Private Banking: Features And Challenges Explained

Personal banking is all about offering banking, investment, tax management, and other services to high-net-worth individuals. Unlike retail banking, private banking focuses on providing private facilities to the clients, through a dedicated personal banker or relationship manager. They are specifically meant to offer such individual services.

HNIs possess more wealth than the average person. Hence, they can access more and larger investments like hedge funds and real estate. Privilege banking gives HNIs advice and information concerning an appropriate investment option for them.

Features

Eligibility

Clients need to fulfil some requirements for being eligible under priority banking. It generally involves maintaining a minimum balance through deposits, individual retirement accounts, investments, and other kinds of assets. The minimum amount deposited in the account should also include qualifying linked deposits and investments.

Dedicated representative

Every HNI has a dedicated relationship manager or team of people who have a thorough understanding of the client's asset ownership, risk aversion, preferences, and long-term financial goals. The private banker or relationship manager facilitates cheque deposits, conducts wire transfers, orders cheques, etc.

Perks

Preferred banking customers receive many benefits such as lower annual percentage rates for loans, higher annual percentage yield on securities like certificates of deposits, free safe deposit boxes, etc. It is possible since charging such a minimal interest on larger loans generates substantial revenue for the bank.

High management fees

Clients should pay higher fees for the services given by the private bankers.

Target market

The affluent market is the primary target audience of such banking. While executing these normal lending activities, they can access tax documents and other personal documents for finding potential clients. However, the activities are subject to some considerations of conflict of interest.

Challenges

While private banking does offer so many benefits and features, it does face some challenges industrially. They are –

Lead generation

Client acquisition is an essential part of this banking. Most banks generally rely on traditional methods such as referrals and investment divisions to land new clients. The other option is referrals from existing clients. Those who were satisfied with the concept can refer their friends and family members who are HNIs. The other lead generation channels include social media and event marketing.

Regulatory restrictions

The Global Financial Crisis, 2008 led to the collapse of many financial institutes. Owing to this, the Government imposed stricter restrictions which included more transparency and accountability from banks. These regulations have made the licensing of private bankers restrictive. This has, in a way, affected both the nature of the service and career advancement.

Retaining professionals

Private banking is all about the relationship between the HNIs and private bankers assigned to each. However, since the financial crisis, this industry has experienced a high turnover rate. This is partly owing to the restrictive framework. Banks nowadays focus more on talent recruitment, training, and retaining the most qualified professionals.

4 Advantages Of Investing In Mutual Funds Through A SIP

Every person wants to save money for the future and other emergency expenses. They plan to invest in different financial products to earn decent returns to help them in the future. Since the future is unpredictable, it is always safer to start saving from the present day. Likewise, there are lesser chances of debts and repayment issues.

Investment options such as direct equity, SIP mutual fund, National Pension Scheme (NPS), Public Provident Fund (PPF), bank Fixed Deposit (FD), etc., provide excellent and guaranteed returns, depending upon the investor’s financial requirements. Though they may have to contribute a fixed amount, they are sure to get returns and see their investment multiply throughout their tenure.

Here are four advantages of investing in this financial product:

1. Helps investors maintain discipline: A systematic investment plan is the best investment option for those without superior financial knowledge of how the market works. They do not have to spend their time analysing the market movements or choose an opportune moment to invest. Unlike lump sum investments, it ensures there are periodic payments and active participation towards the scheme.
   
   
2. The rupee cost averaging factor: When investing in SIP continually for a longer period, individuals can take advantage of market volatility. With rupee cost averaging, the fixed investment amount averages out the value of each unit. It means investors can buy more units when the market is low, and vice-versa, making the average cost per unit low.
   
   
3. The power of compounding: SIP plans help ensure investment discipline and continuously strive to make them grow. The automation provides the growth of investment, unlike lumpsum, where they may forget to invest for some time. The small amount invested daily grows up to a large corpus as a sum of the contribution and the returns compounded over the years.
   
   
4. Ease of use: With a SIP investment, investors can relax. They can submit the application form online and initiate an auto-debit facility. A fixed amount of money goes towards the investment from their bank accounts throughout the tenure.

Conclusion

People can start investing in these plans at any time, ensuring minimum risk with the right scheme plan through mutual fund apps. They must choose a scheme that meets long-term investment goals also. Thus, there is no suitable time frame within which they should start investing. The sooner they decide to invest, the better it is for the future.

What Are The Advantages Of Opening An NRI Account?

Money is a valuable resource for people worldwide. They have lots of priorities and expenses to meet, which is impossible to achieve without adequate funds. They need to start saving from the present day to meet emergencies in the future. A bank account is the best option to store funds, earn interest and spend wisely.

An NRI bank account is available for only those individuals residing out of India’s geographical territories for at least 120 days throughout a year and spends less than 365 days in the country in four previous years. Under the Income Tax Act, 1961, an individual’s residential status would change to NRI only if they follow this rule. However, if the person leaves India for employment to a different nation, they will immediately get declared NRI.

NRIs need to understand the features of the three types of NRI savings account opening available for them in India. It helps them fulfil their investment objectives, financial obligations, and plans of residency adequately. They can open them with earnings originating either within India or their resident country, depending on the account type (NRE account, NRO account, or FCNR (B) account). Here are four advantages of opening this account:

1. It facilitates investment in financial instruments: One of the primary benefits of the NRI savings account is that individuals can participate in the stock market and invest in different schemes. These investments, supported by the Portfolio Investment Scheme (PIS), are offered by financial institutions. It is an RBI scheme allowing NRIs to trade in market-linked financial instruments like equity shares and debt instruments like company debentures. 

2. It offers many tax benefits: Individuals with NRE accounts and FCNR (B) accounts are eligible to enjoy tax-free interest earnings on their income, according to the Income Tax Act, 1961. Such global profits will be taxable in India under their domicile or residence if an NRI does not bear a tax liability to any other country, as per the Union Budget 2020 proposal. 

3. It offers high returns: An NRI account can help individuals earn substantial returns on the total deposits in NRE FDs and FCNR accounts at negligible risks without worrying about stock market fluctuations.
   
   
4. They can avoid exchange rate fluctuations: Individuals can choose to deposit their earnings from a foreign country in an FCNR account without conversion into INR. This facility allows NRIs to avoid exchange rate fluctuations and consequent reduction in the deposit value. However, they must remember to check the NRI account interest rates for getting additional benefits.

What Is The Best Process To Send Money To India?

 People want to progress and prosper in life. They have different goals and aspirations to achieve and want to live a happy and stress-free life after retirement. They want to get the best facilities, study in the best schools and colleges, work for the most renowned firms, and earn as much as they desire. The ladder of success does not stop there. Most also work abroad and have their families residing in India.

Monetary requirements can arise at any time without warning. Hence, it is safer to keep some funds aside as savings to meet emergency expenses and other immediate fund requirements. Individuals living abroad can send money to India to help support their families living expenses and keep them financially secure.

Money transfer to India can be costly, slow, and inconvenient; or cheap, fast, and convenient, based on the suitability of the method as per the requirements. Each method has its advantages and disadvantages. Here are the popular ways to transfer money:

1. Electronic fund transfers (account transfers): It refers to money transferred directly from the sender’s account to the creditor’s account. Also known as international money transfer, it is a popular option due to its convenience and security. However, it can often be expensive.

 

Sending money to India can take several days to go through, and there are significant variations in cost due to fluctuating foreign exchange rates. Besides, the fees charged by both the sender’s bank as well as the recipient’s bank can be high, which can drive up the overall cost of the transaction.

 

2. International money transfer operators: Traditionally, sending money abroad was a challenging task. It was expensive and involved several intermediaries. With the arrival of international money transfer operators, the process has become simple. Money transfer services offered by IMTOs are one of the most attractive ways to remit money to India because most of them can provide cheaper and faster transfers with different options to receive money. Send it to a bank account or collect it in cash in India.

 

Remittance companies still charge a fee to transact money to India. But the degree of margin involved is significantly less when compared to banks. International payments are the core service of IMTOs, so they try to find the best exchange rates possible. Banks are relatively diverse organisations with larger product offerings and tend to focus less on international exchange rates.

Why Should One Invest In Mutual Funds?

Investments are a great way of using the funds and gaining profit from it. Beginners would find this challenging to understand. Since it is a question of investing hard-earned money, they prefer receiving an explanation in-depth of its long-term benefits and high returns. Investing in financial resources to gain higher profits is a practice followed by many, including businesspeople, homemakers, and entrepreneurs.

By opting for mutual fund investment with top-ranking firms, investors get varied schemes and categories. They must decide the scheme category according to their objectives and risk profiles.

How do mutual funds work?

They form when asset management companies contribute investments from different individual and institutional investors with the common goal of an investment. They are managed by a group of fund managers who invest in capital assets to generate maximum returns.

Fund managers are finance professionals with excellent track records of managing investments. They know the market well and charge individuals with an annual fee for investment management. They earn through regular dividends, interest, and capital rates where they choose between a growth and dividend option.

Growth options support reinvestment of capital gains, while dividends options help earn a steady income.

Why invest in them?

You should invest in mutual fund because it provides a variety of benefits while helping in financial savings and assistance from professionals who are experts in fund management.

Following are the reasons to invest in them:

Convenience:

Since the process involves no papers and simple, you can easily monitor the market and make investments of your choice. The profits increase with the help of portfolio rebalancing and switching between funds.

Low initial investment:

You have two options while investing in funds – lump sum or systematic investment plan. SIPs unleash the power of compounding and lower the overall investment cost.

Saves tax:

Under section 80C, you receive tax deductions on specific financial investments, including mutual funds. ELSS is one of the popular options for saving tax as it offers high returns in a short time, i.e., within three years.

Professional fund management:

The online mutual fund enables professional fund managers with a team of researchers to manage the flow of money. Fund managers form a concrete strategy for asset allocation and have real-time access to the economic environment. They also have the authority to adjust the portfolios of those interested in investing in mutual funds.

Nowadays, fund managers and houses have their mutual fund apps  which gives the investors to access their portfolio anytime, anywhere.

What Are The Benefits Of Priority Banking?

Have you ever thought about applying for private banking from your bank? Many banks offer "Priority Banking Solutions" to their customers who qualify for the eligibility requirements. A private banking client is handled in a more precise manner, and the priority is taken care of by the bank. Let us speak about it in-depth, and does it make sense to apply for priority customer banking for you as a client or not?

The first question that must be understood is, why do banks have a privilege banking model? The reason is relatively simple, being able to treat various customer groups differently. If you want to put it favourably, then it's just a way to maintain a separate list of high-net-worth individuals to focus more on them and service them better, as one private banking customer would give the bank 100 times more business/profit than a regular customer. A preferred banking client will have to meet a few eligibility conditions, usually related to his bank balance.

Similarly, to maintain a high balance in the bank savings account, other banks still maintain requirements. That basically means that the bank can get plenty of money to use on its own business, and they can manage these clients very well.

Facilities provided to Private Banking Customer

A priority banking customer has few advantages over regular clients and gets more features. There are some of these:

• Separate queue at the bank
• No Net Banking charges on NEFT and RTGS transactions
• Free cheque book payable at any branch of the bank throughout the country, so you do not have to ask for demand drafts
• Charges waiver for cancellation of DD, Cheque Return, Duplicate Statement Fees, Demand Draft Charges, Locker Charges discount
• Cheque pick-up facility
• If you are transacting at other bank ATMs in India, no fees on balance inquiries and cash withdrawals

Many individuals have simple banking requirements, particularly after the advent of Internet banking and mobile banking, your reliance on chequebooks, Demand Drafts, and any physical visits to banks have reduced.

Banking is just an insignificant part of their financial life for most people, and they only get most of the equipment and what they need from their simple banking account. For them, it does not make any sense to apply for preferred banking. However, most investors are actively involved in banking for their reasons or professional needs. A few features that come with Priority Banking may mean something essential for many of them. If you are one of them, you have to see how much you need and then take a call.

What Should You Know About Recurring Deposit

Recurring deposit schemes provided by banks are favourite investment choices for many people. Working people, as well as people with smaller incomes, choose RDs as their investment option. Under this scheme, a person must invest a specified sum of money for a fixed period each month and receive interest on their investment. Upon maturity of the RD, the principal sum is returned along with interest.

RD schemes are usually more flexible than FD schemes, which often benefit those who choose to set up an account to save money and build an emergency fund.

How is interest determined for recurring deposit?

To learn more about your investment, use the recurring deposit calculator

For most banks, interest for RD is calculated annually. The formula is:

M = R[(1+i)^n-1]/(1-(1+i)^(-1/3) )

In this,

M is the Maturity value

R is Monthly Instalment

N is Number of quarters

I is Rate of interest/400

Here are some details you need to know about Recurring Deposits:

• The minimum amount of investment required to be deposited each month in an RD scheme is as small as the INR 1000. This is a massive attraction for low-income individuals and wage-earners.
• Since the investor has to spend a portion of his income regularly, inculcating the saving habit is very beneficial.
• Payment may be made directly to one's RD account via the Savings or Current Account.
• You can connect an RD account to your Savings account. Hence it does not require any documentation work in these cases.
• Unlike fixed deposit schemes, where a lump sum amount is to be invested at once, Recurring Deposit does not drain the investor.
• Recurring deposits are the best investment option, especially for those planning to handle short-term financial circumstances such as financing money for a dream holiday or wedding, higher education costs etc. RD interest calculator can help you plan well.
• Most banks allow for the opening of recurring deposits in the name of minor children with the parent or legal guardian holding a joint account. This helps to build investments for future use of the minor.
• Most banks provide loan facility on the recurring deposit amount. This loan is granted up to 95 per cent of the recurring amount of deposit. You can get it in case of any emergency.

To help plan your monthly investment in a recurring deposit, it is advisable to take the help of an RD calculator to plan your investments.

You will find this instrument on your digital banking app as well. This way, banking is on your fingers.