Monday, December 20, 2010

About your Insurance Policies

Well, this is not something easy. Yes, we all invest into Insurance policies, for various types of coverages. Right from Life cover to Illness Cover to that of Home and Vehicle. In this article I am primarily focussing on the Life Cover.
A life cover is taken so that , in the case of an eventuality, your dependents are taken care of with the money that one was insured against. Normally the bread winner of the family would invest into such plans. Earlier, or to be specific, LIC agents, would keep a note of all their customers and keep in touch with them. Incase they found that one of their clients have passed away, they would themselves take up the matter and get the money to their dependent.
But those days are gone, when the agents would be loyal to the customers. Today, they keep changing companies, places and even their clients. So basically, you, ie the person who is taking an insurance should keep his/her dependents updated of the Insurance plans taken. So that after an eventuality they know that they have been covered. Having said this, its not easy to tell this directly. I would advice the following, whichever suits you well or all of them.

[1] Tell your main dependent that a particular Insurance has been taken. Direct Approach.
[2] Tell your close friend about all the plans that you have taken. Maybe an office colleague whom you are very close with and normally do all your investment plans together.
[3] Keep all your insurance documents in one place in the house and keep others updated that ALL the insurance documents are in a given file. You need not tell them the details of the investments. They will find out when its needed. This is what I follow.
[4] Send an email to your Dependents and close friend on the policy that you have taken with the policy details and Insurance Company name.

Whichever approach you find easier to follow and practical, please follow the same. If there is any other way you do, then nothing stopping you. But the important part is that, your dependent's should know of all the insurance taken. As thats the only thing that will take care of them in your absence.

Wednesday, December 1, 2010

Retirement Planning

In this article, I am not going to talk about what one should do towards retirement planning, but rather why one should  go for one and what risks one carries.

Gone are the days, that post retirement, the government will pay you all your life. This is the age of private companies and the pay scales are apparently much higher. But unless you dont save up your own money for retirement, trust me, you are going to have a tough time down the line.

If you are working in a private company, the only two places where the company invests for you normally would be in the Provident fund and the Gratuity. Gratuity is given to you, only if you spend more than 5 years in the company. While provident is given to irrespective of the amount of your stint in the company.

What I have observed in today's life is that, with every change or a job hop, one withdraws the PF which had been accrued by the company and ofcourse there are many ways one can spend it. But the problem here is that, this money which was meant for your retirement is no longer available. In simple words, the money which was supposed to be supporting you when you are not working, is consumed during the period where you are earning.

So what should we do ?
Well the answer is simple. Plan for your retirement properly. Investment in various options which are available for retirement planning.
Don't withdraw your PF fund. Just get it transferred from your old company to your new one.  Also note that, if your PF is withdrawn, then there is a tax which is charged on the same.

If you are close to 5 years in the company, then make sure you complete 5 years and claim the gratuity and put it into a good investment instrument which gives a good return.

On what instruments to invest for retirement planning, I will come back on that in my subsequent articles.

Wednesday, November 10, 2010

Why Medical Insurance ?

Why Medical Insurance ? This is a typical question many of us have those who are covered by their companies they are employed in.
Well, first lets talk from the Tax savings. Whatever premium that you are paying for covering you and your family upto 35000/- INR is deductible from your taxable income. Please note, this is over and above your 100,000 that you are saving under section 80ccc. So thats again a saving also.

Now, the actual reason as to why one should take a medical insurance.
The days are gone, when medical treatment was affordable with your own savings. One definintely needs Insurance.
Those who are covered under insurance by your companies, please note that this is only until you work for them. The day you quit or retire, the insurance stops. So lets say that you retire at 60, do you really think a Insurance company will give you a health insurance, especially when you are at a age you would be needing it the most. So the best would be to take an insurance now itself when its easy for you.

ICICI has a good product which invests your money into an ULIP and that actually covers you till 75 if i am not wrong. There are many companies who are having wonderful health plans. My suggestion would be to go and get you and your family covered and also save some tax

Sunday, November 7, 2010

Too many liabilities

Today as I was going through my various liabilities, I was wondering how to go about clearing them all.
I have an outstanding Housing Loan, a Car Loan and then 2 credit card bills to be cleared. Ofcourse I am able to pay my EMI's for the car and housing loan without any issues, but then getting them closed earlier is always something one has in mind.

Now if one looks at the various interest rates, its no brainer that one has to clear off the credit card bills first. They attract anything betweem 2% to 3.5% per month , that is around 24% to 36% an year, while your housing loan interest rate would be around 8-10% and the car around 10.

If you have more than 1 credit card bill to be cleared and not possible to clear all, clear the one with the least payment due. Remember that if you get rid of interest payment on one it will be better than having on both.
Then comes the priority of the other credit cards. Once all the credit cards are done, then shift to the other liabilities. I would normally leave the home loan as it is , if you have a car loan also to clear. Its because, on home loan you still have the tax benefits attached , while that for the car loan its not. On completion of the car loan move to the home loan. Having said that, in many of the banks part payment of car loans is not allowed. In such cases, it would somehow make sense to clear a little of home loan itself, and leave the car loan to get completed on its own, or wait for it to reduce till it becomes small enough to pay the entire amount.

From my experience, SBI car loans allow part payments. They do have rules that you cannot pay any amount in the first year.

At times I am in a dilemma, as to whether to clear the home/car loan or keep the money invested since I would need the money incase of emergency or new expenses. Thats always been a tough call for me to handle. I try and calculate how much is needed for my emergency, and once reaching that, I repay some of the loans and invest some into instruments, which give higher rate of interest than the interest rate of the loan.  This point would vary from person to person and everyone should take a call depending on one's family requirements and emergencies, since at the end of the day, home and car loans are the cheapest compared to a personal loan.

Saturday, November 6, 2010

Sensex at 21000

On the Diwali day, during Mahurat trading session sensex touched an all time high and now is at 21004 level.
Now this is a great news, but at the same time one needs to be pretty sure as to whether to enter the markets at these levels or no. Many TV channels would give you different perspectives of the same. But one needs to remember that at the end of the day its your money.

From my perspective, one shouldnt enter the markets now atleast for a week or so. See whats the trend in the market especially in the next week and only then should take a call.
If one really wants to invest, then chose the solid stocks like TCS, Titan SBI etc which are very strong. Or can chose the Mutual Fund route. I would opt ONLY for the Mutual Fund at these level.

Happy investing and happy Diwali

Friday, November 5, 2010

Infrastructure Bonds

One of the safest forms of investments is in the Bonds. But now a days there are bonds which are issued from private players also. Now these have minimum of 5 years of lock in period. and a good rate of Interest. You can get anything between 7.5 to 8 % of interest. Again you can chose for annual payment of interest or can go for cumulative which means that your interest is again invested as principle.
And the most important part if that you can get Tax Benefits. And now for the most important point, this investment is Tax Beneficial over and above your 1 lakh invested through section 80ccc[ which is Insurance, NSC, PF , Housing Loan Principle paid etc].

The maximum amount for which you can get the tax benefit is for 20,000/-  Currently L&T has an investment for these bonds open. Though I assume there will be more coming in soon. I would definitely recommend this for investment.

Where do I start from ?

Everyone wonders, where does one start to invest. Well there is never a good time. If you havent been doing it early, then NOW is the right time. Start with small amount. If you dont know the meaning of small amount as such, then see the difference between your monthly income and expenses. Whatever remains is the only amount you have. Now if that amount is very less, then you should try and save atleast 1000 per month. Cut your expense wherever needed, but then you dont have any other choice. Keep this amount separately in a different account if possible. Once you accumulate anything above 5000 INR, then put it into an FD.
Well this is the simplest and the safest form of investing you can do without any harm done and least risk. But again the returns too will be dependent on the prevailing interest rates.

For higher returns you would need to venture into Equity markets. Now again in Equity you can chose to play safe by giving your money to a Fund manager and he will invest properly on your behalf. But off course, whether you have a profit or a lot, he will charge you for his services.
The different options that you to invest into equity are

  1. Directly into the Stock Market
  2. Investing into Mutual Funds
  3. Investing into Equity through Insurance related schemes.
These are the high level ones and can be dealt in detail in each one of them

So if you are looking at investing into stock market then get yourself an Demat account opened. 
Again for mutual funds you may need a demat account but for some you may get them in physical form itself.

ULIP's  gives you the flexibility to invest into equity, with the benefit of an Insurance cover and Tax Benefits. For the insurance there are many many plans and schemes. Just call an agent and get yourself familiarised with the same.

Another safe option would be to invest in Gold. Now Gold can be bought in physical form or in the ETF's which are like shares in demat form. This gives you the flexibility to just have the details without having the botheration of safekeeping of Gold. And can be bought and sold easily. Most importantly, even if you have less money , with which no one will be able to give you a small amount of Gold, ETF can do the job for you.

Keep saving, Keep investing. Just remember to save a little everyday, and that would help you a lot in the long run. 
For example, just by skipping one coffee at any coffee outlet you would be saving 60/- per day. Which would amount to 1800 per month and approx 20000 an year. Good enough to have a nice Insurance plan to cover you and your family just at the cost of coffee. 
Have a nice day