And finally fulfils the promise made of posing in the nude if KKR win the IPL5
Its now SRK’s turn to go down the Howrah Bridge and ride on the Hooghly with the trophy!
Recently I bought a Term Plan from Kotak through their online process. The SA was 30 lakh and the yearly premium worked out to be a little over 4500/- for a period of 30 years. When I told my father about this term plan, the first question he asked me was ‘What’s the return benefit on maturity?’ and I had no reply.
Insurance v/s Investment
This is one of the biggest mistakes that we make. We look for maturity benefit while going for an insurance policy. We mix insurance with investment, whereas, we should be separating the two like husk from the grain. We need to understand that investment is a long term plan for multiplying our saved up money so we can sustain our lifestyle without making compromises.
And insurance is a risk mitigation plan, wherein, if the bread winner of the family meets with some unfateful incident then the amount can help the family memebers in his/her absence.
Old Thought v/s New Thought
Our parents and other elderly members from previous generation always push for some Endowment Plan which will benefit us on maturity. But that actually comes back to bite us. Let me try to explain this using an example below.
Endowment Plan v/s Term Plan
LIC has an Endowment Plan called Jeevan Anand. In this plan, for a SA [Sum Assured] of 5 lakh, the premium is 38,000/- per year for 15 years period for a person aged 30. The maturity benefit including bonus is about 7 lakh, if the insured person survives the period.
Now, instead of going for the above plan, lets see how best we can use that amount of 38,000/- and separate investment and insurance.
If we take any Term Plan for SA of 15 lakh [3 times the SA of Endowment Plan] for a term period of 15 years, the premium works out to be only 3,000/- per year . Lets put the remaining amount of 35,000 in a PPF account which is the safest debt instrument. If we continue to pay the said premium and deposit the said amount in PPF, at the end of 15 years when the insured person survives the period, they will have accumulated 10 lakh in the PPF account. Even if we deduct the amount of 45,000 that’s paid as premium of the Term Plan [3,000 x 15 = 45,000], the effective return is about 9.5 lakhs. This is still higher than the maturity benefit of the endowment plan. In case of death, the SA of 15 lakh is given to the nominee, and this is twice the SA of the endowment plan.
Disadvantages of Endowment Plan:
a. very high premium for very low SA
b. very low gains on maturity
c. mis-selling of a bad policy which is neither good as insurance nor good as investment
Advantages of Term Plan:
a. low premium for very high SA
b. the extra money can be invested wisely in some good debt instrument like PPF or can be put in a good index fund
c. the extra money can be used to pay EMIs or can be saved for any other emergencies
Now that term plans can be done online, don’t break sweat over it. We have many options like Kotak’s E-Preferred Term, HDFC’s Click2Protect and ICICI’s iCare.
Some key things to note:
a. go for a high SA of 25-30 lakh, because the premium will not be more than 5-6 thousand. That’s a small amount to pay!
b. make all declarations truthfully, including details of previous insurance policies from other insurers
c. take a medical test if need be, do not hesitate. Its better they take a medical test, so that they don’t cause any problems later in case policy has health related riders for critical illness etc
d. pay your premiums on time, do not default on that
e. advise all near and dear ones to buy a term plan
I just have to explain the above to my father now. But I am sure, he would still not be convinced. Anyways, buy a term plan today and put your mind at ease.
This post was also published on Yahoo Network
NFO [New Fund Offer] is always deemed as a risk. Everyone advises you to go for an existing MF, rather than invest in a NFO. One of the reasons being that, the existing funds have performance and past results to go by. But in case of NFO, its a big risk.
But then, investment itself is a risk. Even MFs can turn non-profitable if fund managers don’t do their job well. The kind of analysis we do before buying a MF, we can do a similar analysis of the AMC before investing in the NFO.
I have invested in quite a few NFOs, based on the past performance of the AMC who have managed successful MFs. Also, the asset allocation makes a difference too. As in the case of Sundaram Equity Plus fund where 35% was allocated to gold and rest 65% to equity. That made it an interesting assortment and I leapt towards that NFO. It perfromed pretty well and even touched a high of 11.02, which was a real positive.
Another NFO which turned out well for me was SBI Bluechip Fund [D]. It oaid great dividends in its first few years before the slow down. But then I burnt my finger in SBI PSU Fund.
Another point to note is the timing of the NFO. When you invest in a NFO while the market is bearish, then you will earn profits during bull run. But when you invest in a NFO which is launched during a bull run, taking advantage of rising sensex, then its a sham. It takes away the hard earned money as soon as the bull run dies down. This happened to me with Reliance Small Cap Fund [G]. I got the timing totally wrong.
Anyways, that has not deterred me. Just a few days back I went ahead and invested in two more NFOs. One was the IDBI India Top 100 Equity Fund and the other was Taurus Banking & Financial Services Fund.
The simple reason for this step was to take advantage of the situation where banking stocks have been beaten down and with falling sensex I can look to gain during a bull run. I could have also go in for a Banking Fund from any of the AMCs, but the NAV was quite high. For each unit purchased from existing MF, I can have 5 units here. And then, the %gain would be more or less the same, if they invest in similar banking stocks.
All I can say is, do not stay away from NFOs. The NFOs give us a chance to enter the market at a lower cost and more number of units. But do check on the market status since timing is everything.
This post was also published on Yahoo Network