Is a zero balance savings account a good choice?

A zero balance savings account takes away the stress of maintaining a minimum balance in the account every month, and has some other benefits too.

In today’s times, it is imperative that everybody have a savings bank account. Whatever one’s station in life, whatever one’s income and spending habits, one must have a safe place to deposit one’s money and even withdraw it when necessary.

However, while many people with access to a bank do have a savings bank account, it often comes with the added stress of maintaining a minimum balance per month. Most banks specify a minimum balance of Rs 5,000, while some premium banks may insist on a minimum balance of Rs 25,000 or more. If the account balance goes below the specified amount, the bank levies a penalty on the same.

A new concept in savings bank accounts – the zero balance saving account – is hence, finding favour among people. As the name suggests, the zero balance saving account is encumbered by the minimum balance condition. The account holder can operate this account in the usual ways – deposit or withdraw money, transact using a bank debit card, make cheque transactions, etc.

As per a mandate from the RBI, all banks now offer a Basic Savings Bank Deposit Account (BSBDA). Several banks are slowly offering the zero balance condition to their usual savings bank products as well.

Additionally, those with salary accounts and eligible for the Pradhan Mantri Jan Dhan Yojana (PMJDY) can open zero balance savings accounts. The PMJDY is a financial inclusion scheme to make banking services accessible to all Indians. The account holder gets a debit card, cheque book, access to Internet banking and a passbook. However, the cheque book is free for certain number of leaves every year, and subsequent requests for cheque books are charged. Also, there is a charge on numbers of transactions conducted after a stipulated number.

The procedure for opening this account is the same as other accounts – one must fill in the bank’s application form and submit KYC documents (ID proof and address proof).

This type of account is useful for those who mainly like to use their savings accounts for deposits and who do not actively bank every day, such as senior citizens. However, keeping the account unused for a long time can render it inactive. The bank must authorise the account to become active again on the customer filling out the relevant documents for the same.

What is ‘credit score’ and how does it work?

Understanding how credit score works is crucial to knowing your credit worthiness and the rate of interest you will be charged on debts.

In today’s world, with every bank and financial institution offering loans for personal as well as professional needs, taking a loan seems like a cakewalk. However, things are not as easy as they first appear. You might have a large income from your job or business, but that alone does not guarantee that you will get a loan right away at the interest rate you desire.

To understand how the loan system works for you as the customer, it is important to first understand a concept known as ‘credit score’. This is a number derived from one’s personal credit history: the type of past credit, payment history, new credit taken, credit repaid and length of credit. These collectively determine one’s credit score, which is the single most important factor that banks and financial institutions use to determine if the applicant is a suitable candidate for mortgage loans, credit cards or personal loans.

Not just credit worthiness, the credit score can also help the lending institution determine whether the application for a mortgage loan, for example, should be approved or not. If it is approved, the lender will also deliberate on the rate of interest to be charged on that loan.

Those with a low credit score often find it difficult to get approvals for loans, and may also have to pay a higher rate of interest on the same. The key point to remember is that the credit score is considered before the credit is extended. Hence, it is a prudent move to build a better score before approaching a lender for a mortgage loan.

How to build a good credit score:

* First time applicants may not have a past loan history, but the lender will consider such factors as whether the applicant has any owned property that he or she can use as collateral.

* Those with previous loans can build a good credit score by repaying the loan faster than the loan term period. This can be done by repaying larger amounts (exceeding the EMI amount) periodically.

* Not defaulting or missing payments is key. Lenders study the pattern of defaults closely, and compare the same with financial statements of the same period. The score will be automatically lowered if the lender observes sufficient income but payment defaults, or large borrowings from private sources at the same time that the loan is active.

* Repaying credit card bills on time is crucial. Lenders study how many credit cards the applicant has, what is the repayment pattern like, how much monthly spending takes place on each, etc.

* Another key area of scrutiny is whether the applicant is embroiled in any cheating and/or forgery cases, or whether there are bankruptcies or foreclosures against the applicant’s name.

* Even such payment records as utility bill payment records are closely monitored.

The “Top Down” and “Bottom Up” Approach to Investing in Equities

A Price Waterhouse Coopers report, published right after the General Elections of 2014, predicted that the private equities market would revive and contribute significantly in the building up of India’s success story over the next couple of decades. If you have already contributed to the success story by investing in the best equity funds in India, it is definitely time to sharpen your analysis of the investment markets to make the right calls. So, should you adopt a “top down” or a “bottom up” approach for evaluating your equity instruments? Here are some insights.

What the “Top Down “Approach Means

“Top down” investing is about looking at the holistic picture or the “big picture”. Here, the investors take a close look at the economy first, and try and forecast which industry would be generating the best and the maximum returns and why. Once the winners or the prospective winners have been identified, investors hunt for specific companies within these sectors and the stocks are then added to the portfolios in equity funds. So, if you think that there would be a drop in home loan interest rates, you may also predict that the residential real estate markets would do well as a result of this drop. And, the search can then be limited to the topmost players in this sector and one or few can be chosen for asset allocation.

What the “Bottom Up” Approach Signifies

This approach is the reverse of the one above. It overlooks the economic conditions and the broad sector, and focuses on the stocks depending upon the specific attributes of the company. So here, the fund manager would be seeking robust companies with healthy prospects, irrespective of the macroeconomic factors or the industry it is a part of. However, what qualifies as a good prospect is purely a matter of opinion. While some would find earnings growth as effective pointers, others will prefer companies with low P/E ratios attractive. The health of the company is all that matters here, irrespective of the financial conditions of the market.

The Ideal Approach

When it comes to equity mutual funds, the best ones to opt for are a combination of both approaches in order to ensure maximum performance. Skilled fund managers are those who have built trust over the years with well performing funds. An equity scheme worthy of investment should be one that does not resort to any biases when choosing the companies to invest in.