Why we need Insurance

Everyone must be seeing TV channels like ET Now, Zee Business,  CNBC Awaz, CNBC 18, NDTV Profit to get some knowledge about insurance. CNBC awaaz has some programs like your money, Sabka Sapna money money etc...

However, first we should understand what is insurance and know the different types of insurance and what is our need of the hour. Any type of insurance cover you take all depends upon your present income & the day 2 day life risks. Insurance covers your risk and provide you a mental peace in tough times.

Now I am going to cover a brief about this. However these all are my own views gathered from my experience over the years.

Types of Insurance

• Medical Insurance


• Personal Accidental insurance


• Critical illness cover/Rider


• Travel Insurance                                     


• Motor/auto/Car insurance


• Home Loan insurance - as the name suggest (it is costly so better cover through term plan)


• Life Insurance money back/endowments


• Life Insurance term plan


• ULIP -  Unit linked insurance Policy (Life insurance)

I am explaining more about the highlighted ones as others are not so important

Medical Insurance

It covers you and your family from the untimely medical expenses. It is must for everyone these days as the hospitalization expenses are sky rocketing if you/your family member unfortunately get hospitalized. People working with corporate world are covered by their employers but other individuals are not. I still recommend all to have their own personal plan as well. Reason is simple, if you leave the job and you have an existing illness then it becomes difficult to get the insurance and sometimes some employers do not provide this facility and charges a lot, in that case you can have your own plan working. Also once you cover your existing plan for 3 years claim free then you are always covered for existing diseases as well.  In such case you can take your own plan for some minimal cover to avoid hefty insurance premiums.

Now the question is how to choose your insurance:

Always compare different plans from different companies. However I recommend go for individual family covers for all the family members instead of family floater. If you calculate floater is very costly as compared to Individual plans. Example, when I took plan for myself Family floater for 5 lakhs was costing me 13K PA. When I enquired about individuals then 4 lakhs for myself, 3 lakh for my spouse and child each cost me 10K. How much you want to insure depends upon your family’s health conditions and your earnings. Almost all plans have 3 months cool of period.

Personal Accidental Insurance:

This is one area which I have not explored much, however in today’s life it has become mandatory. Driving has become rash, no space to drive on roads so everyone drives daily with a lot of risk. A good insurance covers the

Accidental Death, Permanent Disability (one part, both the parts), cover for some period due to accident and loss of salary( it provides you the stipulated amount as depicted in your insurance policy for 8-12 weeks as per company). 

Life Insurance

When we talk about life insurance LIC strikes our mind at the first go. These days there are lot of flavours of life insurance with different companies not only LIC. However LIC is still the most reliable when it comes to traditional/endowment plans.

Always keep in mind you do your life insurance for your family not for you. It provides your family the means to live in case something happens to you and you are the sole bread earner of the family.

People always combine their life insurance and investments; I would never suggest you to do that as most of the financial advisors do. If you want good returns then invest in debt/Mutual or gold funds.  Next question come to our mind is how much I should cover for:

1. It should cover all your liabilities (Home/education/auto loans if any). ( Say you have liabilities of 10 L)


2. Value your current assets. Say these are (20 L) in which 5 L are liquid (equities/MF’s/FD’s) and 15L are non liquid (1 BHK flat) and take some time.


3. What is current monthly salary say 10L PA.?


4. What is your monthly expense say 50K?


5. What do you need in future say 25Lakhs for your son, 25L for your daughter?

You should then calculate it accordingly the with time intervals you need the money and taking inflation into account. It may be 10X of your salary, may be less or more also depending on your assets and liabilities. Next question arise here which policy I should take... Never hide your existing problems if they have known medical history while taking an insurance.

Now I am going to cover different types of Life insurance then

1.  Endowment Policies: One of the most popular policies. Though people do not prefer that as the rate of return does not meet inflation. Problem lies here as people forget they offer life cover also. I would prefer put some amount here also say if you want a cover of 50 Lakhs for you then cover 5Lakhs here. Your money is safe here. You get b/w 5-7% of return here and all your money back at the end of the plan. However if you are more than 35 years then it will be very costly and go only for term plan. Choose LIC as your partner in case of Endowment/ money back plans. They have good history.


2. Money Back: It is similar to endowment but you can get your money back at different chosen intervals.


3.  Term Plans: This is the best plan to insure your life, that give you the cover you want and with very less amount. Almost all the insurance companies have offered I-Term plan now which proves to be very cheap as it excludes the agents in between and is offered online on company’s website. A person with 25 years of age can get 1 crore cover for less than 10K PA. If a person is young and earns more than 5L PA, he should get it done rather than waiting to marry etc... Some good companies offering cheap insurance
   
   
4.  ULIP: - I am not at all in favour of them. They incur a lot of expenses and then very less insurance cover. They provide you different options of investing your money like- 100% debt, 100% equity and mix of debt with Equity. In such case I would prefer a term plan with good cover + SIP in MF’s according to my pocket. ULIP offers 2-3 switches free in 1 year, but then you need to be an expert of the markets and timely switch. People debate ULIPS are better as they offer switch b/w funds and we lose money in term plan, but they never think Wwhat is the actual insurance liability on you for insuring the same amount as the benefit you get with term plan ? Other flexibilty wit MFs is that you can also withdraw SIP /MF amount in case you cannot continue and need funds in emergency.

 for better understandong please see my YOUTUBE VIDEO

Most of the child plans are ULIP plans or traditional endowment type plans.

COVID 19 is one of the worst situation we have come across ever whether it is financial, medical or life scare. Many people have lost life, many suffered huge medical exigencies. Even many have lost /will loose jobs where they were counting earlier on GMCs. So get self secured first before making any investments. Have your personal Insurance first and as foremost priority. Remember

" When you are safe & healthy you don't take any insurance and unhealthy then no one give you insurance"

Complaints:-

As per IRDA rules, insurance company has to settle your claim in 21 working days. If they don't listen or harass then you can file a complaint to IRDA  as below

Contact 155255 (Toll Free) to register the complaint. email: complaints@irda.gov.in

See how to choose life insurance and other related videos
https://youtu.be/GAJ1uvRa8ww

If you like this article then please like my facebook and Instagram at the links below

Investment Planning part-1

Quote ARN -99994 for all Equity/Debt and ELLS mutual funds

EUIN - E120123

After reading my last posts lot of people are asking me about financial planning/Portfolio management and to write something about it. Honestly, this is a very huge topic/subject and needs lot of individual preferences. However I shall definitely write something on it to let people know about various instruments of investments, where to utilize your idle funds effectively to maximize your returns and bit of financial planning as well.

Before going to planning part that I want to cover in Part -II of the series , I would like to discuss the various types of instruments where we can park/invest our funds for long/short term. Insurance is most important part of our investment planning as it covers a huge amount of day 2 day life risk may it be medical, accidental or any unfortunate incidence where family looses it bread earner.  I have already written an article on "Insurance" if you have not read you can visit here .  You need to allocate some part of your savings in this. In case you are buying any endowment/money back policy then it is part of your debt investments also. If you are buying some ULIP then it is part of your balanced fund investments.

Now lets discuss the different kind of popular funds/Investments available in the market and the brief description.

1. Debt funds: Debt funds are the funds that invest your money in Corporate bonds, Govt. Securities, T-bills, Fixed deposits etc. They are safe as your money is safe and it is very remote chance that you will loose even some part of it . They provide returns based on current business environment  and current risk free rate of return in the market basically the bank FD's.   However, still the ROI depends upon the fund you are choosing and the ability of the fund manager.  They are better than FD's  as 1. They are more liquid 2. They are more tax savvy ( 10% on Long term cap gain  and 20% on short term gain)Debt funds can further be classified into subcategories
   
   
   • Liquid funds - A mutual fund that invests only in money markets such as commercial papers, commercial bills, and treasury bills certificate of deposit and other instruments specified by RBI.  These do not have any lock in period. Investor can buy/Sell them any time. Reliance MF has offered one facility to its investors by issuing an ATM card where investors can redeem their LF's thru ATM of HDFC bank. Similarly IDFC has offered services using SMS but with some banks only where you can buy/sell fund thru SMS. These funds usually offer 6-7%  returns. You can park your extra funds here like creating an emergency funds rather than in Savings account. Visit idfc mf or reliance mutual for more details. I am saying about these 2 only there is not much difference as far as returns are concerned while offer flexibility in your hands.
   
   
   • Short term debt funds: These invests in short term corporate debt papers, certificates of deposit (CDs), money market and government securities (GSecs- ST). They generally have 1- 3  months lock in period and exit load is 1% if you sell them before this period. They have also offered returns b/w 9-10% past 2 years, and are expected to offer the same in next 2 years. Some ST debt funds have 6-12 month exit load period as well. IDFC, SBI , ICICI Pru and HDFC all have some good short term debt funds. You can do an SIP also in these funds.
   
   
   • Ultra short term debt funds:  There is not much difference b/w Ultra short term fund and Short term funds with their investment strategies.They generally have upto 0-30 days lock in period and exit load is 1% if you sell them before this period.  In both these categories some funds have exit loads and some not. Axis, IDFC, UTI, Birla SL , ICICI Pru offer some good funds. Ultra short term funds offere better returns than liquid funds but only disadvantage may be the lock in period. These should be part of your emergency corpus.
   
   
   • Long term debt funds - These invest in long-term corporate debt papers, corporate bonds and government securities (G-Secs). for last  1 year when interest rates are high these are very good for safe investment in the volatile markets. They also offer better tax benefits than FD's ( about 10% -20%). Some good Long term funds are  SBI Dynamic Bond Fund, UTI Bond Fund, Principal Long term fund, ICICI All seasons bond fund etc. These have offered good returns past 2 years. But you need to time the market I expect them to give good returns over next couple of years as they have invested in the bonds yielding good returns and will be better when interest rates will soften. However you need to study before investing in any instrument. They are good for investment over 1-2 years as exit load is 1% on them if you offload before 1 year.
   
   You can do an SIP (Systematic investment plan : where you can invest money at specified intervals like Recurring deposit in the banks)in all the debt funds above like a bank RD.You can buy these funds thru your online broker like ICICI Direct , Share khan. but you need to check if they are charging you some fee as there is no entry load on MF's. Most of  the mutual offer online investing. Almost all MFs offer online investing. CAMS and Karvy have their apps/ Online Platforms too. This applies to all whether equity/Balanced/debt funds/ETF'S/Gold Funds.  Note: Contribution to debt funds is not included in your 80C exemptions. These are pure investments.
   
   
   • Endowment insurance Policies: Please read them in my article Know about Insurance
   
   
   • FD's/RD's : These offer steady returns in your banks, however they too have some lock in period else you loose your interest. Then you have to pay taxes on the earned income if you are eligible. However from next financial year bank interest up to 10k is exempted. Most of the people do not know about the FD's offered by corporates. Some good corporate houses like Mahindra finance,HDFC housing , L&T,LIC, DHFL, ShriRam transport offers better interests than Banks and are safe. However these are risky too. you need to make sure you are investing in a corp. with good rating.
   
   
   • PPF :  This is one of the best and beloved investments by salaried people as they offer 8-9% tax free returns. However the only drawback is the period of investment.
   
   
   • Govt/Corporate bonds : These are also good options if they offer good coupon amount. Most of the bonds have fixed maturity periods so your principal will be blocked for that time. Some govt bonds like NHAI, REC offer 8-9% coupon that is tax free, if you have spare amount and are tax free. These offer better investments than FD's. Some companies offer NCD( Non convertible debentures)  and offer good intereset on them. You need to check the company you are investing in. Like Tatas are as safe as bank. The only drawback on all these instruments are time limit before which you  can not withdraw.


2. Hybrid debt and Equity (Balanced) funds : Balanced funds are mixture of equity + Debt funds and they keep on switching between them according to the market conditions. Normally the balanced funds invest up to 65% in equities and 35% in the debt funds. For last few years some good debt funds have out performed the index and equity funds even.Few good funds are HDFC Hybrid, SBI Hybrid etc


3. Equity funds:As the name suggest these invest totally in equities/stocks of the corporates. These funds have 1% exit loads these days and no entry load. Most of the equity funds apart from Protection or ELSS are open endedi.e you can sell /buy them any time  though charges if any  will be applicable.These also come in multiple flavors as explained below:-
   
   
   • Thematic Funds: Fund managers of these funds invest in a particular sector funds so also called sectoral funds. Examples like FMCG. Pharma, IT, Auto, Banking, Power etc. I do not recommend them as your investment become totally dependent on that sector. However some FMCG funds have given good return even in the volatile markets e.g . SBI FMCG fund is one good fund.
   
   
   • ETF's: These are exchange traded funds. These funds have started few years back and they can be directly traded on exchange like shares rather than buying from MF house. You have to pay commission to your broker as you do in case of equity shares. They are not much in numbers but some famous ETF's are Gold ETF by benchmark,  Bank bees etc. you can check the list of these on NSE website
   
   
   • Multi-cap Equity funds and Focused funds: Multicap funds invest in all kind of stocks. Their portfolio consists of all small, mid and large cap from all sectors. Focused funds cant hold more than 35 stocks at one time and are multi-cap in nature
   
   
   • Large cap funds: As the name suggests they mainly invest in large cap blue chip companies like ITC, Reliance, Tata Steel, Tata Motors, HUL etc... 
   
   
   • Small and Mid Cap funds: As the name suggests they mainly invest in small and medium sized corporate houses stocks with a great potential. These fund rise/fall very fast, Over the years they have outperformed the large cap funds though. Some good funds in this category are    1. ICICI Pru discovery fund 2. SBI emerging business fund 3. HDFC mid cap opportunities 4. IDFC premier equity fund   and some more funds as well.
   
   
   • Index funds: These funds give you return on the basis how the index fares. These days apart from nifty index funds there are  thematic index funds like banking index funds, PowerIndex , Metal Index funds etc.
   
   
   • ELSS: These are Equity Linked saving Scheme funds. They are equity funds with a different mechanism. These are closed ended funds.They have a lock in period of 3 years and before that you are not allowed to sell these. Any amount invested in them has rebate under IT section 80C maximum limit is 1Lakh. If you want to do some equity investments and save tax then these are good option otherwise I do not recommend investing in them.
   There are few more Categories as per classification from SEBI but ultimately these fall under one or other debt/ Equity category or may be with mixture of both.
   You must have some investment in all Diversified/ Large Cap/Small and Mid cap funds with some percentage allocated as per your preference as part of your equity fund investment. I would suggest doing SIP in equity funds for long term to build some wealth with mix of both dividend and growth options. In both debt and equity funds there are 3 - option plans 1. Dividend (payout) 2. Dividend reinvest 3. Growth option. Dividends are not tax free from FY 20-21 so I do not recommend dividend options. The growth option give you a clear picture of how much a fund has grown over certain period of time.


4. Equities/Stocks: These are common stock of a company. Till you have a complete knowledge of the stocks better not to invest in them . Beware of the tips by some speculators. if you are getting advice from some trusted/ knowledge able person then you can take risk on your own. Better invest in MF's then.You need to have


5. Gold Funds:These are newbies in the Indian markets and in existence since last 2-3 years. Their value fluctuates with the gold prices in the commodity markets. These are best options than buying the physical gold if you want to invest in gold.
   
   
   • Gold ETF's:  Their value is generally derived from value of 1 gm of gold. These days its around 2850-2900. You can buy them from the stock exchange directly. these are trade able. Also called Paper Gold. You need not carry them with you as gold , they are in electronic form in your demat account and you can sell them from any part of world through online trading account or through broker.
   
   
   • Gold Mutual funds: These funds generally invests in Gold ETF's . People who does not have demat account can invest through Gold mutual funds. Otherwise better invest in ETF's if you have demat account to avoid extra charges levied by MF's.
   
   Note:  As stated above you can do an SIP in all the debt funds above like a bank RD.You can buy these funds thru your online broker like ICICI Direct , Share khan. but you need to check if they are charging you some fee as there is no entry load on MF's. Most of  the mutual offer online investing. I know ICICIPru, HDFC MF, IDFC mf, SBI, Relaince all offer online investing. This applies to all whether equity/Balanced/debt funds.   its better to check the performance of the fund over last  2-3 years and rating of the fund manager. you can check the websites of ValueResearch and Moneycontrol for more details.


6. NPS( National Pension Sheme): This scheme is started by govt. of India to help the employee class to build their retirement corpus. Govt. has also offered Tax benefits on this. If your employer take part in this then you can allocate max 10% of your basic salary through employer  and up to 50k can be deposited in your NPS account by you provided you are already have an NPS account (subscriber).  In NPS there are different fund managers as of now that includes ICICI , SBI, HDFC , LIC , UTI etc. Your funds are allocated in 4 categories 1. Equities 2. GSecs 3. Corp. Bonds and 4) Arbitrage.  You can opt for Auto choice where the fund manager will make the auto allocation or active choice where you have to opt yourself. However depending upon your age your exposure to equity is decided. More you get older exposure to equity decreases. NPS has 2 types of accounts
   
   
   • Tier-1 : You must have this account to be an NPS subscriber. This is your default account. You can not take amount out of this. This is for your retirement. You need to invest in this on monthly/quarterly basis like in your PF. Keep your allocation minimum as if you want to invest more then invest in Tier-2
   
   
   • Tier 2: You need to have a Tier 1 account before opening this. Operations are same as of Tier-1. The only difference is that you can put and with draw money out of it as per your wish. You can also transfer money from tier 2 t0 tier 1 acct. but not the vice-versa.

for more details visit NPS site

Some important points to take care before investing in MF's

• You must have to do your KYC (Online or with broker ) For more details see www.cvlindia.com/


• All MF's have some charges like Expense Ratio that they will charge to main the funds, Fees for the staff, entry loads, exit loads etc. Only entry and exit loads are mentioned in the prospectus.. Rest are hidden charges.


• People generally get confused whether to invest in NFO's(New fund offer) as they offer cheap NAV of Rs 10. Never go by NAV of any fund as the rise will always be on a %age basis. Also the old funds have trusted history and the fund managers, no body know how the new fund will fare. So never get tempted if someone offer you to invest in NFO as they offer high commissions to the agents to get the customers. Does not mean that all NFOs are bad but you need to a have detailed information which only best of advisers can provide but better avoid as they lead to fund explosion as well.
• Having proper asset allocation as per your risk profile is must so you must maintain that and take advice of a prudent adviser. Don't go blindly by web sites performance tracker without understanding the fund, its category, your investment horizon and your risk profile. Never recommend to invest in Equity for a shorter time horizon

Keep watching this space for more...

Friends, these  are my own views. I am not an expert in this part. My idea is just to make people aware of their day 2 day finance and help them taking their decisions . I always welcome your suggestions for more improvements and making this better. Even appreciation is welcome :)