Past financial events always play a significant role in shaping our future financial situation. Likewise, several financial developments of 2019 will have a major impact on your personal finances in 2020. We’ve highlighted a few important developments among them.
Under the base rate and MCLR system, there were concerns over banks not immediately transmitting the benefit of interest rate cuts to the borrowers. Whenever the Reserve Bank of India used to cut the repo rate, loan interest rates were not reduced to that extent. In fact, the central bank has cut repo rate by 135 basis points in 2019 with many economists opining there’s room for further cuts in February 2020. So, to ensure customers get the benefit of such rate cuts, the RBI directed the banks to link their retail lending rates to an external benchmark like the repo rate and update their interest rate at least once in three months.
The move to link loans to repo rate will allow borrowers to get the quick benefit of any rate cut by the RBI. However, at the same time, when the interest rate trend is upward, the borrower would be required to pay a higher interest rate on his loans. So, in 2020, the borrowers should keep a strict watch on the interest rate trends and try to repay their loan quickly or prepay as much possible when the rates are low.
Also, having a good credit score has become superlatively significant in the repo rate loan regime as the best rates are being offered to those with a good score. Conversely, a poor score will likely lead to higher loan rates even if your lender transmits repo rate cut benefits to its loan offers. As such, you’ll be well-advised to track your credit score regularly in 2020 and take quick, effective steps, like repaying credit card and personal loan dues, to improve your score if it’s less than 750.
Promoting digitisation has been one of the government’s core emphasis areas in 2019 and things are likely to remain the same in 2020 as well. For example, toll payments on highways is now linked to the FASTag system to promote non-cash payments. The RBI has also waived charges on NEFT and RTGS transactions from July 1, 2019, and has directed the banks to pass on the benefits to customers. The central bank has also announced to extend NEFT facility on a 24x7 basis to the customers.
Not just that. A plethora of card issuers and other companies offer countless incentives for digital payments like extra cashback and reward points. As such, to avail the benefits on offer and to make your transactions more safe and convenient, go digital in 2020.
Rising home inventory
Various research reports on the realty sector released in the second half of 2019 indicated that there is an increase in the inventory handover of the developers across different cities in the country. It showed developers are finding it difficult to sell their homes at the current pricing. However, the interest rate on the home loan has fallen to a very attractive level from a home buyer’s perspective.
So, if you are looking to buy a home, 2020 is expected to be a great period to negotiate with the developers to get the best offers. Apart from the property at a good price, you might also get a chance to find a home at a better location.
Tax benefits on home loan availed in FY 2019-20
The government announced this year an additional tax deduction benefit under Section 80EEA of up to Rs 1.5 lakh against interest payment of home loan (sanctioned between 1st April 2019 t0 31st March 2020). The value of a property shouldn’t be more than Rs 45 lakh (the basis of stamp duty calculation), and the carpet area of property should not exceed 645 sqft in metros and 968 sqft in other cities. Other conditions also apply to get this tax deduction benefit. So, if you want to buy your own home, you may want to do it before March 2020 to avail the additional tax benefit.
New investment opportunities
The government recently has introduced Bharat Bond ETF. An investor can start investing in this product with as little as Rs 1,000. The unit of ETFs can be bought and sold on the stock exchange platform. Bharat Bond ETF will consist of debt of 12 to 13 PSUs for 3-year and 10-year tenure products, respectively. The NAV of this ETF will fluctuate with the change in the interest rate in the market; however, if you hold these products till maturity, your redemption value won’t get affected. So, if you are looking for a safe investment product like FDs and a small savings scheme, especially when deposit rates have seen a dip in recent months, you can explore the opportunity in Bharat Bond ETF in 2020.
Adhil Shetty is CEO at
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