Archive for December, 2007

Keeping your money clean

Subash Chadda, 44 year old businessman approached an insurance company to buy a single premium ULIP. To his surprise he was asked to submit a whole lot of paperwork including identity and income proofs. The insurer informed him this was part of the new IRDA guidelines to counteract money laundering. If you are going to buy a new policy or make a top up bigger then Rs.1 lac then you will be subject to some extra paperwork too.
What is money laundering?

Money laundering is the processing of dirty money in order to disguise their illegal origin. Dirty money is derived from criminal conduct and criminals want the money to look like it came from a legitimate source hence they resort to money laudering. Criminals need a legitimate source of income to set up operations without attracting the notice of the government. 

Why is the anti-money laundering act needed?

The anti Money Laundering Act aims at stopping this illegal activity.

The bomb blast in Mumbai shook up the whole nation. Instead of dividing us, it has made the citizens of India more aware of their duties towards the country and fighting anti social elements.

All anti social acts require financing and this is done through illegal money which creeps into the economy and is laundered. To counter this, the government has introduced the Anti Money Laundering Act that applies to all financial institution including insurance companies.

It is essential to understand how the Anti Money Laundering Act and the IRDA guidelines for it will affect our insurance transactions.

What are the IRDA guidelines?

IRDA has instructed all insurers to classify their customers, into the following risk categories:

    – High risk: Antique dealers, arms dealers / explosive dealers, money changers, film personalities, persons dealing with real estate, politically exposed persons, NRIs, HNIs, etc

– Low risk: All others

IRDA has mandated compulsory reporting for all related cash transactions above Rs 10 lakh in a month and all transactions classified as suspicious by the company.

The agents and brokers have to maintain a separate file on each customer where details of proof verifications are given as part of the “know your customer” procedures.

The agents have to file a Moral Hazard report which states that the client is not over insured and also he is financially able to meet his premium payments.
How will it affect you?

  1. These guidelines will affect you if you are buying insurance from the insurer for the first time. You will have to supply proof of identification, proof of residence and proof of income while buying insurance.
  2. Even people who took a policy in January this year may have to provide proof of residence, photographs, and the like, which were not mandatory till now.
  3. The AML makes it mandatory for insurers to comply with ‘Know Your Customer’ (KYC) norms by obtaining documents to clearly establish the customer identity in the case of all new insurance contracts. Where the premium is Rs 1 lakh per annum in the case of individual policies, a detailed due diligence should be exercised to establish KYC.
  4. Also if you a builder or any other person who come into the category of a high risk client then the due diligence investigation conducted by the insurer will be much more.
  5. If you are paying the insurance premium for another person then the transaction will also be scrutinised in detail.

It is essential that as customers and as responsible citizens we all cooperate so as to bring the anti social elements to an end.

The paper trail

With these guidelines the paper trail has become lengthy. Buying an insurance policy will involve a lot more paper work but it is necessary to curb the menace of money laundering.

It is also been made necessary for brokers and agents to ‘Know Your Customer’ (KYC) before issuing a policy. Hence, you will now find yourself submitting a larger number of documents before you buy an insurance policy.

As a customer you will have to give the following paperwork before getting insured.

Proof of identity

-PAN Card

-Voters Identity Card

-Driving License


-Letter from a recognized public authority (e.g. Gazetted authority/ municipal     corporation) verifying identity of the customer

-Employee identity card of a listed company or public sector company

-Ration card (where photograph of customer is present

Proof of income

-Telephone Bill (not more than 3 months old)

-Electricity Bill (not more than 3 months old)

-Credit card statement (not more than 3 months old)

-Bank account statement (showing transactions within the last 6 months)

-Valid lease agreement along with rent receipt which is not more than 3 months old


-Ration Card

-Letter from any recognized public authority (e.g. Gazetted authority/ gram panchayat/ municipal corporation) verifying residence of the customer

-Letter from a listed/ public sector company/ armed forces employer/ government depts. along with latest salary slip

Proof of income

-Income tax assessment orders/ Income

-Tax returns slips

-Form 16 in case of employed individual

-Salary slips from reputed private limited / public sector employers (within last 3 months)

-Audited company account

-Audited firm accounts

-Audited proprietorship profit & loss account

-Copies of form no. 10CCAC under section 80 HHC of IT ACT 1961 for export income
Typical money laundering transactions

Here are some typical examples where laundering on money takes place and the insurance company will be more vigilant and ask for additional paperwork.

1. Use of Single premium policies.

2. Early redemptions of large policies.

3. General insurance claim fraud involving illegal or non-existent goods or assets.

4. Cash payment of premium; sometimes agents convert cash into their own cheque thus masking a true risk.

5. Cooling off periods or free look periods which offer an avenue for legitimised full refunds when the premium may have been paid out of illegal moneys.

6. Deliberate fraud between customer and intermediary or employees of insurer.

7. Premiums paid by third parties including agents and benefits paid to beneficiaries not related to the purchaser of the policy.


Though the Anti-money Laundering Act means a lot more vigilance and some extra paper work for the policy buyer, it is the best way to fight the menace of black money. As concerned honest citizens we must corporate willing and do our duty.


Soft Skills Needed

“Soft-skills” refer to a cluster of personal qualities, habits, attitudes and social graces that make someone a good employee and a compatible co-worker. Companies value soft skills because research suggests and experience shows that they can be just as important an indicator of job performance as hard skills.

Every entrepreneur thinks that his/her product, services will change the world. They might but the change has to begin closer to home. By focusing on your behavior, knowing doing gap, attitude and soft skills, you begin to inspire others to pay attention too. When your team and key people in the company learn to pay attention to soft skills in addition to hard skills, your chances for success go up exponentially. Soft skills alone won’t make you successful either. They have to be balanced with having the management team with right hard/professional skills, creating a human resource management system that supports your team would multiply your chances of success. When you have all the three factors optimized, the human capital in your company begins to pay rich dividends.

Core Competencies for Success:

While skills are good to develop by themselves, integrating them into a systemic practice makes you develop new competencies for success. Competencies allow you to integrate your skills and knowledge in the context of new projects. These six competencies are useful in all stages of company and in fact, could be very useful in personal life as well. When you start something new, keep these six competencies in mind and consciously apply them in your work and life and soft skills become integrated with your professional skills over time.

  • Be clear and intentional about what you want
  • Be aware of what is going on around you and inside you
  • Have empathy for one another
  • Appreciate what you have and what others bring
  • Know your limits and stretch beyond them
  • Let go of what does not work

Soft Skills contribute to:

  • Leading People
    • Leading a team, leading yourself, conflict management, interviewing and selecting new members, delegation, coaching, networking, developing others
  • Managing Activities
    • Product quality, workplace safety, customer care, fund raising
  • Managing Resources
    • People, finances
  • Managing Information
    • Decision making, problem solving, meeting management, persuasion, presentation skills

Soft Skills helps in:

  • Soft skills help advance your career.
  • Soft skills empower you and create opportunities.
  • Soft skills not only improve your career, they also offer personal growth.
  • Soft skills help you grow beyond money motivation.
  • Developing professional ethics is vital to your career.
  • Control co-worker’s perception of you as a professional and an expert in your field.

How to improve Soft Skills?
It all starts with YOU

  • Acting like a leader
  • Being open to do things differently
  • Avoiding your comfort zone
  • Showing your weaknesses

Understanding your team

  • What are their needs?
  • What are their fears?
  • What’s in it for them?

Justifying project to

  • Team members
  • Customer
  • Sponsor
  • Vendor

Effective communication skills

  • How/When/What to Communicate
  • Non Verbal Queues
  • Multi Cultural Needs
  • Team Management

Understanding what skills you have

  • Identifying skills gaps
  • Stretching existing team members
  • Delegation
  • Bringing the best out of each team member
  • Finding the creativity within your team

Conflict Management and Negotiation Skills

  • Healthy conflicts
  • Sources of conflict
  • Identifying your tendencies
  • Refining your negotiation skills
  • Negotiating with customers, team members
  • Developing WIN-WIN scenarios

Making tough decisions

  • Is it time to make a decision?
  • Tips to making decisions
  • Consensus vs. Unilateral decisions
  • Assessing resource performance challenges
  • Handling resource performance challenges
  • Severing a vendor relationship
  • Escalation approaches

Managing your credit card debt

Though widely used and immensely convenient, credit card can become your worse enemies if you are careless. One negative aspect of using credit cards instead of cash is that you don’t feel like you’re spending real money. The pleasant feelings you experience when you purchase the item are disconnected from the unpleasant or painful feelings of making the payment when you get the credit card statement.

Studies show that most people are much less likely to buy, or less willing to spend as much, when paying with cash as opposed to credit cards.

Falling in a debt trap

Falling in a debt trap is easy when you using your credit card. The problems start not when you use your credit card but when you do not pay the entire amount on the due date.

The bank will charge you an interest of 2.95% (atleast) on the pending amount.

And, this interest is charged on a monthly basis; per year, it works out to a whopping 35.4%.

If you have spent Rs.1,00,000 this month then the interest you pay works out to Rs.2,950/- if you have not repaid the entire amount that month.

Lets say you realise the folly of your ways and spend only Rs.10,000 the next month on the credit card.

Unfortunately, you are no longer enjoying the benefit of ‘free credit’.

This month your outstanding balance will be Rs.112950 + Rs.3332/- = Rs.116282/-

Earlier, you spent money through your credit card and paid up when the bill came at the end of the month.

From the time you spent the money till the time you paid the bill, you were enjoying free credit; when the bill came, you paid just what you spent.

Now that you owe the bank money, you don’t have the privilege of free credit anymore.

Also any the very convenient cash withdrawals are never interest free.

Now, until you clear your loan, every single payment you make using your card will be added to your loan amount and you will be charged interest on it.

This will go on till every single rupee has been repaid.

How to avoid Credit Card Debt

· Your credit card spending is a loan and make sure that you treat it like wise. Credit card companies agree to loan you money interest free for averagely 35-40 days. You can use this to your advantage as long as you pay off the “loan” by the due date each month.

· If you feel you need to carry plastic for emergencies, then try a debit card. It will ensure that you are spending only the money you actually have. Unlike the west, in India we have a vast support system that ensures that you can easily borrow emergency cash when you need it.

· If you do use credit card do try to make the payments in full. Incase you are unable to meet the entire payment then ensure that you set aside the entire money for it from your next paycheck and curtail the credit card usage till the balance is cleared. Remember that there is whopping 36% p.a. or more interest to be paid not only on the outstanding balance but also on any fresh purchases you make.

· Plan your purchases well. When you go out shopping make a list and stick to it as far as possible. Don’t be swept away by discounts on products you don’t need. Remember, retail stores are designed so that you spend more. Beware of marketing tactic that make you spend more.

· Avoid cash withdrawals and balance transfers from your credit card since they attract interest from day one.


What is group discussion (GD)? As the term implies it is a discussion by a group of people, which involves a free exchange of thoughts and ideas among a members of the group.
Listed below are some pointers to be kept in mind for being effective in a GD:

  1. Be Natural
    • The best mantra is – “be your natural self’
    • See GD as just an extension of any other situation you encounter in normal routine.
  1. Must Speak:
    • The first principal of GD is that you must speak
    • Before you start speaking, think through the major issues in the topic.
    • Jot down points on the paper or mentally work out the framework for analysis.
    • If you do not understand the topic, ask the group what the topic means and accept your ignorance, or else wait, maybe the meaning will become clear after a few minutes of the discussion.
  1. Opening and Closing:
    • Opening a discussion is a high risk-high return strategy
    • Speak first only if you have sensible things to say. Otherwise keep silent and let someone else start.
    • Try and summarize the discussion at the end.

4. Be an active listener:

    • Carefully listen to others’ contribution to avoid pitfalls. It is very important to listen at every stage of the discussion as it will benefit you.
    • It prevents you from repeating something already said.
    • Help you take the discussion forward where another participant has left off.
    • Help you understand a topic of which you were ignorant, before the first speaker defined it.

5. Be assertive, not aggressive:

    • Do not get emotionally involved in the arguments.
    • Do not take it as a personal affront if others disagree with you.
    • Share your reasoning first
    • Do not express your stand initially. Note down major issues’ and remember not to jump to conclusions. Instead arrive at a stand of your own.
    • Remember, you are being evaluated on how you think and not what you think.
    1. Avoid any irritating gestures, like the following
    • Do not slouch in your chair, stretch your legs out, fidget or keep shaking your legs, play with your pen or any other object and do not point at others
    • Do not block your neighbors by bending too much forward in order to be heard.

    An interview is a face –to-face meeting, especially for the purpose of obtaining a statement or for assessing the qualities of a candidate. It further, indicates a physical meeting of people.
    Tips for the interview:-
  1. Entering the room
    • Prior to entering the room, adjust your attire so that it falls well.
    • Before entering enquire by saying, ‘May I come in Sir / Madam’
    • If the door was closed before you entered, make sure you shut the door behind you softly.
    • Face the panel and confidently say ‘Good day Sir /Madam’
    • If the members of the interview board want to shake hands, then offer a firm grip first maintaining eye contact and a smile.
    • Seek permission to sit down. If the interviewers are standing, wait for them to sit down first before sitting.
  2. Enthusiasm
    • The interviewer normally pays more attention if you display an enthusiasm in whatever you say.
    • You should maintain a cheerful disposition throughout the interview
  1. Don’t Bluff:
    • If you do not know the answer to a question, it is better to acknowledge it, rather than trying to bluff your way through it.
    • The interviewer will respect your honesty.
    • In our experience, interviewers immediately take a stance of grilling a candidate if they suspect him of her of lying.
  1. Interviewer Fatigue:
    • Mostly interviews are conducted the whole day leading to fatigued minds
    • A little humor as a starter will ease the fatigued mind
    • You must be proactive in offering information about yourself as the interviewers will be willing listeners.
  1. Be well-mannered:
    • The way you conduct yourself reflects your upbringing and your culture.
    • It is good to project an air of humility
    • Over confidence is often misinterpreted by interviewees as arrogance
  1. Avoid Slang:
    • During an interview, slang will probably not be understood, and certainly not appreciated. Your communication needs to be as formal and explicit as possible.
  1. Be poised:
    • Your posture during the interview adds or diminishes your personality.
    • You should keep all certificates, testimonials and other relevant documents neatly on the table, preferably in a single file.
    • It is vital to be conscious about your posture and gesticulations as they tell a lot about our personality.
  1. Eye contact:
    • You must eye contact with the panel, right through the interview. This shows your self-confidence and honesty
    • Many interviewees’ while answering, tend to look away. This conveys you are concealing your own anxiety, fear and lack of confidence.
  1. Listen carefully:
    • It is imperative for you to listen carefully to the questions being asked.
    • If a question is not clear, it would be quite in order for you to seek clarification on the same.
    • Seeking clarification is far better than giving an irrelevant answer.
    • It is very annoying when an interviewee misinterprets the questions, and answers by saying something which is irrelevant.
  1. Be natural:
    • Many interviewees adopt a stance which is not their natural self.
    • Interviewers appreciate a natural person rather than an actor.
    • It is best for you to talk in the natural manner because then you appear genuine.


    1. Tell me about yourself.
    • This is a very general question in which you can say almost anything about yourself.
    • Prepare yourself for such a question so that you can tell about those things which are important such as basic details, your personality traits, achievements, aspirations, motivations and ambitions.
    • Remember that a two sentence answer will only convey how little there is to know about your

Q What are your strengths and weakness?

  • This is a question that has stumped many an interviewee.
  • It is asked to ascertain how much you know about yourself, since a person who knows oneself well is likely to be more effective in life.
  • Go to the interview having thought out well in advance what your strengths and weakness are and how you intend to improve on your weaknesses.

Q Tell us about your family background.

  • This question is asked by interviewers in order to determine the social, cultural, religious and economic milieu you have come from.
  • It gives the interviewer a clue about your attitudes and values
  • The best approach for such a question is to bring out not only the facts of parentage and background but also some of the good principals they have taught you. Mention family values.
    Managing yourself effectively under all circumstances is critical to your success. Tell yourself that you are as much an architect of a good interview as the panel. You will enjoy the experience with this perspective.
    And lastly,

Book Reference:

  1. How to prepare for group discussion and interview (with Audio Cassette)
    By: Prasad H.M.

Published By: Tata Mcgraw-Hill

  1. How to prepare for GD and Interview, 2/E
    By: Prasad, Hari Mohan, Rajnish

Published By: Prentice hall of India

Bank Deposits score over Postal Deposits

This is a tale of two friends, Amit and Vijay, in their 50ies. They met in the Mumbai local trains 15 years back and become fast friends. Both have tried to catch the same local home whenever possible. In their 45 minutes journey together, they would discuss everything under the sun but the all time favourite was investments. As they grew older their focus has shifted from the stock market and mutual funds to safer avenues.

This year with the Diwali bonus amount Amit is keen to take advantage of the higher interest rates prevailing and invest the amount in a fixed deposit. Vijay however is a diehard fan of Post Office Saving Schemes and is planning on putting in his share of bonus into a Postal Deposit. On the face of it both avenues of saving are attractive but which is the best choice?

The Fixed Deposit Advantage

Fixed deposits (FDs) have conventionally been popular investment avenues among risk-averse investors. With the proposition of assured returns and safety of capital, FDs are right up the alley of risk-averse investors. A fixed deposit is meant for those investors who want to deposit a lump sum of money for a fixed period; say for a minimum period of 15 days to five years and above, thereby earning a higher rate of interest in return. Investor gets a lump sum (principal + interest) at the maturity of the deposit.

Bank fixed deposits are one of the most common savings scheme open to an average investor. Fixed deposits also give a higher rate of interest than a savings bank account. The facilities vary from bank to bank. Some of the facilities offered by banks are overdraft (loan) facility on the amount deposited, premature withdrawal before maturity period (which involves a loss of interest) etc. Bank deposits are fairly safer because banks are subject to control of the Reserve Bank of India.

Rate of Interest

Rates of Interest currently are at a high at around 9%. There is always additional 0.5-1% for senior citizens


Withdrawals can be made from fixed deposits fairly easily. There are usually penalty for early withdrawals. These days private sector banks offer sweep facilities for fixed deposits or so called “unfixed deposits” which offer the facility to the customers to use the whole or part of the fixed deposits with ease.

Tax Advantage

Tax-saving is no longer the guarded domain of Public Provident Fund (PPF) and National Savings Certificate (NSC). Tax-saving FDs which for a period of over 5 years are offered by banks are also eligible for deduction under Section 80C. However the interest earned on other Fixed deposits is taxable according to the tax slab you fall in. Bank fixed deposits with a maturity of five-years and above is allowed tax deduction up to Rs 1 lakh under section 80C from fiscal 2006-07.

Postal Time Deposits – The poor Cousin

The Post Office offers a vast range of small saving instruments. They are very popular because the wide access of the post offices. One of the saving schemes offered is a Post Office Time Deposit Account.

Prima facia this deposit is similar to the Fixed Deposit Accounts offered by banks.

The deposit can be opened for 1,2,3 and 5 years from any post office or from postal agents who will complete the formality for you.

The deposit is made only once in a Time Deposit Account, while opening the Account. The deposit shall be in multiple of Rs.50 with minimum Rs.200 and there is no maximum limit for amount of deposit in an Account. The deposit shall be repayable only after the expiry of the period for which it is made. On maturity, the depositor gets back the amount deposited initially along with the interest as applicable from time to time, on the production of the passbook accompanied by a written application, in the Post Office Savings Bank.

Rate of Interest

Rates of Interest currently are at a high at between 6.25% -7.5%. The rates are decided by the Ministry of Finance and do not really move with the market. Hence we will find that the bank fixed deposit rates fluctuate easily whereas these rates are more or less fixed for a long period.


The deposited amount is repayable after expiry of the period for which it is made viz: 1 year, 2 years, 3 years or 5 years. Premature withdrawals from all types of Post Office Time Deposit accounts are permissible after expiry of 6 months with certain conditions. If deposits made for 2 years, 3 years, or 5 years are prematurely withdrawn after one year, the interest will be paid at a rate 2% less than the rate applicable to the period for which the deposit has run.

Tax (Dis)Advantage

The postal time deposits are severely disadvantaged over bank deposits since the interest on these deposits are not tax free. Tax is not deducted at source but must be included in tax computation under the head of ‘Other Incomes’.

Let the figures speak

The actual figures speak much larger than any explanation can as to which avenue has become the preferred one for the investor. It is fairly clear that Amit is on the right track by preferring to put his bonus into bank fixed deposit. If Amit puts in Rs.20,000 in a fixed deposit of a bank at the current rate being offered of 9.5% p.a. and he will get Rs.32,100 at the end of 5 years. The interest amount Rs.12,100 is taxfree.

Whereas they follow Vijay’s paths of investment, the Rs20,000 invested in postal time deposits will earn, Rs29,797. What more this amount is taxable. It is clear what is the best choice.

Other Postal Schemes

Monthly Income Schemes

Monthly Income Scheme is an ideal scheme for VRS takers and retired persons, seeking fixed monthly income. Deposit range starts from Rs.1000, which goes up to Rs.300,000 in case of single Account and up to Rs.600,000 in case of joint Account. Monthly Income Scheme Account is transferable from one post office to another and nomination facility is also available for the Account. The current rate of Interest is 8% p.a.

Recurring Deposit

Recurring deposit scheme give a chance for the investor to put aside money for the future at regular intervals. It has a 5 year maturity and can be extended for further 5 years. One withdrawal up to 50% of the balance allowed after 1 year, closure allowed after 3 years with different rate of interest. The rate of return on this deposit is – Rs.10 per month returns Rs.728.90 on maturity