[aargee]

Ok, got it

Originally Posted by ampere

2. Use an SBI like account for black-hole where you maintain your funds/liquid/FD etc. Use this account to pay your premiums etc.

But why is my question? Why not in the same bank by opening another account? Is it for the same purpose I stated earlier on RBI protection of 1 Lakh?

Originally Posted by ampere

That you will be very sure that you black-account is a true black hole account with all the money in there or being re-directed is only your savings purpose and nothing else.

Why do you want to call it a black account? Anything put in bank is white for sure. Any specific reason?

[KRRaj]

Nice Thread and Discussions. I am also thinking of saving up for the years ahead.

Originally Posted by aargee

Anyone willing to discuss on pension plans as a long term investment option? I've committed for one for about 10 years with SBI. I'm completely novice in this area.

I have invested on a Pension Plan with SBI for 25 years. Have started on 3500 per month to start with. This should be constant for the next 3 years and then can change. The bank person whom I spoke with advised me to invest on this as you never know what could happen in the future.

How about RDs? I am planning on putting money in and keep renewing it. I have some cash sitting doing nothing and knowing me, I would spend it.

[aargee]

Originally Posted by KRRaj

I have invested on a Pension Plan with SBI for 25 years. Have started on 3500 per month to start with. This should be constant for the next 3 years and then can change. The bank person whom I spoke with advised me to invest on this as you never know what could happen in the future.

I thought it was a commitment for a min of 5/10/15/20 years. There wasn't anything like 3 years or may be I'm wrong.

Originally Posted by KRRaj

How about RDs? I am planning on putting money in and keep renewing it. I have some cash sitting doing nothing and knowing me, I would spend it.

RD's are good way to saving with little amount based on the concept of little drops makes mighty ocean.

With banks, there're options for 6 & 12 months (6 I'm not sure). So the ROI is about 6-6.5%. While the same in PO is called as PORD (Post Office Recurring Deposit) with a min & max period of 60 months where the interest rate is 8%. PO provides 8% for over several years while it keeps changing with bank almost every month.

Once the tenure period is over, the money can be withdrawn. The flipside being that, you'll lose some money if you try to foreclose, which is unlike the case of an FD (Fixed Deposit).

If you've cash sitting & doing nothing, say 5K or more, then simply open an FD which will fetch you 6% in banks. If you think, you don't need it for long term, open a MIS account with PO, which is for 72 months & you'll get 8% interest from it. If you think you don't need the interest right now, then open PORD & invest this interest & at the end of 60 months, you'll get the interest & the interest on interest. Check out for a sample calculation in the previous page.

Decide how many months you would want to stay saving & then choose between bank & PO.

Also, there're several state owned banks called Co-operative banks which are not protected by RBI & hence they offer about 10% interest PA!!!

[ampere]

Originally Posted by aargee

Ok, got it

But why is my question? Why not in the same bank by opening another account? Is it for the same purpose I stated earlier on RBI protection of 1 Lakh?


Why do you want to call it a black account? Anything put in bank is white for sure. Any specific reason?

Sorry for the typo. I meant black-hole! A different account in the same bank is also fine. Just that I dont want to trust MNC banks with economy changes (even though they are nationalised). SBI has a govt backing. Hence I get a better peace of mind. Thats all.

By the way you can also buy a combined Pension Plan + Insurance in a single instrument with LIC.
Insurance is embedded and hence you dont pay a separate premium.

[ghodlur]

Pension schemes mostly available in market from Pvt Insurers are of ULIP types, whereas LIC recently introduced a ULIP pension plan Pension Plus. LIC also has some traditional pension policies like Jeevan Nidhi, Jeevan Akshay, New Jeevan Suraksha & New Jeevan Dhara

I have a Jeevan Suraksha policy which I started in Jan 2006 for 10K pa. Now I find that this would fetch me peanuts as pension. The other issue is I cannot increase the yearly premium or convert it into monthly payments. I will have to go in for a new policy which means one more record to track.

Kindly advise whether I should go for the ULIP or traditional policy from LIC or from Pvt Insurers. Other option I was thinking is start a new SIP in 5 star rated MF.

[aargee]

Originally Posted by ghodlur

Pension schemes mostly available in market from Pvt Insurers are of ULIP types, whereas LIC recently introduced a ULIP pension plan Pension Plus.

I guess mine is this; not sure though. I invested in this because one of my close relative works in the bank & is also a insurance agent & an avid stock market investor for decades. I can depend upon him for anything related to this & he has another decade for retirement & I can withdraw the money before that

Originally Posted by ghodlur

Now I find that this would fetch me peanuts as pension.

Exactly my thoughts & this is the reason why I stayed away from these plans until now. Another good reason to stay away (prepare for the shock), the "charges". 1st year 18%, 2nd year 10% & 3rd onwards 2%. This means, the bank has swallowed 30% from you directly. Note that these are approximate numbers & I've seen banks like HDFC swallowing more than 50% in 1st 3 years.

Originally Posted by ghodlur

The other issue is I cannot increase the yearly premium or convert it into monthly payments. I will have to go in for a new policy which means one more record to track.

Well I thought, one has an option to top up. What I've been told on this is...
- Stay on long commitment. Means, even if the policy says pay up for 3 years & forget, stay investing until the term ends
- At the end of the tenure, you should've 3 options to withdraw completely & close the policy; continue receiving the pension for the invested amount; withdraw 2/3rd of the invested amount & continue receiving the pension for the balance amount.
- Always opt for longer terms like 15+ years (though I did for 10)

Originally Posted by ghodlur

Other option I was thinking is start a new SIP in 5 star rated MF.

Investing in a 5 star rated MF is good idea; inorder to get the maximum benefits, one should know when to enter & exit. Otherwise for any nominal profits, its ok to enter & exit anytime.

[TracerBullet]

I have using that "black hole" account logic for couple of years now.

After interacting with MNC banks (such as Citibank) where everything happens either on the phone, internet or ATM, opening an account with a nationalised bank makes sense if you want to save some money.

Traditionally dealing with a nationalized bank is little difficult when compared to a MNC bank (this has changed relatively). What I did couple of years ago is opened an account with SBM with no ATM card facility and is closed on Sundays. I have been making sure deposit a fixed amount at the beginning of the month into this account from my salary account. And whatever money is left over at the end of the month in my salary account is moved to this black hole account. Hence when I get the salary, I will know that is all I have to manage with. No digging into the black hole account.

The purpose of this exercise is make your own money less accessible to you. With a typical working week being Monday to Friday for me, leaves with Saturday and Sunday to do business with the bank. The bank is open for half day on Saturdays and typically there will be lot of crowd on saturday. Sunday will be a holiday. So this exercise has worked for me for couple of years.

Cheers

[ghodlur]

Originally Posted by aargee

Exactly my thoughts & this is the reason why I stayed away from these plans until now. Another good reason to stay away (prepare for the shock), the "charges". 1st year 18%, 2nd year 10% & 3rd onwards 2%. This means, the bank has swallowed 30% from you directly. Note that these are approximate numbers & I've seen banks like HDFC swallowing more than 50% in 1st 3 years.
These days the charges are spread evenly over the lock in period of five years as of 1st Sept as against the earlier three years. But still its a loot by the Insurers.

Well I thought, one has an option to top up.
There is no option to top up by LIC atleast and to my knowledge not in the traditional Pension plans. Maybe in ULIPs its possible.

As far as ULIP's are concerned one needs to stay invested atleast for 10 yrs or more to actually reap the benefits. But the way the investment options keeps changing one has to take a call accordingly. For eg for this year the ROI on EPF has been increased by 1% so it definitley pays to increase your PF contribution which will fetch you good returns.

[f1fan]

Originally Posted by TracerBullet

I have using that "black hole" account logic for couple of years now.

After interacting with MNC banks (such as Citibank) where everything happens either on the phone, internet or ATM, opening an account with a nationalised bank makes sense if you want to save some money.

Traditionally dealing with a nationalized bank is little difficult when compared to a MNC bank (this has changed relatively). What I did couple of years ago is opened an account with SBM with no ATM card facility and is closed on Sundays. I have been making sure deposit a fixed amount at the beginning of the month into this account from my salary account. And whatever money is left over at the end of the month in my salary account is moved to this black hole account. Hence when I get the salary, I will know that is all I have to manage with. No digging into the black hole account.

The purpose of this exercise is make your own money less accessible to you. With a typical working week being Monday to Friday for me, leaves with Saturday and Sunday to do business with the bank. The bank is open for half day on Saturdays and typically there will be lot of crowd on saturday. Sunday will be a holiday. So this exercise has worked for me for couple of years.

Cheers

I too have been following this black hole concept but had the following query:
What do you do with the money in the account. Do you make a FD/RD with it. For me, it is just lying in that account and as we all know interest rate for cash in SB account is very less, hence wanted ideas to maximize returns from that account.

[KRRaj]

Thats a bit of good advice aargee. Let me check. The Drops to ocean is a good statement.

FDs and POs make some good sense. Let me get my calculator out

Originally Posted by aargee

I thought it was a commitment for a min of 5/10/15/20 years. There wasn't anything like 3 years or may be I'm wrong.

Let me clarify what I said. What you say about the commitment is correct. What I meant what was the monthly instalment should be the same for the first 3 years and then you can either increase or decrease it.

[ampere]

Originally Posted by f1fan

I too have been following this black hole concept but had the following query:
What do you do with the money in the account. Do you make a FD/RD with it. For me, it is just lying in that account and as we all know interest rate for cash in SB account is very less, hence wanted ideas to maximize returns from that account.

Any investment you can plan out of that account. FD, RD, LIC Premium etc.
By the way I see even SBI has improved in terms of service. Some branches are actually open full day on Sunday and close on Mon or Tue to serve people who go to office Mon-Fri.

That is really good initiative.

TracerBullet, Very aptly written. That is exactly what I meant when I wrote that term "Black-Hole" Account!

[TracerBullet]

Originally Posted by f1fan

I too have been following this black hole concept but had the following query:
What do you do with the money in the account. Do you make a FD/RD with it. For me, it is just lying in that account and as we all know interest rate for cash in SB account is very less, hence wanted ideas to maximize returns from that account.

Originally Posted by ampere

Any investment you can plan out of that account. FD, RD, LIC Premium etc.
By the way I see even SBI has improved in terms of service. Some branches are actually open full day on Sunday and close on Mon or Tue to serve people who go to office Mon-Fri.

That is really good initiative.

TracerBullet, Very aptly written. That is exactly what I meant when I wrote that term "Black-Hole" Account!

f1fan, you can adopt what ampere has suggested except for LIC premium.

ampere, that is exactly what I call it too

I have always treated insurance premiums as part of my regular expenses. You can put the accumulated money in a FD. My benchmark is 50k. Once I have 50k in the black hole account, I put it in a 5 year FD or MF(long term).

The amount of FD should not be too big. In case of emergency, you should be able to encash them without disturbing the rest. For instance, let's say you have 10 FDs of 50k each and you need around 1.5 lakhs for some emergency. That way you will end up encashing only 3 FDs. If your benchmark (which can differ from person to person) is more - say 1 lakh, you might have to break 2 FDs of 1 lakh each. This was just an example. Hope you get the drift.

[aargee]

Originally Posted by ghodlur

As far as ULIP's are concerned one needs to stay invested atleast for 10 yrs or more to actually reap the benefits.

Exactly

Originally Posted by ghodlur

But the way the investment options keeps changing one has to take a call accordingly.

But you see, the salary also increases every year & the expenditure increases, but not the savings right ? That should also increase proportionately.

Originally Posted by KRRaj

FDs and POs make some good sense. Let me get my calculator out

Let me know if you need any help on calculations

Originally Posted by KRRaj

What I meant what was the monthly instalment should be the same for the first 3 years and then you can either increase or decrease it.

Got it, but the key point is to stay investing the same amount throughout the tenure

Originally Posted by ampere

That is exactly what I meant when I wrote that term "Black-Hole" Account!

I'm really trying to understand as why one would want to open a different account in a different bank to keep saving? Why not in the same bank? Why run to the bank every month to make a deposit? Instead, use the same bank wherein the clearing takes place automatically. Is it due to the fear of withdrawing the money from savings?

[ampere]

Originally Posted by aargee

I'm really trying to understand as why one would want to open a different account in a different bank to keep saving? Why not in the same bank? Why run to the bank every month to make a deposit? Instead, use the same bank wherein the clearing takes place automatically. Is it due to the fear of withdrawing the money from savings?

Dont run to the bank to deposit! Online transfers can be done through your salaried bank (which in most cases would be an ICICI/Citi/HSBC etc.)

I never said dont hold another account in the same bank. You can do so. The idea is to make that money in-accessable for spending. I already explained earlier my reasons for not creating a Black-Hole account in a MNC bank, and why prefer SBI.

[silversteed]

Originally Posted by TracerBullet

I have using that "black hole" account logic for couple of years now.

After interacting with MNC banks (such as Citibank) where everything happens either on the phone, internet or ATM, opening an account with a nationalised bank makes sense if you want to save some money.

Traditionally dealing with a nationalized bank is little difficult when compared to a MNC bank (this has changed relatively). What I did couple of years ago is opened an account with SBM with no ATM card facility and is closed on Sundays. I have been making sure deposit a fixed amount at the beginning of the month into this account from my salary account. ...

That's exactly what I've been doing ever since I started working. First it was with State Bank of Travancore, since I had an account with them during my college days, and now, with State Bank of India, since they have an office in the same building as my company. I'd set an auto-debit for the second of the month from my salary account, so that the amount goes there even if I forget about it.

The interesting part is, I have two ATM cards for this SBI account - one tucked away safely in my stash, and the other with my mother - lest something should happen with mine - she can withdraw the money/invest somewhere/buy gold whenever she finds appropriate. She's very very meticulous in tracking incomes and expenses.

One more reason for going with SBI is, their service is really top-notch. Sometimes even better than many private players - in terms of internet banking, customer service, issue resolution, etc. I got my account, complete with the ATM card, PIN, net banking ID and passwords, opened and all facilities active in 2 hours.


Another observation I've made: Use a credit card if it doesn't involve any annual fees/ surcharges. It'll help you retain the cash (and hence generate interest even though a paltry sum) in your account until the due date of the CC bill. Provided, you know how much you're spending.

My 0.02