In times when spiralling food prices seem to be pinching the wallet on a daily basis, fierce competition among financial institutions and strict regulatory actions are ensuring that your investment costs have started falling. Here are four such examples:
Entry load ban for mutual funds: From August 1, the Securities and Exchange Board of India has banned the entry load of 2.25 per cent on equity funds and 1 per cent (maximum allowed) on debt funds.
This amount was earlier deducted from your investment and given to the distributor of mutual fund schemes by fund houses. That is, if you invested Rs 100 in an equity fund, Rs 97.75 would be invested and the rest Rs 2.25 would be given to the distributor.
From August 1, the distributor has to negotiate the commission with the investor itself and be paid through a separate cheque. Also, these distributors have to declare the commission paid by fund houses for similar schemes.
"Distributors will now have to justify their fee by recommending good schemes to customers. Why else will someone pay?" said Gaurav Mashruwala, a certified financial planner.
Also, the market regulator has asked fund houses to charge the same exit load to both retail and high networth individuals.
Ulip costs capped at 3 per cent: Though, financial planners will say that insurance should be separated from investment, most buyers of unit-linked insurance plans can be accused of looking at hefty returns.
As a result, sellers/ agents of Ulips have often been accused of charging astronomical sums in initial years - much more than that for mutual fund products. However, the Insurance Regulatory and Development Authority has recently capped the difference between gross and net yield at 3 per cent for a 10-year policy and 2.25 per cent for a 15-year policy.
"But this is only valid for customers who stay in for the entire term of the policy. If you decide to surrender before the policy matures, the charges will still be marginally higher," said G V Nageswara Rao, managing director and chief executive officer, IDBI Fortis Life Insurance.
Medical insurers cannot deny renewability: This should come as a relief to senior citizens as they are more prone to illness. Earlier, insurers would either deny renewing a mediclaim policy to a person who had made a claim or would hike the premium substantially.
Irda recently said that from June 1, insurance companies would not deny extending medical insurance and also have to explain the hike to a person.
"There was a fear that the existing sickness may lead to more claims and, in turn, more losses," said S Narayanan, managing director and chief executive officer, Iffco-Tokio General Insurance. Also, the maximum entry age of an individual for medical cover has been raised to 65 from the earlier 50-55.
Reduced loan rates: Call it competition or the lack of credit offtake, but banks have been forced to cut home and auto loan rates aggressively.
State Bank of India has been slashing rates in a hurry. It has already cut rates thrice since January. In the recent cut, borrowers of Rs 5-50 lakh (Rs 500,000 to Rs 5 million) will get the loan at 8 per cent for the first year and 8.50 per cent for the next two years. These loans come without any administrative cost and free insurance for personal accident.
Following this, other lenders too have cut rates. HDFC Bank slashed rates by 50 basis points to 9 per cent for Rs 30-50 lakh.
The current United Progressive Alliance government has also pitched in and given a subsidy of 1 per cent for loans up to Rs 10 lakh {Rs 1 million (price of house up to Rs 20 lakh (Rs 2 million)}.
For auto loans, Canara Bank is charging 8.50 per cent in the first year, 9.50 per cent for the next 24 months and 10 per cent for the 36-60 month period. Following the aggression shown by public sector banks, ICICI Bank cut its auto loan by 50-75 basis points and the rate ranges between 12 and 14 per cent now, depending upon the car.
