Since quite some time I had been thinking about adding an International fund to my mutual fund portfolio, to give it a global edge :)
An international fund provides the much needed diversification to your portfolio. Just to quote an example say a scam like Satyam need not necessarily have an effect on stock markets in other countries. Also the economic situation may not be equally bad in all countries at the same time. Right now most of the developed world is in recession, but developing countries like India/China are still growing ( albeit, at a slower pace ). This story may reverse in future. So there is a need to diversify globally.
But there are some risks also associated with global funds:
1. Foreign exchange risk: Say Rupee appreciates heavily against the US dollar then the investors may actually end up losing money in this fund, even though their holdings may have appreciated in US dollar terms.
2. Lesser tax-benefits: A mutual fund has to invest 65% or more of its assests in the Indian equity market to qualify as an equity-oriented scheme. Since global mutual funds invest in the international market they are not eligible for tax-benefits offered to equity mutual funds in India ( like tax-free dividends, zero tax on long term capital gains ).
3. Fund-manager risk: The fund manager may not be well-versed with the international markets, which can be a reason of worry for the investors.
When I went about looking for an international mutual fund, the following were my requirements:
1. Well diversified global equity fund
2. No sector or country bias, no developed/developing economy bias.
3. Low fees
4. Minimum exposure to India, as I already have my Indian equity portfolio in place.
Let's see what are the available options and choose the best out of them:
Franklin India International : This is not an equity fund, but a debt fund which invests in US govt. securities. Verdict: NO
Kotak Global Emerging Market : As the name suggests this is a fund that invests in the emerging markets ( India, China, ME, South America ). And also this acts as feeder fund where the money invested is routed into the TRP SICAV Global Emerging Equity Fund, which means two level of fees. Verdict: NO
Principal Global Opportunities : This again is a feeder fund for PGIF Emerging Markets Equity. Same comments as for the above Kotak fund. Verdict: NO
Fidelity International Opportunities : Has very little international exposure. Maybe the fund manager is trying to make this fund get the tax benefits of equity-oriented mutual funds in India by holding atleast 65% assets in Indian stocks. Verdict: NO
ICICI Pru Indo Asia Equity : Fund objective states that it will concentrate on Asia. Its holdings also show that it holds around 65% assets in Indian stocks ( presumably, for tax-benefits ) and the rest in IOF Asian Equity Fund for exposure to Asian stocks. Verdict: NO
Tata Indo Global Infrastructure : The fund objective has a sector-bias and will primarily invest in Infrastructure companies. Just like the ICICI Pru Indo Asia Equity this has too much of India exposure. For global exposure it currently relies on two funds viz, INVESCO Asia Infrastructure and Credit Suisse Emerging Market which displays an Asian/Emerging market bias. Verdict: NO.
Birla Sun Life Commodity Equities : Birla Sun Life has three international commodities fund, but since they have a sector bias my verdict is no. There are three different variants of this fund global agriculture , global multi commodity & global precious metal. Verdict: NO
Kotak Indo World Infrastructure : Sector-bias, plus too much of Indian holdings. Verdict: NO
Birla Sun Life International Equity : This has two plans. Plan A invests upto 100% percent in international equity and has S&P Global 1200 as the benchmark. Plan B invests atleast 65% in Indian markets with the rest going to International markets. Since I am looking only for a global fund, Plan A suits my need. Except for the fact that the fund expenses are a bit on the higher side ( around 2.34% ) everything else is almost perfect. It is well diversified across sectors and countries.
Hence from all the available options presently, I believe Birla Sun Life International Equity Plan A is the only one that suits my need. I wish there are more global funds from other fund houses as well. I don't know if this is the right time to start investing in the international markets, so I am opting for an SIP.
Disclaimer: This is not a mutual fund recommendation service. The above analysis was done only for personal use by the author. Do consult a financial advisor before making any investment decisions.
Tuesday, February 10, 2009
Thursday, February 5, 2009
On Reader's request: Tata Capital NCD and some advice on Insurance
A reader had requested me to post few details about Tata Capital NCD. So here it goes:
1. NCD are being offered in demat format only. Hence you need to have a demat account before you can apply for NCD.
2. The prospectus can be found here.
3. NCD are being offered in four options: Monthly interest, Quarterly , Annual & Cumulative Interest. ( Refer to Page 26 & Page 137 of the prospectus for complete details about these options ).
4. For Annual & Cumulative option, the interest rate is 12% p.a. For monthly option it is 11% p.a. and for quarterly option it is 11.25% p.a.
5. The NCD have a tenor of 5 years from the date of issue. Tata Capital can call for early redemption of NCD after 3 years ( 3.5 years for Quarterly option ). Similarly you can also pre-maturelty withdraw after 3 years ( 3.5 years for Quarterly option ).
6. Minimum investment amount is Rs. 1 Lac for Monthly Interest option. For all other options it is Rs. 10,000/-
7. No TDS on interest, if held in demat form.
8. How to apply: Approach Integrated Enterprises or you can directly contact the registrars Karvy Computerhare to obtain the application form and apply.
Disclaimer: This is not an offer for sale or investment. Please refer to the offer prospectus for complete details.
Chinmay shah has asked me a question related to Insurance. You can read it here. My answer is below.
Generally combining Insurance and Investment is not good. Hence ULIPs are a strict no-no in my opinion. Many good financial advisors have written extensively about the dis-advantages of ULIPs. You can read them here, here and here.
Since you want to invest for your child's education, it means that you need the money atleast 15 years from now. You can use a combination of PPF & SIP (Systematic Investment Plan ) in mutual funds to achive your goals.
1. PPF : You can open a PPF account in the nearest SBI branch or Post Office in your or your child's name. Use an agent to open PPF account, the agents make the job much simpler. PPF offers 8% p.a. ( interest rate may change in future ) which is tax-free. The scheme maturs after 15 years. For more details refer here.
2. Systematic Investment Plan: To understand SIP you can read this article. In simple terms SIP is an investment in mutual funds distributed over a period of time.
Below is a sample calculation, you can adjust it to your needs:
Amount required after 15 years: Rs. 25,00,000/-
Amount you can save every month for your child's future: Rs. 5000/-
Returns offered by PPF: 8% p.a. ( assumed )
Returns offered by SIP in mutual funds: 15% p.a. ( assumed, a conservative estimate ).
Let's allocate your monthly savings of Rs. 5000/- as:
Rs. 2000 for PPF and Rs. 3000 for SIP in mutual funds.
Now let's calculate whether you will be able to achieve your goal of accumulation Rs. 25 Lacs after 15 years.
Go to the recurring deposit calculator.
Calculation for PPF:
Recurring deposit amount: 2000
Frequency of deposit: monthly
Interest rate: 8
Duration: 180 months
Amount on maturity: Rs. 696690.32 ( ~ Rs. 7 Lac )
Calculation for SIP in mutual funds:
Recurring deposit amount: 3000
Frequency of deposit: monthly
Interest rate: 15
Duration: 180 months
Amount on maturity: Rs. 2030589.27 ( ~ Rs. 20 Lac )
After 15 years you must have accumulated around Rs. 27 Lacs ( based on the returns we have assumed ). The actual returns may be higher or lower.
By varying the your monthly contribution and the allocation between PPF & SIP in mutual funds you can achieve your financial goals easily.
Choice of mutual funds for SIP: I would recommend you to invest via the SIP route in 3-4 mutual funds of the equity diversified type. If you are first time investor in mutual funds, you can ask your broker/agent/financial advisor for help. You can also make use of Value Research ratings to choose an equity-diversified mutual fund.
1. NCD are being offered in demat format only. Hence you need to have a demat account before you can apply for NCD.
2. The prospectus can be found here.
3. NCD are being offered in four options: Monthly interest, Quarterly , Annual & Cumulative Interest. ( Refer to Page 26 & Page 137 of the prospectus for complete details about these options ).
4. For Annual & Cumulative option, the interest rate is 12% p.a. For monthly option it is 11% p.a. and for quarterly option it is 11.25% p.a.
5. The NCD have a tenor of 5 years from the date of issue. Tata Capital can call for early redemption of NCD after 3 years ( 3.5 years for Quarterly option ). Similarly you can also pre-maturelty withdraw after 3 years ( 3.5 years for Quarterly option ).
6. Minimum investment amount is Rs. 1 Lac for Monthly Interest option. For all other options it is Rs. 10,000/-
7. No TDS on interest, if held in demat form.
8. How to apply: Approach Integrated Enterprises or you can directly contact the registrars Karvy Computerhare to obtain the application form and apply.
Disclaimer: This is not an offer for sale or investment. Please refer to the offer prospectus for complete details.
Chinmay shah has asked me a question related to Insurance. You can read it here. My answer is below.
Generally combining Insurance and Investment is not good. Hence ULIPs are a strict no-no in my opinion. Many good financial advisors have written extensively about the dis-advantages of ULIPs. You can read them here, here and here.
Since you want to invest for your child's education, it means that you need the money atleast 15 years from now. You can use a combination of PPF & SIP (Systematic Investment Plan ) in mutual funds to achive your goals.
1. PPF : You can open a PPF account in the nearest SBI branch or Post Office in your or your child's name. Use an agent to open PPF account, the agents make the job much simpler. PPF offers 8% p.a. ( interest rate may change in future ) which is tax-free. The scheme maturs after 15 years. For more details refer here.
2. Systematic Investment Plan: To understand SIP you can read this article. In simple terms SIP is an investment in mutual funds distributed over a period of time.
Below is a sample calculation, you can adjust it to your needs:
Amount required after 15 years: Rs. 25,00,000/-
Amount you can save every month for your child's future: Rs. 5000/-
Returns offered by PPF: 8% p.a. ( assumed )
Returns offered by SIP in mutual funds: 15% p.a. ( assumed, a conservative estimate ).
Let's allocate your monthly savings of Rs. 5000/- as:
Rs. 2000 for PPF and Rs. 3000 for SIP in mutual funds.
Now let's calculate whether you will be able to achieve your goal of accumulation Rs. 25 Lacs after 15 years.
Go to the recurring deposit calculator.
Calculation for PPF:
Recurring deposit amount: 2000
Frequency of deposit: monthly
Interest rate: 8
Duration: 180 months
Amount on maturity: Rs. 696690.32 ( ~ Rs. 7 Lac )
Calculation for SIP in mutual funds:
Recurring deposit amount: 3000
Frequency of deposit: monthly
Interest rate: 15
Duration: 180 months
Amount on maturity: Rs. 2030589.27 ( ~ Rs. 20 Lac )
After 15 years you must have accumulated around Rs. 27 Lacs ( based on the returns we have assumed ). The actual returns may be higher or lower.
By varying the your monthly contribution and the allocation between PPF & SIP in mutual funds you can achieve your financial goals easily.
Choice of mutual funds for SIP: I would recommend you to invest via the SIP route in 3-4 mutual funds of the equity diversified type. If you are first time investor in mutual funds, you can ask your broker/agent/financial advisor for help. You can also make use of Value Research ratings to choose an equity-diversified mutual fund.
Monday, February 2, 2009
How I chose a Savings Bank account
I had wished to title this post as "The best Savings Bank account", but then I realized one size does not fit all that's why I am going to tell you how I went about choosing a savings bank account for myself. My criterion may or may not suit you.
Well, my search for a Savings Bank account began with 3 criterion in mind:
1. Debit Card: Free for life, specially no annual fees.
2. Debit Card: facility to use at all ATMs without any charges.
3. If possible, payable-at-par cheques all over India.
ICICI was immediately ruled out because at that time they didn't offer any account with zero annual fees for debit card ( except for senior citizens ). Most public sector banks ( except SBI and its associates ) had a non-existent ATM network. SBI and its associates offered ATM cards , but were loaded with annual fees. Axis bank too had annual fees for Debit Card.
But when I had a look at HDFC Savings Plus account, it looked like it was tailor-made for me. No annual fees for Debit Card, plus the facility to use the Debit Card at other bank ATMs without any charges ( 5 times in a month ). Additionally the payable-at-par cheque facility was also there. All I had to do was maintain a AQB of Rs. 10,000/-
And so I chose HDFC Savings Plus account.
After that RBI came out with circulars which made life much easier for me. As per RBI's instructions starting April 2008, there are no charges for balance enquiry at other bank ATMs throughout India and from April 2009 there are no charges for cash withdrawal as well. So if you want to cut down on your Debit card charges just make sure that its annual fees is zero which means:
1. You get your Debit card free for lifetime.
2. Also starting April 2009 you can do balance enquiry and cash withdrawal at all ATMs in India without any charges ( Thank RBI for the circular ).
Nowadays many banks offer savings account with free debit card. Some of them are ICICI Gold and Titanium privilege account, Kotak Mahindra Bank's Ace and Pro accounts, HDFC's Savings Plus and Savings Max account and South Indian Bank's Privilege Savings account.
Well, my search for a Savings Bank account began with 3 criterion in mind:
1. Debit Card: Free for life, specially no annual fees.
2. Debit Card: facility to use at all ATMs without any charges.
3. If possible, payable-at-par cheques all over India.
ICICI was immediately ruled out because at that time they didn't offer any account with zero annual fees for debit card ( except for senior citizens ). Most public sector banks ( except SBI and its associates ) had a non-existent ATM network. SBI and its associates offered ATM cards , but were loaded with annual fees. Axis bank too had annual fees for Debit Card.
But when I had a look at HDFC Savings Plus account, it looked like it was tailor-made for me. No annual fees for Debit Card, plus the facility to use the Debit Card at other bank ATMs without any charges ( 5 times in a month ). Additionally the payable-at-par cheque facility was also there. All I had to do was maintain a AQB of Rs. 10,000/-
And so I chose HDFC Savings Plus account.
After that RBI came out with circulars which made life much easier for me. As per RBI's instructions starting April 2008, there are no charges for balance enquiry at other bank ATMs throughout India and from April 2009 there are no charges for cash withdrawal as well. So if you want to cut down on your Debit card charges just make sure that its annual fees is zero which means:
1. You get your Debit card free for lifetime.
2. Also starting April 2009 you can do balance enquiry and cash withdrawal at all ATMs in India without any charges ( Thank RBI for the circular ).
Nowadays many banks offer savings account with free debit card. Some of them are ICICI Gold and Titanium privilege account, Kotak Mahindra Bank's Ace and Pro accounts, HDFC's Savings Plus and Savings Max account and South Indian Bank's Privilege Savings account.
Thursday, January 15, 2009
Savings Tip: Quartelry Income Scheme
Post Office Monthly Income Scheme ( MIS ) is very popular among the masses, especially those retired.
Its features are:
1. Monthly income at the rate of 8% per annum + 5% bonus on maturity (which works out to be an effective yield of 8.9% )
2. Income is taxable, but no TDS.
Some of its disadvantages are:
1. Interest rates are not in-line with the market rates. As recently as October-November 2008 when banks were offering more than 10% on fixed deposits, the MIS interest rate was still 8%
2. There is a ceiling on maximum investment.It is rupees 3 lakhs for a single account.
3. Cumbersome visits to the post office and sometimes you have to face long queues ( although this can be resolved by following one of my previous post )
4. Restrictions on pre-mature withdrawal. You cannnot close an MIS account before 1 year.
All the above disadvantages can be overcome by employing the Quarterly Interest option offered by Bank FDs. Usually when customers open a fixed deposit ( FD ) with a bank they go for the cumulative option where interest keeps on accumulating and is paid out only on maturity. Instead they can go for a quarterly interest option FD where the interest is calculated and paid out quarterly. Most banks ( public & private ) offer this option of quarterly interest payout, which can also be credited to your bank account.
With a litte bit of self-discipline you can use this Quarterly interest option as a replacement for MIS. Some banks also offer the monthly interest payout FDs but the interest rate on such FDs is usually lower ( by around 0.5% ).
Let's see how we have overcome the above disadvantages of PO MIS by replacing them with Bank FDs:
1. The interest rates are in line with the market rates. If the interest rates in Banks are higher than POMIS, it makes sense to go for Bank FDs.
2. No upper limit on investment.
3. Interest can be credited to your bank account directly.
4. No restrictions on pre-mature withdrawal. You can break an FD whenever you wish to.
Tax-treatment is same as MIS, except for the fact that TDS is applicable.
Its features are:
1. Monthly income at the rate of 8% per annum + 5% bonus on maturity (which works out to be an effective yield of 8.9% )
2. Income is taxable, but no TDS.
Some of its disadvantages are:
1. Interest rates are not in-line with the market rates. As recently as October-November 2008 when banks were offering more than 10% on fixed deposits, the MIS interest rate was still 8%
2. There is a ceiling on maximum investment.It is rupees 3 lakhs for a single account.
3. Cumbersome visits to the post office and sometimes you have to face long queues ( although this can be resolved by following one of my previous post )
4. Restrictions on pre-mature withdrawal. You cannnot close an MIS account before 1 year.
All the above disadvantages can be overcome by employing the Quarterly Interest option offered by Bank FDs. Usually when customers open a fixed deposit ( FD ) with a bank they go for the cumulative option where interest keeps on accumulating and is paid out only on maturity. Instead they can go for a quarterly interest option FD where the interest is calculated and paid out quarterly. Most banks ( public & private ) offer this option of quarterly interest payout, which can also be credited to your bank account.
With a litte bit of self-discipline you can use this Quarterly interest option as a replacement for MIS. Some banks also offer the monthly interest payout FDs but the interest rate on such FDs is usually lower ( by around 0.5% ).
Let's see how we have overcome the above disadvantages of PO MIS by replacing them with Bank FDs:
1. The interest rates are in line with the market rates. If the interest rates in Banks are higher than POMIS, it makes sense to go for Bank FDs.
2. No upper limit on investment.
3. Interest can be credited to your bank account directly.
4. No restrictions on pre-mature withdrawal. You can break an FD whenever you wish to.
Tax-treatment is same as MIS, except for the fact that TDS is applicable.
NABARD Bhavishya Nirman Bonds
Bhavishya Nirman Bonds ( BNB) are currently on offer from National Bank for Agricultural and Rural Development ( NABARD ).
In their ads, NABARD are proudly claiming an interest rate of 12.18%, but Investors must keep in mind 12.18% being advertised is the simple rate of interest. The compounded interest rate is 8.93%
This may seem a bit on the lower side ( comparing the high interest rates, currently prevalent for Bank FDs ), but it has some benefits vis-a-vis Bank FDs.
Let analyse BNB features to understand it better:
1. Every BNB has a face value of Rs. 20,000/- and the issue price is Rs. 8500/- which means that one can buy the bond certificate for Rs. 8500/- now and encash it after 10 years for Rs. 20,000/-
2. It is a zero coupon bond ( i.e. interest rate offered is 0%), but all benefits come in terms of capital appreciation ( a bond bought at Rs. 8500/- appreciates to Rs. 20,000/- in one year ). Since the income comes in form of capital gains and not as interest earned on deposit, different tax rules apply. The gains are taxable under long term capital gains which carry a lower tax rate.
3. BNB are tradeable on BSE ( Bombay Stock Exchange ) to provide early exit option for investors.
4. But there are no tax savings available under 80C for investments under this bond.
People in higher tax slabs looking for tax savings in terms of lower tax would like to invest in these. But keep in mind tax laws may change!
In their ads, NABARD are proudly claiming an interest rate of 12.18%, but Investors must keep in mind 12.18% being advertised is the simple rate of interest. The compounded interest rate is 8.93%
This may seem a bit on the lower side ( comparing the high interest rates, currently prevalent for Bank FDs ), but it has some benefits vis-a-vis Bank FDs.
Let analyse BNB features to understand it better:
1. Every BNB has a face value of Rs. 20,000/- and the issue price is Rs. 8500/- which means that one can buy the bond certificate for Rs. 8500/- now and encash it after 10 years for Rs. 20,000/-
2. It is a zero coupon bond ( i.e. interest rate offered is 0%), but all benefits come in terms of capital appreciation ( a bond bought at Rs. 8500/- appreciates to Rs. 20,000/- in one year ). Since the income comes in form of capital gains and not as interest earned on deposit, different tax rules apply. The gains are taxable under long term capital gains which carry a lower tax rate.
3. BNB are tradeable on BSE ( Bombay Stock Exchange ) to provide early exit option for investors.
4. But there are no tax savings available under 80C for investments under this bond.
People in higher tax slabs looking for tax savings in terms of lower tax would like to invest in these. But keep in mind tax laws may change!
The cheapest term life insurance
I often advice people not to combine insurance and investment and the only insurance product which offers such a possibility is term life insurance.
First let's try to find out what's term life insurance. Wikipedia has a very good definition for it.
In simple, term life insurance provides you only insurance and you don't get anything at the end of policy term ( on survival ). Hence those who opt for it treat insurance as a cost ( or expense ) rather than an investment.
Recently I came across this page on the personalfn website. This page lists down the premium charged by different life insurance companies in India for term life insurance. As you would notice the lowest premium is charged by SBI Life Insurance ( which is owned 74% by the State Bank of India ).
An year back, when I was evaluating Indian Life Insurance companies to purchase a term insurance plan, I had chosen SBI Life. In hindsight, that looks like an intelligent decision.
To be precise, I had bought the option under which the "Sum assured increases by 5% annually" so that the Sum assured can atleast keep pace with inflation. But after I had purchased this policy I got a shocker. The 5% increase per annum is not compounded as I had thought, but is rather caluclated as simple interest on the original sum assured. Still SBI Life Shield looks the best that is on offer presently, since no other Inusrance company offers this facility of increase in Sum assured annually.
Disclosure: I am not associated with SBI Life in any way, except for the fact that I have purchased SBI Life Shield, their term insurance plan last year. If you are aware of any other Life insurance company offering a lower premium for term insurance in India, please do comment and I will update this post accordingly.
First let's try to find out what's term life insurance. Wikipedia has a very good definition for it.
In simple, term life insurance provides you only insurance and you don't get anything at the end of policy term ( on survival ). Hence those who opt for it treat insurance as a cost ( or expense ) rather than an investment.
Recently I came across this page on the personalfn website. This page lists down the premium charged by different life insurance companies in India for term life insurance. As you would notice the lowest premium is charged by SBI Life Insurance ( which is owned 74% by the State Bank of India ).
An year back, when I was evaluating Indian Life Insurance companies to purchase a term insurance plan, I had chosen SBI Life. In hindsight, that looks like an intelligent decision.
To be precise, I had bought the option under which the "Sum assured increases by 5% annually" so that the Sum assured can atleast keep pace with inflation. But after I had purchased this policy I got a shocker. The 5% increase per annum is not compounded as I had thought, but is rather caluclated as simple interest on the original sum assured. Still SBI Life Shield looks the best that is on offer presently, since no other Inusrance company offers this facility of increase in Sum assured annually.
Disclosure: I am not associated with SBI Life in any way, except for the fact that I have purchased SBI Life Shield, their term insurance plan last year. If you are aware of any other Life insurance company offering a lower premium for term insurance in India, please do comment and I will update this post accordingly.
Monday, December 15, 2008
Savings Tip: Save on service charges
With airfares becoming unaffordable once again and new airports under development in different cities charging UDF ( in addition to the already high fares ), we middle-class people will have to rely on our "garib rath" the Indian Railways.
Thankfully, now IRCTC offers online booking facility for train tickets and you don't have to stand in queue for hours to get a reservation ticket. But this facility comes with some additional charges ( obviously! )
When you buy a ticket from IRCTC, there are 3 costs that you incur:
1. The ticket fare and reservation cost ( this goes to the Indian Railways )
2. The IRCTC commision ( depends on the class for which ticket is booked, for Sleeper it is Rs. 10 and for Third AC is it Rs. 20 and so on. IRCTC also pays some service tax out of this, but that is not relevant here )
3. The service charges payable to the payment gateway/bank.
We cannot do anything about the first two costs, but the third one depends on the bank you use to make the payment.
Let's have a look at the service charges of different booking for train ticket booking. Go to IRCTC Terms & Conditions and scroll down to section 2.1
This section is divided into two parts:
- Payment by Credit Cards
In this section you will notice that almost all payment gateways charge around 1.8%, but the Axis Bank payment gateway charges only 1.65%
So when paying by Credit Card, you can choose Axis Bank payment gateway for lower charges.
Update 1: A reader has faced problem with Axis Bank with respect to refunds, and he advises not to use Axis Bank payment gateway.
Update 2: Chinmay Shah has suggested to use Kotak Credit Cards for railway ticket booking. Kotak Credit Cards have the facility of railway surcharge waiver which means no payment gateway charges for Kotak Credit Cards. I'm not sure about the annual fees and other charges of Kotak Credit Card, so do check them out before getting yourself a Kotak Credit Card.
- Payment by Direct Debit
Most of the banks, charge a constant amount ( 10-11 rupees ) but there are some who don't levy any charges. These banks which don't levy any charge are much better than any credit card payment gateway, as the third cost ( in the list above ) is zero now. The list of banks which don't charge any amount for payment by Direct Debit are:
Thankfully, now IRCTC offers online booking facility for train tickets and you don't have to stand in queue for hours to get a reservation ticket. But this facility comes with some additional charges ( obviously! )
When you buy a ticket from IRCTC, there are 3 costs that you incur:
1. The ticket fare and reservation cost ( this goes to the Indian Railways )
2. The IRCTC commision ( depends on the class for which ticket is booked, for Sleeper it is Rs. 10 and for Third AC is it Rs. 20 and so on. IRCTC also pays some service tax out of this, but that is not relevant here )
3. The service charges payable to the payment gateway/bank.
We cannot do anything about the first two costs, but the third one depends on the bank you use to make the payment.
Let's have a look at the service charges of different booking for train ticket booking. Go to IRCTC Terms & Conditions and scroll down to section 2.1
This section is divided into two parts:
- Payment by Credit Cards
In this section you will notice that almost all payment gateways charge around 1.8%, but the Axis Bank payment gateway charges only 1.65%
So when paying by Credit Card, you can choose Axis Bank payment gateway for lower charges.
Update 1: A reader has faced problem with Axis Bank with respect to refunds, and he advises not to use Axis Bank payment gateway.
Update 2: Chinmay Shah has suggested to use Kotak Credit Cards for railway ticket booking. Kotak Credit Cards have the facility of railway surcharge waiver which means no payment gateway charges for Kotak Credit Cards. I'm not sure about the annual fees and other charges of Kotak Credit Card, so do check them out before getting yourself a Kotak Credit Card.
- Payment by Direct Debit
Most of the banks, charge a constant amount ( 10-11 rupees ) but there are some who don't levy any charges. These banks which don't levy any charge are much better than any credit card payment gateway, as the third cost ( in the list above ) is zero now. The list of banks which don't charge any amount for payment by Direct Debit are:
- Bank of Punjab
- Punjab National Bank
- ABN-Amro Bank
- Federal Bank
- Syndicate Bank
- IndusInd Bank
- Karnataka Bank
- Bank of India
- Bank of Baroda
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