Dear sir

Recently I got a call from a telemarketer offering me a credit card with various benefits such as free domestic base fare air ticket, up to 15% off at the Marriott Hotels, flat 35% off on movie tickets, 10% cash back on all card spends (except fuel) and 5% cash back on fuel at all petrol pumps of BPCL, IOC, HPCL or Reliance. Sir please explain to me are these freebies for real or it is just a clever sales pitch to induce me to go for the card?

- Himadri Kilaru, Warangal

Dear Himadri,

These are true usually. Card companies have tie up with merchandise traders, hotels, petrol pumps etc. where a discount or cash back is offered to consumers if they have those cards.

You should see what kind of discount you are getting. These are too negligible discount to really go for a credit card and pay heavy interest. Moreover, read the fine prints. These offers may be on a certain value of spend. For example, it may say that 5% cash back is applicable only when you spend more than Rs 1000. Moreover, base rate in airlines are not much anyways.

What you should understand is that these discounts may not be very attractive and may come up with much administrative hassle that you would lose the interest after sometime.

Sir,

Last month I was starved of cash so I went to a bank for personal loan. After usual queries on my job details, salary etc, the bank was willing to offer me personal loan of Rs 5 lakh at 13.50% interest rate. However, when I checked with another bank, it was offering me 13% interest, 0.5% less than the earlier bank. Sir why it is that different banks charge different interest rate on personal loan for the same person?

- Lalit Narayan Sinha, Gaya

Dear Lalit,

Banks have become very autonomous since RBI freed them on deciding interest rates on deposit or loan. There is no uniform interest rate on banks.

Hence banks have devised their own criteria to judge the credit worthiness and interest rate for borrowers. However, looking at only interest rate will not be a wise decision. Ask the banks their processing charges, one time fee, associated insurance (is it mandatory) etc. All these items add to your cost of borrowing loan. These costs can be big enough to bridge the gap between the interest rate of two banks.

Hence look at the total cost of borrowing money and not just the interest rate.

Dear Personal Finance Advisor,

I fall in the 20% tax bracket and my financial planner has been advising me to invest in ELSS as he says it is a good tax-saving investment and is one of the best ways to grow money along with saving tax. But I don’t know how to choose best ELSS mutual funds to invest? Please help me in this regard.

- Lovedelet D’Souza, Mangalore

Dear Lovedelet,

First thing you must do is to check if your deduction has already reached the figure of 1.5 lakhs under 80C. If not, you can think of investing in ELSS.

ELSS are close equity mutual funds that invest in a group of companies. The closed nature of this fund doesn’t allow you to sell it before 3 years of purchase. Hence when you invest, please be ready to wait for 3 years before you redeem the fund and get your money back (with returns depending on the market). Returns depend on the market and hence you should understand this risk.

The advantage of ELSS is that it is tax deductible under the limit of 1.5 lakh under article 80C. In my view you should go for it. Look at any site like moneycontrol where you can find ELSS funds and their returns for last 5 to 10 years. Almost all fund houses like HDFC, Reliance, Birla offer ELSS. Take a look and go for it.

Dear Finapolis,

I’ve been planning to invest in an upcoming commercial building located in Greater Noida West, Delhi-NCR. My friends advise investing in commercial property that has higher ROI than residential real estate. Is it true? Please advise.

- Mohan Bakshi, Meerut

Dear Mohan,

Real estate market is difficult to forecast. It is debatable whether commercial property offers you higher ROI. Usually a commercial property in a great market location will fetch you more in rentals but you also have to pay higher to buy this commercial property. Hence you have to look at the rentals and your purchase price to arrive at ROI.

NCR region has lot of potential and you may get better ROI. However, your ROI depends on what price you paid for the acquisition of property. Real Estate market is extremely shaky for last couple of years. Hence please be careful and do your due diligence before putting money in commercial estate.

Sir,

Of late, many corporate houses, private and public have been issuing corporate bond papers and I too want to invest in one. But I’m not aware of the risks associated with bond investment. Can you please advise me? Is it more important to check the bond rating than the company issuing the bond?

- Mohd. Rizwan Sheikh, Bareilly

Dear Rizwan,

Before you invest in corporate bond, remember that each bond has to go through a rating agency that assigns a rating to the bond. The rating is a reflection of the company’s ability to pay you interest and principal once the bond matures.

So first look at the rating. Go for bonds which are rated high (like AA, AAA etc). When the bonds are rated high, the return will be slightly lower than the bonds which are rated lower. Hence you may be tempted to buy bonds which are not rated very highly. However, avoid low rated bonds as it has more risk. Go for high rated blue chip bonds offered by big companies like L&T, Tata etc.

You can also think of investing in bond funds which are essentially mutual funds that invest in a group of bonds.