S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
32,432.69 | 618.47 1.94%	65.09 | 0.05 0.08%	29,795 | 350.00 1.19%	55.96 | -1.14 -2.00%	5.0% - 7.0%

How RBI Is Ensuring The E-Wallets You Use Are Safe

E-wallets offer us a convenience while transacting. Gone are the days when you waited in long queues for paying your utility bills and argued with a shopkeeper for giving you a toffee instead of change.

Digital wallets allow you to send money to anyone in any fraction and pay for almost every petty expense, just by scanning the Quick Response (QR) code. But, if you use e-wallets because they can be opened and operated with minimum Know Your Customer (KYC) compliance, you will be disappointed with the latest development...

The RBI has recently issued prudential guidelines for the Prepaid Payment Instruments (PPIs), which include e-wallets.

What’s the purpose of issuing guidelines now?

• Create a framework for authorisation, regulation, and supervision of entities operating payment systems for issuance of PPIs
• Nurture competition and encourage innovation in the industry
• Ensure safety and security of transactions
• Offer flexibility to customers by allowing interoperability of PPIs

Some crucial guidelines are as follows:

Only banks can issue both semi-closed and open system PPIs, while non-bank entities can issue only semi-closed PPIs.

• All non-bank e-wallet operators shall have a minimum positive net worth of Rs 5 crore seeking authorisation from RBI. And, at the end of the third financial year from the date of receiving full authorisation, the minimum net worth shall be Rs 15 crore.
   
• PPI issuers will have to maintain records of all the transactions undertaken using the PPIs for at least ten years. 
   
• Customers having e-wallets supported by the minimum KYC, i.e. by verification of mobile number, must convert them to full KYC supported format within a year of opening. Until then, the wallets supported with a minimum KYC can’t have a balance above Rs 10,000. Moreover, no money can be remitted to other wallets or bank accounts through these wallets.
   
• Full-KYC supported wallets can hold a balance upto Rs 1 lakh and will have full operability.

How is the industry reacting to these norms?

Mr Navin Surya, the Chairman of Payments Council of India, said, “The fact that 12 months has been given for conversion of wallets into full KYC ones shows that they have enough time to convince customers to complete KYC requirements.”

 “I believe, by then, the KYC for mobile numbers can be completed and Aadhaar rails might improve, making it easier to get KYC formalities done”, he added further.

Mr Vijay Shekhar Sharma, the founder of Paytm, said, “The higher positive net worth requirement for wallets is justified because RBI is recognising wallets as a serious financial services space.  He further added that “If money will be moved across wallets of different companies, they will need that higher capital to be able to support such transactions."

What’s the challenge for the issuers of PPIs?

The PPI issuers will have to shell out about Rs 120 to 200 per customer for making them full KYC-compliant. As per the media reports, Unique Identification Authority of India (UIDAI)- architect of Aadhaar- directed agencies providing e-KYC services to pay a fee of Rs 20 lakh for 2 years and asked authenticators to pay Rs 1 crore.

Reacting to this, Mr Ketan Doshi, Managing Director, Pay Point India said, "Though e-KYC is the future, if authentication from Aadhaar is so costly then it becomes prohibitively expensive for the industry." 

The guidelines on making minimum KYC accounts full-KYC compliant within 12 months of opening them have given rise to discomfort among industry players. “It destroys the idea of a wallet as an intermediate option for customers; they might as well open a bank account now”, said Mr Jitendra Gupta, MD of PayU India.

Echoing him, Mr Sriram Jagannathan, Vice-President (payments), Amazon India said, “One of our concerns is that even low-usage wallets are required to do a KYC beyond 12 months. This adds friction to customers.” He also added that “We urge the regulator to re-examine this in line with international guidelines, and adopt a framework of proportional KYC.”

Going by the guidelines and overall feedback thereon, it seems only big players with deep pockets can enter and survive the payments business.

What’s the impact on customers?

• Portability through Unified Payments Interface (UPI) among wallets is the biggest positive. This will keep issuers of PPI always on their toes, to provide the best services to their customers.
   
• Minimum net worth requirements for the PPI issuers prescribed by RBI and need to switch to full-KYC format may offer higher safety to wallet users in the long run. Moreover, instead of using captive wallets, customers may prefer to use wallets that provide them with multiple options to make payments.

8 Basics To Be Your Own Financial Planner

Whether you have just graduated out of college or are a highly experienced professional, there is no denying that it is important to manage your personal finances prudently. Your spending and saving habits have a long-term impact on your financial wellbeing. Therefore, apart from basic financial literacy it is important to understand key concepts of financial planning as well.

There are numerous benefits of having a financial plan in place. Some of the key reasons why you need a financial plan are covered in this article - 10 Reasons Why You Need A Financial Plan.

Though everyone wants to streamline their personal finances and invest wisely towards their financial goals, very few actually chalk out a financial plan. But, the truth remains that unless you work out a plan, it can be tough to accomplish any financial goal.

Therefore, when you're in charge of your money, it's best to have some understanding of basic financial planning concepts and techniques.

Here are simple every day methods you can immediately implement to keep your personal finances on track:

1. Start with a budget: Budgeting is the process of creating a balanced formula on how to make optimal use of your hard-earned money. Simply put, a budget is an itemised summary of the anticipated income and expenses for a given period, say a month. It will keep your expenses in check and keep you out of debt. It will also help you work your way out of debt, if you are in one. Although there are plenty of free budgeting software and apps available online, you could just start with a pen and paper or an MS-Excel sheet to get a hang of the exercise. Always write down specific expenses.
    
2. Keep a contingency reserve: An essential component of a solid financial plan is its emergency fund (also called a contingency fund). As you know, life is uncertain and emergencies (such as loss of income, medical emergency, loss of assets, etc.) are contingent in nature and therefore, an intelligent approach would be to put away a portion of one's savings to counter these exigencies if/when they arise.
   
   Ideally, review your budget and save a minimum of 6 months of monthly living expenses in a contingency fund – that includes everything from household expenses, to EMI payments, or any other expenses you may incur during a regular month. Those with several financial commitments, and who are averse to risk, as well as those who require high amounts of liquidity can maintain 24 months of monthly expenses. But on an average, 12 months of living expenses can be held as a contingency fund.
    
3. Purchase an adequate life and health insurance plan: This is the most neglected area of personal finance. People seem to understand its importance only when an untoward event happens. If you are the sole bread earner of your family or there are liabilities to be repaid, make sure you purchase an optimum life and health insurance plan.
   
   According to the 'Income Rule' used by insurance advisors, one should have a sum assured of 8 to 10 times of one's annual income. An alternative method is evaluate your Human Life Value, whereby you are optimally insured for life. Pure Term insurance plans are by far the best to indemnify risk to life. And ideally, you should keep your insurance and investment needs separate
   
   From a health insurance perspective, purchase a policy with a minimum cover of Rs 5 lakh and covering all your family members.
    
4. Pay-off high interest debt first: You can minimize the amount of interest paid over time with timely payments of your credit card bills. It is advisable to repay the outstanding dues in full every time your credit card bill arrives and always spend within your means. Always look to avoid taking high interest credit, lest you fall into a debt trap. It is better to save and invest towards luxuries and lifestyle spends than falling for instant gratification of buying items you may not really need on your credit card or by taking a personal loans.
    
5. List down your financial goals: The primary objective of financial planning is to help you achieve your financial goals. Start by listing them down into short term (up to 2 years), medium term (from 2 to 5 years), and long term (above 5 years). Plus, ensure your financial goals are: Specific, Measureable, Adjustable, Realistic and Time Bound (S.M.A.R.T). Once you do so, you should calculate the future value of these goals using an inflation rate. Ideally, a 7% inflation rate would be fair enough to derive the tentative figure. For financial goals maturing in 3 years, make sure to allocate the entire corpus to a debt fund. The equity exposure will go on increasing as the maturity period of the goal increases.
    
6. Start planning for your retirement, NOW: Many fail to understand the need of planning their retirement. However, you need to spend at least 20-25 years of your life without a steady source of income. Post-retirement you need to make the money saved during your working life, to work for you. But for your money to last, you should ensure to have saved up a substantial corpus. The thumb rule is to save at least 10% of your income, towards your retirement.
   
   We believe your retirement is as important a goal as planning for your children's future needs. In a world where we've witnessed the evolution of nuclear families, banking on your children for your retirement needs might be myopic. Hence, it is better to plan and save for your retirement.
    
7. Asset Allocation is the key: Asset allocation is the foundation of financial planning. A right mix of equity and debt will help you achieve your financial goals in the time horizon you planned. As you may have read in earlier articles, a common rule of thumb used to decide the proportion of equity in an asset allocation is 100 minus your age (100 – x years).
   
   The rationale behind this rule is: the older you get, less time you have to recover if the stock market tumbles and your risk appetite recedes as well. As you enter retirement, taking all your money out of equities could slow down the growth of your portfolio too much, preventing you from keeping pace with inflation and possibly deplete your retirement savings.
   
   Although this isn't the optimal approach to structure one's asset allocation, it could be a good starting point for beginners in the investment arena.
    
8. Review your financial plan regularly: An annual review (or bi-annually in some cases) will increase the possibility of fulfilling your financial goals by allowing you to incorporate any personal or economic changes in your financial plan. A review also includes analysing the investments you've done to achieve the envisioned financial goals and determine if they are on track to accomplish the financial goals. For example, if you have invested in equities, then it would be prudent to check the current standing and potential of stocks and equity mutual funds in your portfolio from time to time. It could be possible that a stock or equity mutual fund may be underperforming; and in the case of an equity mutual fund scheme, there could be a change in its investment objective or style, which no longer meets your purpose of investment.

PersonalFN has developed a comprehensive program that will help you learn the art of financial planning and manage your personal finances better. The program is completely online and focuses on self-paced learning. Every chapter is followed with a quiz to assess your understanding.

Sign up for PersonalFN's comprehensive A to Z e-course to Become Your Own Financial Planner. With this e-course, you too, can create a financial plan like an expert. It will be your guide to most serious decisions regarding money matters.

The tutorials start with the basics of budgeting and managing cash flows and then moves on to how to set SMART goals. You will also learn how to select winning mutual funds, along with the right asset allocation and its importance. The modules will also outline strategies to build your optimum investment portfolio and much more. You will learn the Ins and Outs of mutual funds and other personal finance topics. Read more about this e-course here.

Apart from the video tutorials, you will get access to a host of downloadable calculators, such as a Cash Flow Calculator, Retirement Calculator, etc. Absolutely Free! Don't miss this opportunity. Subscribe to the e-course now!

Has SEBI's Mutual Fund Categorization Made Selecting Schemes Easy? Know Here…

The Securities and Exchange Board of India (SEBI) has finally issued a circular to rationalise the process of classification of mutual fund schemes. While the majority of experts are hailing the classification norms issued by SEBI, PersonalFN has a slightly different view on the subject. It believes the capital market regulator has missed a golden opportunity to streamline the mutual fund offerings.

About a month ago, PersonalFN wrote an article titled, “Standard Classification For Mutual Funds In The Offing”, to highlight the need to revive the reclassification of schemes and potential pitfalls the SEBI should consider. It seems the regulator has stubbornly gone ahead with the recommendations of a committee it had appointed.

As per the new rules, the mutual funds will have to broadly classify their offerings into categories mentioned below:

• Equity Schemes;
• Debt Schemes
• Hybrid Schemes
• Solution Oriented Schemes
• Other Schemes

So far no problem.

The real trouble is with subcategories. SEBI has allowed mutual funds to offer a scheme each across 36 subcategories. 

To read more about this story and Personal FN’s views over it, please click here.

Where Do Most Indian Park Their Savings

India is a unique country—no secret. The uniqueness of Indians extends to their savings habits as well. When compared to those of their international counterparts, personal balance sheets of Indians look strikingly different.

How does the balance sheet of an average Indian family look like?

• Real estate assets —residential apartments, farm and non-farm lands, etc. account for 77%
• Durable goods such as vehicles, cattle and poultry, farm and non-farm equipment, etc. form another 7%
• Gold accounts for 11% and
• Financial assets have a share of only 5%

As per the findings of a survey conducted by the Securities and Exchange Board of India (SEBI), fixed deposits and life insurance are the most preferred financial assets of the Indians.

To read more about this story and Personal FN's views over it, please click here.

Why Mimicking Your Friend's Investments Can Be Risky

Many individuals often assume it is okay to copy and paste. The trend is not limited just to text but flows through all forms of media—arts, music, filmmaking, programming, etc. While copy-paste may be a lazy way out, it is unethical and can land you in all sorts of trouble. What's worse, it puts the brakes on intellect and creativity.

Copycat investing too, is a widely prevalent practice. Here investors mimic portfolios of top investors without any underlying research of their own. What the copycat investors do not realise is the risk-return potential considered by the top investors. While top investors are prepared for high volatility, the copycat investors may be caught unawares. Portfolios are usually disclosed on a monthly or quarterly basis, thus, there can be lag in trading, raising the risks further.

Some amateur investors may not go to the extent of copying top investors. They may take advice of friends or relatives. Often at social meetings, individuals exchange their thoughts on the markets and their investment strategies. Some may even share their portfolio details.

To read more about this story and Personal FN's views over it, please click here.

While RBI-appointed committeehas highlighted the inefficiency of banks in passing on the benefits of rate cuts to borrowers, the recent findings make some encouraging revelations. The average Marginal Cost Of Lending Rate (MCLR) fell from 9.5% to 8.4% between April 2016 and April 2017.

On the other hand, RBI lowered policy rates by 50 bps, basis points, between April 2016 and August 2017. Although this shows that banks have been ahead of the cycle in reducing the borrowing rates. For now, this is primarily because in the past they have been a lot more inefficient. After demonetisation, they were awash with liquidity, and that's mainly the reason why they proactively reduced the lending rates.

How Entrepreneurs Can Ensure A Peaceful Retirement

10 Reasons Why You Need A Financial Plan

9 Common, Yet Vital Questions On Personal Finance Answered  

Interest Rate Index: An index that is based off the interest rate of a financial instrument or basket of financial instruments. An interest rate index serves as a benchmark used to calculate the interest rate charged on financial products, such as mortgages.

Quote: "To be an investor you must be a believer in a better tomorrow.”- Benjamin Graham