have any further query, do reach out to us on contact@cagrfunds.com

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Do health insurance plans cover maternity expenses?

Maternity health insurance

“Maternity Plans” are not really separate plans. It is a feature which may be covered under normal health plans. However, only a few health plans offer maternity cover as part of their normal health plans.

Key features of maternity cover are as follows:

  • There is usually a separate waiting period for maternity coverage – This means that any claims with respect to maternity will be catered to only after the maternity specific waiting period is over
  • Almost all plans have an upper cap on the amount of expenses that will be covered – Usually the coverage ranges from INR 25000 – 50000 per delivery. The reason most policies have an upper cap is because the number of claims for maternity is likely to be very high. The purpose of Health Insurance is to protect you from any sudden outflow of funds due to a medical emergency. The occurrence of maternity is almost certain and hence a limit on the same is warranted
  • Pre – maternity costs are generally not covered – Most plans which offer maternity coverage generally do not cover any expenses that are incurred towards consultancies and tests
  • New born coverage – Generally, the new born baby is covered till the end of policy year

Should you buy a health plan only because it provides maternity coverage?

Maternity should ideally be treated as a bonus option. The overall decision behind buying a health plan should ideally be the key features which are relevant for any kind of hospitalization. Imagine a plan providing good maternity coverage but having a claim settlement ratio of 70%. Therefore, choosing a plan just because it provides maternity coverage may not be the best decision to take.

However, in case you have a choice between two equally good plans with one of them providing maternity coverage with or without some extra premium, then it might make sense to take the plan with the maternity clause. Especially, if you are planning a kid in next few years.

Want to discuss more on maternity plans? Write to us on contact@cagrfunds.com.

Have you read about our Cancer Plans?