EEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE THE HINDU DELHI MONDAY, SEPTEMBER 9, 2019 MONEYWISE 15 EEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEEE One, even if banks link repo or t­bill yield. This under external bench­ ASK US lending rates to the same means that your lending marks. For instance, they external benchmark, the rate will be revised much could offer a steady EMI. resultant base rate would faster. In case of SBI’s Takeaway 3: Look at vary across banks initially home loan product, individual products and due to different spreads by changes to lending rates understand their struc­ each bank. happen immediately ture before deciding if For instance, consider (within a month of change predictability in EMIs is SBI and IDBI. Both banks in RBI’s repo rate). important to you. have already linked their Aside from quicker home loans to repo rate. transmission, this also im­ Existing borrowers But their RLLR varies. For plies other changes in The RBI has also allowed SBI, while the RLLR is your monthly payouts. existing borrowers under Aarati Krishnan 7.65% currently, for IDBI Under a regular home MCLR to move to the ex­ Q. My father is retiring on July 31. He wantsto Bank it is 8.3%. loan product, your equat­ ternal benchmarked­ invest ₹5 lakh. Please advise. While any action by the ed monthly instalment loans, without levy of any RISHABH DUBEY RBI in future will see lend­ (EMI) on home loan is fair­ charge or fee. Given that ing rates move higher or loans under the new struc­ A.The investment recommendation would lower by the same quan­ DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD ture will most likely be depend on his goals. Assuming his main tum in both banks, since cheaper than under objective is to protect his capital while New avatar the initial base rate is diffe­ MCLR, in a particular receiving a good return from this investment, ● Floating rate loans to he should consider the post office Senior po­linked home loan in Ju­ rent, the effective rate for be linked to repo rate bank, borrowers should Citizens’ Savings Scheme, which allows ly. Lending rates change borrowers would vary. consider making the individuals to invest up to ₹15 lakh of every time the RBI tweaks Two, banks arrive at the ● RBI rate actions will switch. retirement proceeds. The scheme has a five­ its repo rate. effective rate by assigning get transmitted almost However, do take note year lock­in period and pays interest at a fixed Easy on immediately The repo­linked a mark­up over the bench­ of any hidden charges rate every quarter. For July to September lending rate or RLLR mark. This is based on the (RBI has allowed some ad­ 2019, the interest rate stands at 8.6% per ● Loans to be cheaper changes from the first risk­profile of the borrow­ ministrative/ legal costs) annum. If your father invests before the end of than under MCLR September 2019, he stands to receive 8.6% of the following month er and could also differ before making the move. ● Monthly payouts to interest throughout his five­year holding in which the RBI chang­ across banks. In case of Also ensure that you are the pocket es its repo rate. With the SBI, for instance, while the change offered the same lending period. The account can be opened at many leading banks apart from the post offices. This RBI’s 35 bps repo rate cut spread is 40 bps, in the DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD rate as a new borrower un­ scheme is absolutely safe, being a Cheaper loans is good news in August, SBI’s RLLR has case of IDBI Bank the der the external bench­ Government of India borrowing. If your father for borrowers but they must look reduced to 7.65% since spread charged over and ly stable. Even when the mark regime. does not need regular cash flows, he can September 1 (from the 8% above its RLLR is zero in lending rate is reset based It may be prudent to al­ perhaps consider debt mutual funds investing out for spread and product structure earlier). case of borrowers with a on the latest MCLR, banks so weigh in the benefits. If in high quality bonds. But they carry market risks and pose some risk to capital. Hence, for home loans high credit score of 750 usually change the tenure you are nearing the end of up to ₹75 lakh, the effec­ and above. (lower the tenure in case your existing loan, it may Q. My husband and I want to support my tive interest rate for bor­ Though the effective of a fall in rates) of your not make sense to make parents and in­laws with a fixed monthly rowers with a good credit lending rate for SBI still loan rather than EMI — un­ the switch. If you do not amount. Please suggest investment plans Radhika Merwin funds­based lending rate). Ideally, when the RBI score works out to 8.05% works out cheaper, bor­ less you specify otherwise. care much for volatility in that would yield ₹10,000 per month. Lending rates on your There are several cuts or hikes the repo rate, (including mark­up of 40 rowers need to take note This, in effect, keeps your your EMIs, then consider SOUNDARYA N home, vehicle and perso­ nuances in the new struc­ banks’ MCLR should also bps over RLLR) currently. of the mark­up at all times. EMI steady. the move only if the inter­ A. Immediate annuity plans from life insurers nal loans could get cheap­ ture that borrowers need move in tandem. But given In comparison, the rate Takeaway 2: Borrow­ Under SBI’s RLLR, ho­ est savings are substantial. are usually the best way to secure a fixed (and er. Last week, the RBI to be wary of. that banks only source a on SBI’s MCLR­linked ers must take note of the wever, a minimum 3% of Also, as of now, it ap­ relatively risk­free) regular income for those mandated banks to link small portion (1%) of their home loan now is 8.65%. underlying benchmark the principal loan amount pears that the no­charge/ who cannot actively manage their money. new floating rate personal Better transmission deposits at RBI’s repo rate, Takeaway 1: Loans un­ and spread while finalis­ is repaid every year. Inter­ fee mandate applies only Under these plans, you pay a lump sum to an and retail loans to an ex­ Floating rate loans, wheth­ banks’ cost of funds re­ der the new external ing the loan, and then est charged on the loan is to a switch within the insurer who undertakes to pay a lifelong annuity (pension) as long as you live. ternal benchmark from er for buying a new house duce or increase by a benchmark structure will compare across banks. serviced monthly, based same bank. If you are mak­ However, the key disadvantage is they offer October 1, 2019. The exter­ or a vehicle, are pegged smaller amount (than re­ get cheaper if the RBI con­ on the lending rate effec­ ing a move from one bank very low returns (about 6­6.5%) compared to nal benchmark can be the against a particular bench­ po rate movement), limit­ tinues to cut rates. On the Reset rules tive at that point in time. to another, there could be bank deposits or debt mutual funds. If you are RBI’s repo rate, the 3­ mark. Until now, each ing the changes in MCLR. flip side, be prepared for a Under the external bench­ Hence, your EMI changes additional charges. interested in such plans, do check out LIC month treasury bill yield bank decided its bench­ Under the new repo­ higher payout when the mark structure, the RBI (in the following month) Takeaway 4: Switch to Jeevan Shanti, LIC Jeevan Akshay VI and HDFC or the 6­month treasury mark based on its cost of rate­linked system, RBI’s RBI starts hiking rates. has mandated that loans every time there is a external benchmark loans Life Immediate Annuity plan. bill yield. Up until now, deposits or borrowings. rate actions will get trans­ are reset at least once in change in RBI’s repo rate. only if the remaining te­ However, if you are targeting a ₹10,000 per loans were linked to the Given that each bank’s mitted almost immediate­ Base and spread three months — provided, For now, it is unclear nure of your loan is long month payout for the next ten years, you should consider the Pradhan Mantri Vaya bank­specific benchmark cost is different, MCLR al­ ly. Let us take the case of Borrowers should be wary of course, that there are how other banks will and interest savings are Vandana Yojana offered by the LIC. The — MCLR (marginal cost of so varied across banks. SBI. It introduced the re­ of two things. changes in the underlying structure their products substantial. scheme is currently open until March 31, 2020. 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