Today we will talk about Company Fixed Deposits. There are many investors who are very much impressed by the Corporate fixed deposits and feel like they are as good as Bank Fixed deposits, but one has to understand that if company deposits offer higher interest rates, It is bound to be more riskier than normal Fixed Deposits offered by Banks. Most of the investors think that Company fixed deposits are safe just because the company which is offering these Deposits are very famous one’s and very big in Size. But that is not true ! . How to Find cheapest Fixed Deposit in India
What are Corporate Fixed Deposits
Corporate fixed deposits are normal fixed deposits offered by Companies. The interest rates offered are generally higher than Bank interest rates and can be in range from 9%-16% . Higher the interest rates offered higher are the risks involved. Why do companies have these deposits? when companies have cash crunch and require money, they can offer deposits at attractive rate of interest to common public, one of the reasons for this can be that they do not want to raise the additional capital by issuing shares. Corporate Deposits are governed as per Section 58A of Companies Act, however these are “unsecured” loans (we will talk about it) .
Risks with Company Fixed Deposits
There are two main risks associated with Company Deposits , they are :
A) Default Risk : These Company deposits carry a risk called Default Risk, which means, at maturity they might not be able to return your maturity amount and default in the payment. It can happen that company is out of cash at that time or does not have sufficient money in their hand to pay back , this can happen for many reasons like their business might not be going good that time or because of recession .
MUMBAI, MAY 19: The beleaguered CRB Capital Markets has failed to submit its plan for settlement of Rs 180-crore liabilities to fixed-deposit holders. Reserve Bank of India (RBI) is now free to move court seeking the winding up of the non-banking finance company (NBFC).
Prudential Capital Markets Ltd., based in Calcutta was one of the biggest and successful NBFCs. But their reputation came under a lot of flak the moment they began to default in the payment of interests and the matured amounts. When flustered investors started queuing up to withdraw funds invested in Prudential, the company managed to stave
them off by stating that it would repay 40% of the funds within a year and the remainder a year later. In some cases the cheques were issued but if they thought they were lucky, they were in for a shock for their cheques bounced.
B) Unsecured Deposits : Bank Deposits are secured by RBI up to 1 lacs rupees per branch, which means that if bank does not return you the money or goes bankrupt, RBI will pay you up to 1 lacs of deposits. There is no such Insurance on Company Deposits, hence they are totally unsecured . Link
Update from Rakesh : We have very bad experience with Midwest Iron & Steel company. My parents had invested in this company in mid 90’s and the company was defaulted in 1997. SEBI had included it in its list of vanishing companies. Its been over 13 years we have still not received any money nor do we know any status of it. I had written to SEBI but not update yet.
Caution Points
Premature Exit from Company FD’s are not that simple like Bank FD’s. You might have to run from one place to another and send loads of letters and some times even give reasons for Premature Withdrawals .
One such investor, Vidyadhar Radhakrishna Lad, a senior citizen and shareholder of the company, had subscribed for the fixed deposit scheme of Jaiprakash Associates by investing Rs 1 lakh. Despite writing to the company and running from pillar to post for two months, Mr Lad has still not received his fixed deposit receipt (FDR). Link
Make sure you also consider the credit ratings given by CRISIL and ICRA for that FD . (Understand CRISIL Ratings and ICRA Ratings)
Refer to the article below to read about Panjon Pharma Fraud in Fixed Deposits (Credit : Hemant Beniwal)
Should you invest in Corporate Fixed Deposits
There is nothing good or bad , some companies which offer Fixed Deposits are very established and are highly reputed, however you can’t take it at face value and ignore the risks involved. If you want to park money for short-term and are comfortable with the risks which come with corporate fixed deposits, these Corporate fixed deposits can be a good products for you. The point here is awareness. It’s not recommended that you put a big sum in same company. If you want to invest 2 lacs in company fixed deposits, then better invest 1 lacs in 2 different company, that would diversify your risk to some extent. Also if you are investing for some very important goal, then better settle with Bank Fixed Deposits and not Corporate deposits, it’s better to settle with 2-3% less returns then take unneccessary risk . Here are some words of caution while choosing Company deposits .
Which Company Fixed Deposits you should avoid
Companies which offer interest higher than 15%.
Companies which are not paying regular dividends to the shareholder
Companies whose Balance Sheet shows losses
Companies which are below investment grade (A or under) rating.
Pvt limited Companies and Partnership firms as its very difficult to judge their performance.
Let us say you have 1 Lac rupees and you want to invest for the term of 1 to 1.5 years that can earn a decent interest rate. You thought of investing in fixed deposit in a bank for 1.5 year @ 6% per annum. Just after one month, bank increased it’s FD interest rate by 0.5% and again after 6 months interest rate is increased by 1%. But you cannot avail this benefit since your FD carries fixed interest till 1.5 years. Is there any investment instrument that could work to handle this situation? Of course YES, Mutual fund industry does offer floating rate debt mutual funds to invest in.
Basic Definitions you should know
Coupon rate: The stated interest rate on a bond or other debt security when it’s issued.
Benchmark rate: A rate used as a yardstick for measuring or setting other interest rates.
Expense ratio: A measure of what it costs an investment company to operate a mutual fund.
What are Floating Rate Mutual funds?
These are the Debt mutual funds which invests about 75% to 100% in securities which pay a floating rate interest (bank loans, bonds and other debt securities) while the rest is in fixed income securities. See List of best Debt Oriented Mutual funds
There are two kinds of floating rate funds– long term and short term. The portfolio of the short-term fund plan is normally skewed towards short-term maturities with higher liquidity and the portfolio of the long-term plan is skewed towards longer-term maturities. However, even the longer-term funds are positioned more on the lines of short-term funds and are not very aggressive in nature.
Floating Rate securities vs Traditional bonds
As you may know, that most bonds have fixed interest rates which are set when they are first issued, either by a government or a corporation. That rate of interest doesn’t change for the life of the bond. A floating rate security on the other hand, has a variable interest rate. That means it’s interest rate will go up and down, or “float” to reflect changes in current market rates.
Depending on the particular floating rate security, the interest rate may change daily, monthly, quarterly, annually, or at another specified interval. The rate is generally changed to keep it in line with a particular interest rate benchmark, which is often called the “Reference Rate.” Among the benchmarks used to set the interest rate on floating rate securities are the MIBOR (Mumbai Interbank Offered Rate). Hence, each time the benchmark rate fluctuates; the coupon rate is adjusted accordingly.
Note
The MIBOR rate is the weighted average of call money business transactions done by 29 institutions, including banks, primary dealers and financial institutions. This rate is calculated and disclosed by FIMMDA-NSE. [ Ignore If you dont understand ]
Credit Quality and Risk/Return spectrum
Credit quality is the measurement of a bond issuer’s ability to repay the debt it undertakes. Investment into AAA and equivalent rated instruments, call money market and government securities are the safest and most liquid instruments, while below AAA and equivalent rated instruments reflect downgraded quality and lower liquidity. However, their lower quality results in better returns, albeit at a higher risk.
Example analysis
Let us compare the floating rate, fixed rate debt fund and liquid funds over the years to understand the performance.
HDFC Floating rate Income fund long term plan (G)
HDFC Floating rate Income fund Short term (G)
HDFC High interest (G)
HDFC Liquid fund (G)
Category
Debt: Floating Rate Long-term
Debt: Floating rate short term
Debt: Medium-term
Debt: Ultra Short-term
1 month
0.35
0.35
-0.65
0.3
3 month
1.20
1.06
-0.4
0.95
1 year
7.68
5.0
5.53
4.68
3 year
8.58
—
8.2
7.17
5 year
7.48
—
5.98
6.77
Expense ratio
0.25
0.75
2.25
0.5
Exit load
3% within 18 months
Nil
0.5% within 6 months
Nil
Why, When & How
Why to opt for floating rate funds
The primary advantage of these funds is that, they are less volatile than other types of debt funds. In case of fixed rate bonds, when interest rates in the economy change, the price of the bond adjusts to make up for the fixed coupon of the bond.
Looking at the performance table over different time frames, floating rate funds have delivered outstanding performance over the years and more importantly, with considerable consistency.
A look at the performance table also reveals a better consistency in delivering higher returns when compared to other type of funds.
Credit quality of floating rate funds’ category is more or less similar to liquid funds and ultra short-term funds. Average maturity does not play a very important role in case of floating rate funds as they invest in instruments, that have a variable coupon rate.
When to opt for floating rate funds
Floating rate funds make better choice when interest rates are set to rise.
Floating rate fund can be considered to establish emergency fund. In the above case of HDFC Floating rate Income Long term plan (G), one can slowly build up emergency fund and once 18 months are over, you can redeem any time.
If investment period is 1 to 2 years and liquidity is a concern, then one can look at floating rate funds over fixed rate debt funds. Now banks are coming up with recurring deposits with quarterly revision of floating rates. Always look for alternatives as per your investment period, returns, risk and liquidity.
How to select floating rate funds
Long term floating rate funds are better than short term considering performance, less expense ratio.
Select a fund which has proved its performance over a period. (This shows the effectiveness of the fund house in mobilizing the assets under management).
Select the fund which invests significant % of asset in companies/securities with highest credit rating.
Select the fund with low expense ratio.
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Floating rate funds in India
The primary reason for their lack luster presence in the mutual fund industry has been investor ignorance of the nature of floating rate funds. There is a shortage of sufficient long-term floating rate instruments. Due to this, fund managers divert certain portion towards fixed interest securities. In the present situation of Indian economy money market and higher inflation situation, interest rates are set to rise in near future. Always consider floating rate funds over liquid/ultra short term/debt funds.
Did you miss your deadline for filing the tax return by 31st July? Most of us pay the taxes before the deadline of 31st Mar, but when it comes to filing the return we are lazy people and many times we make mistakes in hurry. However very less people know that even if you have missed the deadline to file your Income Tax Returns, there is no need to panic, as when it comes to filing of your income tax returns, tax laws are not so stringent. In this article, tax implication will be explained considering all the scenarios. You being a salaried person may have missed the filing of your tax returns if you have an income on which all the taxes have been deducted or have been deposited by way of advance tax, no need to panic. There should be no additional penalty or interest for not filing the return by July 31, 2009, provided you act now. You still have the time to file your return of income for the assessment year 2009-10 till March 31-2011.
See the basics of how tax is calculated.
Rules
However, persons who have any Business or Capital loss to be carried forward may have a cause to worry as the said loss would not be allowed to be carried forward to next year if the return of income is not filed before the due date.
If you still have any outstanding taxes to be paid (after deducting TDS and Advance taxes paid, if any) you would be liable to pay simple interest @ 1% per month or part of the month, on the tax payable commencing from the date following the due date till the date of filing the return.
Some Basics
TDS: TDS is tax deducted at Source, Generally Employers deduct our taxes in advance and pay to govt in advance. TDS in detail
Previous Year: Previous Year means the year when we earn Income.
Assessment Year: Assessment year is the year when we actually pay tax for the income earned for previous year.
Example: So if we earn income in year Apr-2008 to Mar-2009, 2008-09 is our Previous Year and 2009-10 is our assessment year.
The Implications of not filing the income tax return on time and the steps to correct the situation
Scenario 1# You do not have outstanding tax liability
In case you have already paid your taxes before 31 March, 2009, but could not file the return within the due date, you may file a return at any time before the end of one year from the relevant assessment year, simply put; for the financial year 2008-09 return can be filed at any time before 31st March 2011, however you may invite a tax penalty of Rs 5,000 u/s 271F of income tax act even if all your taxes have been paid if the same return is furnished after 31st March, 2010.
Scenario 2# You do have some Outstanding Tax liability
If you do need to pay any balance tax, there is some financial implication. The basic principle remains the same: The income tax return for a given assessment year can be filed any time till the end of that assessment year without any penalty. If it is filed after the end of the assessment year, there may be a lump-sum penalty of Rs. 5,000. On top of this, there is a penalty of 1% per month on the net tax payable u/s 234A.
Example:
Say, your income tax liability for the year is Rs. 40,000. You have TDS (Tax Deducted at Source) of Rs. 20,000, and you have paid an advance tax of Rs. 6,000. Thus, the remaining tax payable by you is:
Net Tax Payable = Income tax liability for the year – TDS – Advance tax paid
Now there are two cases, which we have to consider
Case 1: File income tax return before the end of assessment year
Say you file your income tax return on 17th September, 2009. In this case, you would be filing your return 2 months late (partial months are considered as full months).
Final Amount = Net Tax Payable + Interest for 2 months at the rate of 1% per month Amount payable ,
Case 2: File income tax return after the end of assessment year
Say you file your income tax return on 4th June, 2010. In this case, you would be filing your return 11 months late (partial months are considered as full months). On top of this, you would be filing the income tax return after the end of the assessment year for which you are filing the return. So, in this case,
Final Amount = Net Tax Payable + Interest for 11 months at the rate of 1% per month + Lump sum penalty of Rs. 5,000
You have losses that you need to carry forward. This applies irrespective of whether you have any net tax payable or not. If you do not file the income tax return for a year by the due date, a loss for that year can not be carried forward. The only exception to this rule is loss from house property– this loss can be carried forward even if the IT return is not filed in time. Thus, if you have a loss from any of the heads of income (except for the head “Income from house property”) and you file your income tax return late, you would not be able to carry forward your losses. Thus, you would lose the benefit of set off of these losses against the income of the next year.
Conclusion
Not filing a return on time does have financial implications, especially if you have a net income tax payable and/or if you have losses to be carried forward. This can really hurt especially if the losses to be carried forward are significant. Therefore, your best option is to ensure that you file the income tax return by the deadline.”Better late than never” is the best policy when it comes to income tax return filing.
Notes from Manish:
Disadvantages of filing a late return
As per Income Tax Department of India : “Aa tax return may be furnished any time before the expiry of two years from the end of the financial year in which the income was earned’. This means that if you earned your income during FY 2009-10, you may file a belated return anytime before 31st March, 2012 ” . But there are some disadvantages if you dont file your returns on time . They are
You will not be able to carry forward your Business loss (Speculation or otherwise) , capital loss , loss due to owning and maintaining of race horses.
Loss of Interest on refund : You may loose interest on refund u/s 244A specially in case if you are claiming a Major amount as refund.
You cannot revise your return.
NOTE: Dear Friends, the above article does not mean to encourage people for filing late return but only to make taxpayers aware about the provision of IT act and help them taking informed decision.
This is a guest article written by Mr. Rishabh Parakh who is a Chartered Accountant and Director at Money Plant Consulting
Child Education is one of the biggest goals of parents these days because of the tough environment and high expenses involved.
Most of the parents start saving for Child Education right from the birth of Child, which is a great! In this post we learn how you should evaluate the target cost of Children Education and how you can achieve the targets within expected deadline. We are mainly talking about Higher education in this article.
Many Companies come up with Child plans and other products which are nothing more than ULIP’s bundled with special features like Wavier of Premium option and some other features. However Planning for Child Education is not a big task and you can do it yourself, given you have some interest and eagerness to do it.
So following are the 5 steps you can do yourself to plan for your Child Education:
Step 1: Set a Target Date
The first step is to find out the target date for the child education goal. I feel the that average age when a child goes for Higher education can be taken as 21 or 22. You can take your own target tenure depending on your expectations and situation.
If you are not yet married then find out the estimated time left for your marriage and when you want to start your family (i mean children) and add target years to that number. For me personally it would be 4 + 21 = 25 yrs. what about you?
Step 2: Set a target amount in today’s term
The next step is to determine how much does it cost in today’s value for giving education to your child. All of us have different aspirations when it comes to our child education, courses like MBA, Engineering, MBBS, Software related courses are on our minds.
So let’s say for example you determine that Rs 10 lacs is good enough to provide a good education to your child in today’s value. Now you can jump to next step, but before that make sure you understand the effect of inflation on our Money. Here is another good article on Inflation
Step 3: Find out the amount you need on target date
Next step is to find out how much amount you actually need in the end. For this you first need to determine the rise in education cost per year. As per the recent year numbers, Education costs are increasing at 10% per annum.
A decade ago you could have done an MBA at 1.25 or 1.5 lacs, but today it costs more than 4 lacs. That’s more than the average inflation. Education cost in our country has been increasing at higher speed than other things. so you need to consider some figure. I would like to take this as 10%.
Example: Considering myself, the amount I would require today is around 8 lacs. My tenure is 25 yrs and rise in education cost I would like to take as 10%. So
Target Amount I need after 25 yrs = 8,00,000 X ( 1 + .10) ^25 = 86 lacs (approx)
So, I can see that I need to make around 86 lacs in 25 yrs. Please note that this figure is based on your assumptions. The actual Figure you might need may be more or less to this amount. But still this is good enough, as we have a plan at least and we are near the goal.
Step 4: Estimated the return which you can generate over your investments
This is an important step where each investor has a different level of risk appetite and knowledge. Depending on those factors one can choose different products for investments and can generate some return through it.
One who is not much interested in finances and has lesser risk appetite can choose Balanced Funds or Debt Funds and can generate around 10-11% returns. On the other hand a person who can take more risk and have more interest in finances can invest in products like Equity Mutual funds, ETF’s, Direct Equities etc and can target close to 14-15% returns.
There is no point in investing in risky products if you are not a risk taker. As a rule of thumb, a person who is investing for long-term like 10+ yrs should take Equity route because over that kind of time frame Equity has performed the best with maximum returns and with small risk.
So for long-term, Equity is what you should invest in and for short-term prefer equity only if you are great risk taker. Your range of return expectation should be from 8% – 15%. Anything above that is a bonus but getting more than 15% is tough for general investors like us.
Anything like 20-25% should be the target of more professional investors who have advanced knowledge and who are full-time into stock market and related fields. So better be satisfied with suitable returns which will be able to achieve your goals.
The next step is to find out what is the monthly contribution you need to do. For this you have to use this scary formula.
C = [FV * r] / [(1+r) * { (1+r) ^ t – 1 }]
Where
C = contribution per month
r =Rate of return you expect to generate on your returns .
t = tenure (It would be multiplied by 12 if payments are monthly)
FV = Future value of your goal (this is calculated in step 3 .
You can Use this Calculator to calculate these figures. Just fill in your details and get the output. Now you can invest this money in product you have chosen.
Important Points to Remember
Apart from these 5 points, there are other points you have to consider which will make your Child Education planning more strong and successful.
Make sure you are Insured Properly because in between if you die prematurely the amount of insurance your dependents get should be good enough to achieve your Child Education. Make sure you buy a good term insurance plan to cover this risk.
When you are near the end of the goal, when still 4-5 yrs are left then you should better start withdrawing your money from riskier products to more safer products, so that you do not get surprise drop in your Corpus. If another subprime crisis happens at the same time when your kid is ready to go to college, it will be a tough situation. So better start withdrawing your money every month from Riskier products to safer products.
Make sure you review the performance of your Child Education plan every year and make sure that things are going as expected. If not, find out why? See if you need to change your numbers, if you do it’s fine. No one can plan for things in advance with accuracy and it’s totally find if things go little off track. Just be ready to adopt the changes.
At the end, sticking to this plan is the deciding factor of whether you are successful or not. The consistency in Investing for this goal is the main thing. Returns will follow when you follow the plan.
Make sure the Asset Allocation is right and make sure you stick to same asset Allocation.
Make sure you do not force your Child to adapt as per your Plan. Make sure you don’t have anything rigid for Child. Let him/her decide what they want to do, You are mainly a motivational parent who are paying for cost of what your child wants to do in their life. A successful Child Education plan won’t make any sense if he/she is not able to pursue what they are passionate of and love doing.
Conclusion
You have several products in market which claim to be Child Plans. They are costly and complicated for most of the general investors. The simple funda for successful financial planning is “Dont buy if you dont understand it”. Planning for Child Education can be a step by step designed simple plan which we can do ourselves.
Please leave your Comments to let me know how did you like the article? Which one of these steps is the most challenging part? What do you suggest is the rough estimate of Child Education expenses today?
How many accident you need to realise that you need Health Cover? It takes just one visit to a hospital to make us realize how vulnerable we are, every passing second. For the rich as well as poor, male as well as female and young as well as old, being diagnosed with an illness and having the need to be hospitalized can be a tough ordeal. Heart problems, diabetes, stroke, renal failure, cancer – the list of lifestyle diseases just seem to get longer and more common these days. Thankfully there are more speciality hospitals and specialist doctors – but all that comes at a cost. The super rich can afford such costs, but what about an average middle class person. For an illness that requires hospitalization/ surgery, costs can easily run into five digit bills. A Health insurance policy can cover such expenses to a large extent. Read why Health Insurance is more Important these days compared to Old days
Types of Health Insurance
There are mainly three types of Health Insurance covers:
Individual Mediclaim : The simplest form of health insurance is the Individual Mediclaim policy. It covers the hospitalization expenses for an individual for up to the sum assured limit. The insurance premium is dependent on the sum assured value. Example : If you have 3 family members you can get an individual cover of Rs 2 lacs each . In this case each of you are covered for 2 lacs , if 3 members face a need for hospitalization , all 3 of them can get expenses recovered upto Rs 2 lacs . All the 3 policies are independent .
Family Floater policy : Family Floater Policies are enhanced version of the mediclaim policy. The sum assured value floats among the family members. i.e each opted family member comes under the policy, and it covers expenses for the entire family up to the sum assured limit. The premium for family floater plans is typically less than that for separate insurance cover for each family member. Example : In this case if suppose there are 3 family members , you can take a Family floater policy for Rs 6 lacs in total . Now anyone can claim upto 6 lacs in expenses , but then the cover will go down by that much amount for that year . So if one of the family member is hospitalised and the expenses are 4.5 lacs . It will be paid and then the cover will be reduced to 1.5 lacs for that particular year . Next year again it will start from fresh 6 lacs. Family floater makes sense for a family because that way each one in family gets a big cover and probability of more than 1 getting hospitalized in same year is too low untill and unless whole family is travelling together most of the times in a year .
Unit Linked Health Plans : Taking the ULIP route, health insurance companies too have introduced Unit Linked Health Plans. Such plans combine health insurance with investment and pay back an amount at the end of the insurance term. The returns of course are dependent on market performance. These plans are very new and still in development phase . This is only recomended for people who can handle market linked products like ULIP and ULPP . Read who should buy ULIPs .
For a number of reasons, it is advisable to steer clear of unit linked health plans. The best way is to treat insurance purely as an expense. So if you are single, opt for an Individual Mediclaim policy and if you have family, opt for a Family Floater policy. The amount paid (by cheque or debit/ credit card) for health insurance premium provide tax exemption under section 80D for a maximum of Rs.15,000.
What is the Ideal Cover for Health Insurance
As mentioned earlier, the cost of Health Insurance depends on the sum assured , age, current health condition and your previous medical history. Higher the sum assured, higher the premium. So what is the ideal health insurance cover requirement? There is no standard answer or thumb rule for this. If we agree that health insurance is important, one has to look at his/ her own lifestyle, health condition, age/ life stage, family history of illnesses and affordability. Keep in mind that most insurance companies limit the sum assured to a maximum of 5 lakhs. Also note that many health insurance policies “provide additional benefits” such as daily allowance, ambulance charges, etc. for hospitalization. Not only are such “benefits” superfluous, they tend to drive the premiums higher. So it is best to avoid such plans and stick to something basic and simple.
Image courtesy
Health Insurance provided by Employer
Many employers provide health cover for their employees. Isn’t that sufficient? Three aspects need to be considered in such a case – Is that cover sufficient? Is the insurer good enough? What happens if you change your job? Health insurance is provided as a perk to the employees. So it is important to understand the policy a bit more in detail and to check for coverage. The best way is to ask the HR Department for policy details. Get into details , what is covered , what is not covered ? Many times Employees just think that they have health Insurance and are just relaxed only to find later that it does not cover X and covers Y only upto a limit . That can be a painful situation .
Health Insurance for the aged
Till a few years back, health insurance companies were reluctant to provide cover for the aged. But nowadays there are a lot of insurance companies providing policies for the senior citizens. Insurance cover paid for a person of age 65 years and above, can provide additional tax exemption of up to Rs.20,000. But keep in mind that the premium rates are higher for senior citizens. For the employed, another option is to approach the employer to negotiate with the official insurer to provide an option for additional cover to parents. Since the volumes are high, the insurer can provide such added cover at attractive premium rates.
One of our readers Pattu has shared a great calculator which he discussed in his comment is uploaded here , If you want to download it , Click here
Tax Exemption from Health Insurance Premiums
Sec 80D covers Health Insurance . You can get exemptions of
Upto Rs. 15,000 paid for self + spouse + cildren.
Upto Rs 15,000 paid for Parents (Rs 20,000 if parents are senior citizens)
So in total if you pay your health insuance and your parents health Insurance premium , you can save upto maximum of 35,000 .
Note : If you take Health Insurance riders with Term Insurance like Critical Illness cover , the extra premium paid for that will be actually be covered under Sec 80D , not sec 80C . See Tax Rules
What is TPA (Third Party Administrators) ?
TPA stands for Third Party Administrator. TPA is a middlemen between Insurer and the Customer . Customer can directly deal with TPA at the time of claim and TPA will help with with all the process of claim settlement . A TPA is a specialized health service provider rendering variety of services like networking with hospitals, arranging for hospitalization and claim processing and settlement. The concept of TPA has been introduced by the IRDA (Insurance Regulatory and Development Authority of India) for the benefit of both the insured and the insurer. While the insured is benefited by quicker & better health service, insurers are benefited by reduction in their administrative costs, fraudulent claims and ultimately bringing down the claim ratios. An insurance company can have more than one TPA and a TPA can serve more than one insurance company. Some of the services TPA provides are
Maintain database of policyholders
Issue of identity card to all policyholders
Provide ambulance service
Provide information to policyholders about hospitals.
Check various investigations
Provide Cashless service
Process claims
Health Insurance Claims settlement process
A bit on how health insurance claims processing works. In most cases, the Insurance companies appoint a third part administrator (TPA) for claims processing. That means once the health insurance policy is sold, the insurer passes on the baton to the TPA. In case of a claim, the insured has to get in touch with the TPA for all versification and formalities.
There are 2 ways by which health insurance claims are settled:
Cashless : For availing cashless treatment (only at authorized network hospitals), the TPA has to be notified in advance (for planned hospitalization) or within the stipulated time limits (for emergencies). The insurance desk at hospitals usually helps with all paper work. The claim amount need to be approved by the TPA, and the hospital settles the amount with the TPA/ Insurer. Typically there will be exclusions and such amount will have to be settled directly at the hospital.
Reimbursement : Reimbursement facility can be availed at both the network and non-network hospitals. Here the insured avails the treatment and settles the hospital bills directly at the hospital. The insured can claim reimbursement for hospitalization by submitting relevant bills/ documents for the claimed amount to the TPA.
The TPA mode of claims settling has its own problems. The TPA is incentivized to limit insurance claims and they are not the one’s who sells the policy. There are many cases where the insured had a tough time to claim for his hospital expenses. So before taking health insurance it would be useful to check who the TPA is and how good are they when it comes to claims processing. Internet search and a friendly chat with the hospital staff can give you good insight on the insurer/ TPA. There are also some health insurance providers who do not employ TPAs and does claims settlement directly (this is called Inhouse TPA) .
Comments , What are the best health Insurance policies you are aware of ? Do you feel it makes sense to buy health insurance at early stage or after getting married only ? Please share your views on this .
This is a Guest Article from Ganeshwho is an avid follower of this blog and his blog is My Graffiti Page. Please note that this post is NOT intended to promote or suggest any Health Insurance plan. If anyone is planning to take Health Insurance this New Year, the post can possibly provide some useful tips and pointers for selecting a suitable plan. Your comments and thoughts are most welcome.
Personal finance is not only about your saving and investment, it includes tax planning, savings, expenses, debts, retirement plans, investment products and all the insurance and other policies. It is an understanding of how these tools works together and also affects each other.
In this article I will tell some tips which will be helpful for your personal finance.
1) Top most reason is flexibility in Decreasing the cover later. So in case you need cover of 60 lacs now, you can divide the cover into 30:30 or 20:40 and then in future whenever you need that your insurance requirement has gone down you can just stop one of the policy.
2) The second reason is that your risk of claim decline from insurance company goes down, but this is a secondary reason.
2. Invest in Tax Saving Products for long term goals
Most of the people still invest in Tax saving funds for their shot term financial Goals. The fact that the money invested will get locked for long term should be taken in positive way and hence you should invest in these for your Long term goal, so that you don’t feel bad about the lock in period because you anyways need money after many years.
For example– Child Education, Retirement, Holidays abroad after many years. For short term goals like Buying car, paying fees, saving for some short term commitment should not be taken care by Tax saving Instruments.
You should use Fixed Deposits, Fixed Maturity Plans, Debt Funds, Balanced funds and Non Tax saving Equity Funds (Risky) for Short term goals. Once you think like this the lock in period will not matter to you at all 🙂
Watch this video given below to know about the tax saving investment tools in detail.
3. Use Top up’s in ULIP’s to minimize Cost
For investors who are going to buy ULIP’s or using ULIP’s for their long term goals, they should use Top up facility in ULIP to minimize the cost. The Allocation charges are generally linked to the regular premium you pay and not the Top up’s. So if you are investing 60,000 per year as premium, you should rather take a 20,000 policy and top up your policy with 40,000.
This way your will save charges on top up money. You can decrease your cost (charges) by anywhere from 50% – 75% using Top ups.
4. Investing in GOLD ETF’s instead of physical GOLD
Why do you want to invest in Physical Gold? The biggest reason is for Daughter’s Marriage and Jewellery required for the same. But the underlying reason always is capital appreciation.
So why not always invest in Gold ETF’s [ Understand what is ETF ] and whenever you need Physical gold, sell the ETF’s, take the money and Buy the Physical Gold at that time. Most of the people invest in Gold physically for Daughters marriage, but the better way would be to invest in ETF’s and when time comes you buy the physical gold by selling the ETF’s.
That is a better way because its more flexible, safe and easy route.
5. Use your LTA, HRA and Medical Reimbursement
I am amazed to see that many Salaried Employees especially youngsters do not care to take the benefit of LTA, Medical reimbursements and HRA just because of their laziness.
So make sure you take advantages of these even if you partly use these things you will save couple of thousands in Tax. All you have to do is save the bills, take the xerox and walk couple of steps to your Finance department and submit them, don’t you think its worth if its can save you couple of thousands in tax saving?
6. Control your Credit taking Habit
Image source: freecreditreport.com
Most of the people take Debt more than they can afford or deserve. Criteria for giving credit is mainly how much you earn. The company never knows your expenses and your future goals, your risk appetite, your future plans etc.
People earning 5 lacs per annam take debt of 30 lacs for Home, unnecessary personal loans for buying LCD’s, going for vacation and other non-priorities in life. This can have ill-effects later on.
Also companies are now keeping an eye on your credit taking behavior and it affects your credit score through which companies in India have started using as a decision making variable. So watch out your credit taking behavior. Don’t over-do it.
7. Dont Over monitor your Portfolio
Keeping an eye over your portfolio is great. You should look at your shares, mutual funds, ULIP’s etc. but overdoing it can be fatal sometimes. Some of us have this obsession of watching shares, mutual funds NAV and ULIP’s NAV on daily or may be weekly basis. See How much time you should invest in Personal Finance.
This is not a good sign for long term investing especially for people like us who are into regular jobs and have no much time to contribute in your Finances.
When you are a long term investor, why keep track of short term movements, these moves will have not much value in your all growth and short term movements will affect you mentally and tempt you take take decisions in short term because your money is either going up or down fast.
More of anything is bad and same things is true for your over involvement. Couple of hours per month or every quarter is good enough. Don’t get a feeling that successful financial life means more action.
8. Share your Financials with Family
If you are dead in another 1 hour, do you think your Family will be able to find out all your investments and Insurance documents and successfully claim them?
Are they unaware of the fact that you took a huge Insurance cover for them or you invested 50,000 in a ULIP last month?
Most of us graduate from novice investors to a good investor but still are left behind in taking care of this extremely critical point of sharing each and every details of our finances and making sure that the documents are within reach.
Let your wife, children have a good idea of where the documents are and where your investments are, have xerox copies of every document and have them at 2-3 different places and make sure people know about them. Emotional pain of losing some one and no idea of the finances which will take care of them is a kind of situation you never want you loved ones to be into 🙂
9. Don’t compare your returns with others
Image source: i.ytimg.com
You are different, be proud of this fact. If your returns are less than your friend’s mutual funds that’s fine. Don’t compare your self with others, there are many things which determines what you get in life like knowledge, luck, skills, timing etc.
So just make sure that you are getting what you try for. Don’t lose focus from your goals, your main aim in life is to achieve your financial goals easily and smoothly. Financial Planning is a race where everyone who reaches their personal target is a winner.
Make sure you don’t hurt yourself by competing with others.
10. Investigate everything before you Buy it
When you buy something, make sure you try to get information on Internet, ask on forums at different websites and make sure you find out maximum about thing product you are buying. Spending 30 minutes investigating your product can save you from lot of trouble.
One person I know recently took a home loan from HDFC and went for additional Life over from same bank for 30 lacs. He didn’t investigate much about the cost. It was around 8k per year for the term Insurance. When some days back we saw quotes from other company, the cheapest quote was around 6,000 from ICICI Prudential.
He was paying 2,000 more for the same thing because he didn’t spend 5 min extra investigating about the product. Just think what is the loss of spending some time investigating your product. How many of you took an ULIP after agent explained it to you and didn’t inspect much about it.
Email This to your Friend:
11. Invest and Spend, not vice Versa
You receive your salary -> then you spend all your money -> then save or invest if you are left with something. This is not a right attitude.
You should change it to Get Salary -> Invest your money as per your future goals -> Spend the rest.
Once you are saving some part of your salary, somehow you will find ways to spend on things which are of first priority and would refrain from spending on things which can be avoided but if you spend first and try to save later, you will end up spending on unnecessary things.
So better change the order of spending and saving. You can definitely live with your 90% salary , so at least save 10%. There is no harm in trying out this. If it does not work, you can go back to spend and save.
12. Build your Emergency Fund now
Make sure you have emergency fund. If you are listening about this from long time and haven’t done it yet, the best thing would be to take a pen and paper right now and plan for it.
This is the money with the aim to provide you immediate access, not growth of money. Don’t concentrate on getting great returns from this part of your portfolio. The aim of this part is just to give you high liquidity in case of emergency. That’s all.
So simple rule is 2 months of expenses in Cash which you can access in minutes from ATM and 3-4 months of expenses in Liquid funds, which you can get back in 3-4 days.
This is preparation for a situation like if you lose your job and need time to search for something you really like, or get a long term illness and cannot earn money in short term or special emergencies. You can always reach out to close friends and Family for money, but why to depend when you can be self-dependent.
Its’ all about strong planning.
13. Equity for Long term, Debt for Short term
I say this again and again, this is the golden rule, one of the fundamentals of Strong financial planning. Long term goals whose target date is more than 7-8 yrs like Child Education and Retirement should always be linked with Equity products like Equity Mutual funds, Direct Stocks, ULIP’s, Index ETF’s, Index Funds.
That’s because you can get great returns in long run from these things with lesser risk. On the other hand short term goals should be achieved by debt products like FD’s, Debt Funds, Recurring Deposit, Short term bonds. You can also use Balanced funds if you have moderate risk appetite and time horizon is 3-4 yrs.
14. If you dont understand, Don’t take it
How many investors understand how their ULIP works and what are different costs and how to use it efficiently? Not more than 3-4 % I believe.
How many people know why they have invested in Mutual funds which had a fancy name and which makes you feel like you have invested in something great and how many Endowment Policy holders know the overall final return they would get from their Policies?
Investors get into products which they do not understand well and then they can’t make best use of it which defeats the purpose. In reality the best products are least complicated one’s like Mutual funds, FD’s, Term Insurance, ETF’s, Gold ETF’s etc.
So if you don’t invest in something which looks fancy, you are privileged and should be thankful to god. Companies come up with complicated things which makes general investors feel that they are dumb and these companies are some big shot high class super knowledgeable in field of finance.
Just ask yourself if you want to eat the best, tasty and healthy food in this world then where will you go? 5 star hotels? I don’t think so 😉
15. Try new products now
There was a time when LIC policies, FD’s, NSC and PPF were the only thing in one’s portfolio. There was not much choice and people were risk averse. That was a different time.
Things have changed today and Finance world is different now and it’s more complicated now compared to olden days because of lots of choices in Financial products for us today. Don’t hesitate by trying out new stuff.
There are different products these days like Index ETF’s, Index Funds, GOLD ETF’s, SIP in Mutual funds, Reverse Mortgage etc. Don’t be stuck in same products like our Fathers and grand fathers have done.
16. Take Personal Loan to pay off your Credit Card Debt
In case you have any Credit card debt and you have converted it to EMI, it would be a better option to take a personal loan and pay off your Credit card debt as soon as possible.
Credit card interest charges are anywhere from 36% to 48% per annum which you don’t realise because it sucks your money slowly and it’s not significant per month so you don’t feel it. So taking a personal loan is a better choice and pay 15-20% interest on that.
You should always try to stay away from Credit card debt at the first place anyways.
17. Educate your self more
At the end, you have to learn stuff. No need to become a pro ,but you should keep updating yourself every month with basic things. Read Personal Finance Magazines like Outlook Money (Link to online issue) and Money Today (Link to online issue) and other blogs on Financial Planning .
Also if you are new to this blog, Subscribe to Email Updates to get fresh content in your Inbox twice a week. .
Readers Contribution
18. If appears to good to be true then probably it is not: So better if something looks great, then make sure you investigate well because there are more chances that it’s not that good as it sounds .There is no free lunch 🙂 – Amit Kumar
19. Learn simple maths : This is very nice point . Learning basic formula’s can help you a lot , you should know CAGR , IRR and Future Value formula .. – Amit Kumar
20. Find a right Financial Advisor : Find some one whom you trustand he is within your budget and you are comfortable with . – Guru
You are a valuable reader and your participation is needed , Please share any tip here like the one I have discussed , even 1 sentence is worth listening to. Also let me know which was your Favorite Point among these 16 points
Real estate is one of the largest employer after agriculture in India. It is also a globally recognized sector which is witnessing a high growth in recent times because of increasing demands of offices and residential places.
One of my friend has shared his own experience about real estate, let me share it with you.
One of my friends experience about real estate:
“The current market value of my flat in Mumbai is close to 1 crore, I bought it at 28 lacs in year 2000. The returns have been Mind boggling 72 lacs in 9 years, i.e. 8 lacs a year approx. , more than my current salary and now I am planning to invest more in real estate instead of Equity, What do you think”.
A not so close friend was discussing his Real Estate portfolio with me.
He belongs to first category of common sense deprived idiots, who do not understand mathematics well. 28 lacs flat became 1 crore in Value in 9 yrs, the returns are great, but not exceptional enough to make someone eyes pop out.
Simple math’s will tell you that its 15.2% CAGR return over 9 yrs.
Now what’s so great return about this 15.2% Return?
15.2% return over long term is desirable and great and what’s normal return from Real estate in last decade in our Country, The only thing irritating is how people make fuss about it.
Even Gold has outperformed, Gold was $300 per ounce in 2001 and now it’s close to $1100 ounce, that’s 15.5% return, 0.3% more. On the top of that Builders are not keeping their promises of Delivering Projects on Time and with same quality Promised.
Real estate investments have caught everyone’s attention in the past decade and every Tom, Dick and Harry with 5 lacs salary tries to grab a 40 lacs flat. I will try to throw some light on Average Real estate returns in past 8-9 yrs in India.
Coming back to my Friend:
I told him that it’s been a very good return, and I appreciate his timing, good job. But definitely he is bragging more than it deserves. A second person (his friend) suddenly comes to his rescue and challenges me.
“But Manish, I bought a flat in 2003 @20 Lacs with 3 lacs of down payment and rest a home loan. I spent total of 7 lacs till date and the flat is already quoting around 60 lacs, that 40 lacs of profit in just 3 yrs through investment of 7 lacs, that’s 78% return on annual basis”, showing off his fast calculations skills and giving me a “anything-else-you-young-financial-planner” looks his face .
These people are from another category of “common sense deprived and mathematically challenged” people. It is worse than first category. The problem with these people is that they do not understand “leveraging” .
What is mean by Leverage?
A situation of sitting on huge profits by just investing a small amount as down-payment and rest with home loan is pure example of leverage and very common in India, This gives a feel to people that they are very smart.
These people never consider the case when their house value drops by a big margin like say 15 lacs and they have just invested 5 lacs from their pocket, then they are in loss of -300% (absolute). But as you know, investors like to consider a rosy picture; they somehow believe that it can’t be the case with them.
When Real Estate broke in US:
As US citizens who bought Real estate in the middle of the Bubble just because credit was cheap and they could have made a lot of money by taking a Home loan and almost nil Down payment, When Real Estate broke in US, people who has put $10,000 from their pockets for a $4 million house were in losses of $1 million, because they had to pay $4 million as a loan money for something which is now costing $3 million.
That’s an unrealized loss of $1 million in a short time. That’s the problem of Leverage. Investors never think about this, India is a success story and housing is scarce, that’s enough for them to take a chance.
With my amazing quality of self-control, I kept all this in my mind and didn’t argue with him, sometimes your skills of explanation is limited to blogs only.
What is RESIDEX?
Don’t feel amazed if I tell you that there is an Index for tracking Real Estate in India. Its called Residex and maintained by National Housing Bank in India. It’s updated once every 6 months.
It covers all the major cities and the sub-areas in that city. The index Value over time will tell you how real estate prices are doing in some area or city.
Please understand that these prices are average real estate prices and not some general case which would negate what we discuss here today.
I don’t know how that is calculated but a common sense way of calculating it is to take a sample of real estate plots/flats in an area (for example 1000 units) and calculating the appreciation in value from last 6 months .
Lets see the RESIDEX values for 5 cities
Here is the chart of the same table
What is the mistake people do when they calculate Returns?
The beautiful mistake which everyone does is that they calculate pure absolute returns from Real estate which is in many lacs of rupees obviously.
So, if a person invested 30 lacs in a flat and it becomes 60 lacs in 5 yrs, they are sitting on a 30 lacs profit.
That’s a lot of money and people are excited to see that much money, but you also have to see that they invested damn 30 lacs !! for that, which is not every one’s cup of tea and the returns are normal 14-15% return/year on investment if you compare it with Gold or Equity.
You could have made more returns if you had invested in Equity (SIP in mutual funds in some top funds) . If you consider the risk taken for the return people have got in Real estate , personally I am not very much excited then, Investors forget the risk taken to get some return and only concentrate on Return part.
See an Article on GFactor , A tool to find out if an investment suits you.
What you have to see is how much return you got from something after adjusting the risk taken for that . So given a time frame of 1 year .
If you do a FD and make 9%, it’s amazing !!
If you invest in Real estate and make 10%, its ok
If you invest in Equity and make 11%, its just fine.. not a big deal
If you speculate in Options for one year and make your money grow by 500%, I would be personally disappointed a lot .
Some smart (second category people) people think that they can buy Real Estate on loan and make 30-40 lacs in 4-5 yrs from house value appreciation, While that is possible and has happened to a lot of them and definitely the return would be amazing.
But this exposes them to a great amount of risk which they don’t understand, its pure leveraging. There are better ways of leveraging than this. This kind of Leveraging is still nothing in front of Options trading in Nifty or some Stocks.
Not that I discourage people from taking a home loan and invest in real estate , but don’t overdo it , and understand and accept the risk involved, be ready for it.
“Risk happens when you have no idea what you are doing”. If you pre-calculate it and consider it, then it’s called Speculation, which is my favorite 🙂 .
An option trading is something I would recommend who have great risk appetite and dream of millions in short span of time, better than real estate.
IF we see the above chart of RESIDEX Values (for 8.5 years), you can find out the CAGR return of Real Estate in different cities. Let me show that for 5 cities in India.
Chart f or the same data
Note : I have assigned Index value for “India” by assigning weights of 25% , 25% , 25% , 10% and 15% to all five cities in same order .
What Should you Do ?
First of all, understand that Real Estate is important and you should always invest in it for Diversification of your Portfolio (If you can afford it right now). But that does not mean compromising with your Risk Appetite and investing just for the sake of Investing.
If you want to buy home, make sure you afford it, Buy a 1 BHK which you can afford if you want to live in it. If you want more than 1 BHK, plan for it, take it later. There is no rush. Real Estate is not the last thing in the world.
Don’t feel left out when you see others minting money in Real Estate, believe me they are making similar returns which you can make from Equity, just that the magnitude of profits they are making is high, not the returns on average. So Chill !! .
Note: Understand that whatever we have talked here is based on the RESIDEX index and there will be many specific cases which would make this all talk a nonsense, but we have to look at general case and not a specific case.
Download More data on Residex from HERE (From 2001-2007) and after 2007 at NHB website. Note that you can’t get all data of Residex at one place.
I combined the data from NHB from 2001-2007 and combined it with data on their Website to construct all 8.5 yrs of data. There was a shift in Base year because of which I had to do so.
What do you think about the Real Estate Prices at the moment in India?
I do not feel they are justified and the prices are mainly driven because of unnatural demand created by easy access to Loan. People buy it, but cannot afford it, If things continue for some more years. I would be surprised to see a big bubble burst in India like we saw in 2007.
Leave your Comments and let me know you are reading this blog.
Disclaimer: I have not invested in Real Estate, I am not very much excited about it and I don’t have money for it.
Did you recently bought a Term Insurance from some other Company ? Because here comes iTerm, the new sensational Term Insurance from my favorite Aegon Religare. This product has power to change the way Indians Look at Insurance. iTerm is currently the cheapest Term insurance in market, not only cheap, its dirt Cheap.
Imagine how much Rs 8162 provide as an Insurance cover? I went to their website and found out that I can get astonishing Rs 1 crore Insurance for tenure of 25 yrs (My age is 26) just for Rs 8162 (including Service Tax)
Update 18th Dec 2009 :
Disclaimer : Please note that this is my personal View and should not be taken as Promotional Review , Hence take decision only after you are satisfied . The customer care of AR is not working well and hence the user experience is not that great . I personally feel it will get better in coming week and months . So I will buy mine only after that .
If you are concerned about Security and do not understand Insurance products and their pricing , please do not get into this product and stay will well known names like LIC and SBI or HDFC . Thanks
Main features of iTerm Term Insurance
How to Buy : Can be bought “only online” from Aegon Religare website. (Only Internet Explorer Supported)
Sum Assured can be Minimum – Rs. 10,00,000 , Maximum – No limit (subject to underwriting requirements)
Entry Age : Minimum – 18 years , Maximum – 60 years
Policy Term : Minimum – 5 years , Maximum – 25 years
Maturity Age : Maximum – 65 years
Premium Payment Frequency : Only Yearly
Free Look up Period : 15 days (you can return the policy if you dont like it)
Service Tax : Right now iTerm Shows you all the figures inclusive of Service tax . So in the above example I took , The total premium is just Rs 8162 (Smart company)
More Details : iTerm Brochure or get more Information by calling on 1800 209 9090 .
Comparison with other Insurers
If I compare Term Insurance Premiums of Different Insurance Companies , iTerm Comes out to be really really cheap , The second cheapest Policy around was 85% more costly than this , and it was ICICI Pru Protect . I found this amazing tool which can compare Premiums of Different Insurance Companies with iTerm Term plan (Thanks to Ganesh)
Some Quotes
30 years Male, Tenure 25 years, Insurance Cover 50 Lacs, Premium 5600
30 years Female, Tenure 25 years, Insurance Cover 50 Lacs, Premium 4850
35 years Male, Tenure 25 years, Insurance Cover 1 Crore, Premium 14500
35 years Male, Tenure 25 years, Insurance Cover 1 Crore, Premium 11800
50 years Male, Tenure 10 years, Insurance Cover 50 lacs, Premium 17200
40 years Male, Tenure 20 years, Insurance Cover 75 Lacs, Premium 14925
35 years Male, Tenure 20 years. Insurance Cover 60 Lacs, Premium 8220 (11640 if Smoker)
My Notes
iTerm Term Insurance was announced at Bloggers meet in Mumbai on 21st Nov, 2009 and I feel proud to tell you that “Jagoinvestor was also invited” to be part of the Blogger meet and part of Discussion on iTerm and overall Insurance Industry. Though I was not able to go there personally, I had one representative attend the meet on my behalf (Thanks Abhishek Chandran) .
From the day Aegon Religare was Launched, I always knew that this Company has an attitude , It really know what to do and How to do it in Indian Insurance Sector . I think iTerm is one of the best products launched in the history of Indian Personal Finance System .
You can not miss this product , especially if you are still looking for Insurance. iTerm is a value for Money . India had a total internet base of over 60 million . I am sure that this product will rock our Insurance Industry and in coming years Aegon Religare will lead the Industry for at least Pure Protection Plans .
Important Doubts
What should you do if you already taken Term Insurance recently ?
Check quotes for your self , I am sure It would be 40-50% cheaper than what you are paying today . So better to switch if you have just 1 policy , Or if you were smart enough to split your Term Cover into two Policies , then stop the higher premium one and take this iTerm and continue the other policy .
You don’t have Term Insurance but you are Planning to take one?
You are the perfect person , Not that you have not done the sin of being without Term Insurance till now , Your timing is perfect 🙂 . Go for this .
Is it Safe to Buy Online Product from This company , I trust public limited Companys only ?
Here is the Answer of Are private Insurance Companies Safe . Regarding Buying online products, don’t worry .. Indian Insurane market is much advanced these days and we already have companies like ApnaInsurance and InsuranceMall where you can Buy, Sell, Manage and even make the Claims for your Policies.
I want to go for a Big Enough Cover and Want to take only iTerm , no other . What should I do ?
Break your Policy into two and take two policies . so Instead of taking one Policy for 1 crore , take two policies of 50 Lacs .
How to Buy iTerm Term Insurance online ? Can I get a Demo Please ?
Below is a Presentation with each slide showing you each page you need to fill while Buying iTerm Term Insurance online , Make sure you see it in Full screen to get a better feel .
Are you a Jagoinvestor Fan , let Manish know what do you think about this Blog , Fill the Guest Book
Shortcomings
Nothing is perfect and Everything has shortcomings , and so has iTerm , Which are
Will take time to reach in Rural Areas as iTerm can only be bought Online , because of this the first layer of target audience are people who have access to Internet . Aegon Religare need to formulate a Strategy to Capture Rural market .
As their is no agent involved in between there are many people who would not be able to keep track of yearly payments and they are more vulnerable to forget the payment unlike the scenario where agents made sure premium was paid on time , Not sure how far its an issue , tough not a big one .
iTerm came out with this Policy without Much Advertisement and hence it would take some time for people to know about this .
There are no Riders available with this Policy , which may look little bad , but the primary objective of Cheap cover is provided , so I think its fine .
Company is pretty new , so it will take time for the company to gain confidence , and given its pretty cheap premium , its subject of Crticism and Suspicion form general public .
Conclusion
iTerm is a innovative Term Insurance, Its a must have Product in everyone Portfolio because of its Value for money and amazing simplicity and importance as a Life Insurance Protection . Aegon Religare is showing some great leadership in Insurance Area and the only thing I am waiting for is its IPO 😉 .
Comments Please , Are you going to take iTerm Policy ? Do you need any more Insurance , Please share with us in comment and feel free to raise more doubts .
“Tax saving should be result of your Investment planning and not vice versa” . Understand this very well . For most of the people, saving tax is such a big thing , that they forget the primary rule of Financial Planning and concentrate all their energy into Tax Saving .
I see most of the people are trapped in idiotic products because of their obsession with Tax Saving . Most of the people today are invested in products which does not suit them, which they dont need, Which they do not understand .
All because of their idiotic decision of “Investing for Tax Saving !!” .
For some people the Products they buy for Tax savings are like This Pond , They are not sure what they will get from buying it , but they are happy about the fact that they are saving some money in Tax . Which is idiotic .
Typical Scenario
Most of the people dont do their Tax Planning in the start of the year . They just neglect The Tax Planning part. Somewhere at the end of the Year around Feb, They recieve a letter from their company that they need to submit their Documents for Tax savings so that they can avail the benefit of 80C and other Tax saving benefits like HRA , LTA , Medical Reimbursements , etc .
Even then they dont budge and most of the people wait till the deadline date to come very near .
Then finally comes the deadline date and now “Giving The proofs of Investment” is much more important than “Making Sensible Financial Decisions” . Its too late to Plan for things . ULIP agents , Insurance agents and Mutual funds agents are ready to take the charge and they will brain wash you with all their nice words , They themselves dont understand the product a lot of times .
You have no choice but to invest so that you save tax now . You cant even imagine a scenario where you dont invest your money and pay the tax . It feels like the most idiotic Decision ever . Which I feel can be a good decision sometimes .
Top Reasons for Investing
Below is a small diagram which tries to show how what are the biggest reasons people invest their money . Please Note that this is based on my understand and experience with so many investors over the years . And this is what I feel depicts the scenario closest to actual .
Problems arising Due to This
The worst Sufferers are those who invest in LIC and other companies Endowment Polices and Money Back Polices for the primary reason of Tax Savings. These people do not think that even though they are saving tax for this particular year , they are actually getting into commitment for next 15-20 yrs (or Policy Tenure) and Have no Idea how its going to meet their Future Goals . Read a Review on LIC Jeevan Tarang Policy .
Similar problem is with people who take ULIP’s . They Invest for a year to save tax and then next year they have no idea if they would be able to even afford it or not !! . This happens with mostly new joinees in Companies .They have no idea what to ask their ULIP agent at the time of Buying the product .
Next is “Liquidity Problem” . Most of the people do not think about the lock in period and do not take into consideration their Liquidity Requirement for coming Years . They Invest in ELSS and then next year they need money . They Invest in Tax Saving FD’s and then cry for any Expenses which were very obvious to arise down the line .
What we must Learn
Tax Saving is just a benefit provided when you Invest your Money, dont make it as a Primary objective to Invest. What you have to concentrate on is your Investment Planning , and after you have to restructure your Investment planning in such a way so that you also get Tax Benefits from them.
Investment Planning First and Tax planning second .If you are not able to save tax , its fine , Pay taxes . Its always better to avoid getting into messy products which dont suit you and suck your blood out . Tax Planning is Important, But the more Important things is that you don’t get to obsessive about it and do it only if its needed.
I can relate this with “Not using Protection during Sex” and then suffering for a long time because of that small mistake . This is exactly True with all people who dont not need Crappy Insurance and then one single mistake, Investing in it for Tax saving and then every year , Suffer with it, Paying a huge premium for the Small Insurance not sufficient for you and for the Maturity Amount which is not at all exciting .
Make sure that you invest in some product only if matches these 4 criteria .
So are you one of them who tax Tax saving with High Priority ? Have you invested for Tax saving as primary reasons ? Share with us . We can talk about it and make sure that it does not happen again . Post your Views on this ..
If you liked the Post , then Subscribe to this Blog to get updated .
Do you hold any Endowment or Money back plans sold to you by any of your relative, Neighbor or were it bought by your Father for you for your “Secure future”.
Most of the people hold Junk Insurance Policies which are of no much use to them . Policies like Endowment or Money Back Policies hardly bear Inflation and have no ability to meet your long term goals like Child Education, Child Marriage or Retirement.
Note: All the points I have mentioned are generic and might be little different for different policies, but overall it would be similar. Also, points I am going to discuss are for people who are not happy with their policies and want to get rid of them. People who are very happy with their policies are advised to continue the policy.
I will discuss different scenarios and you can see which category you belong to. Before that lets understand some basic things which you might not know.
You bought that incredible policy because you wanted to save tax in some particular year and you were in a hurry
Your Father bought it for you
You bought yourself without understanding what it is
what is meant by making a policy Paid up?
It means that you will stop your further premium payments, but your Insurance cover will come down by the same ratio. So if you policy tenure was 20 yrs and cover was 10 lacs , and you have paid your premiums for 4 yrs and then make it paid up , then your cover comes down to 2 lacs , because you have paid for just 20% of tenure.
When you make the policy paid up then you receive all your premiums paid and Bonus accrued till that time (only if your policy has run for more than 5 yrs) at maturity.
What is Surrender value?
Surrender Value is the amount which a policy will pay to policy holder if it’s terminated before the maturity period. Most of the Endowment and Money back plans don’t have any surrender value. Even after 3 yrs, the policy surrender value is very less, Generally it’s the “Net present value” of the amount you are supposed to receive at maturity.
In this case you don’t have much option, It’s great if you have paid for 1 yrs or less , You can/should just forget the money you have paid and start deploying your hard earned money in something better .
In case you ULIP;s you can continue paying because after 3 yrs the money you can get is equivalent to what is actual worth that time and you have much better control over how your money is invested . But anyways you have done a big mistake . See the list of top mutual funds you can invest in for long term .
It’s like cutting your infected finger and save your whole body to stink later
I have paid premiums for more than 3 yrs but Policy has more than half the tenure to run .
The best thing you can do is to make your policy paid up or take the surrender value and from now onwards put your money in something which you really understand and which can give you better inflation adjusted and post-tax returns .
I have paid premiums for more than 3 yrs but Policy is close to maturity now.
Now it’s too late and you can let it run its whole tenure , You also have the option of making it paid up .
In case you have paid the premiums for 2 yrs and thinking of surrendering your policy after that, then it makes no sense, because the amount you pay for 3rd year and what you get back after surrendering will be almost same.
For example : If your yearly premium is 30k, and you have paid 60k in 2 yrs and now want to surrender the policy, but you are afraid that you will not get anything back if you close the policy before 3 yrs and thinking of making 3rd payment, then it makes no much sense.
Because even after paying 3rd premium and then surrendering it, the surrender value will be close to 30-35k only. (surrender value after 3 yrs is around 30-35% of total premiums paid).
Point 2# Getting Stuck
Most of the people just continue their policies because they think “It’s very safe return and let’s not take risk”. You are taking very big risk by continuing, its called risk of “losing all the purchasing power”, agreed that it’s damn safe !!
What you like to get 1 extra day in your old life, by sacrificing 1 hr every day for a year. See how much your policy scores on Gfactor analysis
Point 3# Abandon those “Friendly Uncle” agent
Throw out those emotions, save them for your spouse and parents. Get rid of those agents from whom you bought those policies just because he is your uncle or papa’s friend.
Comments please – Are you one of them who are stuck in those kinds of policies and what is your next step, any other recommendation from your side?
Note : I have assigned Index value for “India” by assigning weights of 25% , 25% , 25% , 10% and 15% to all five cities in same order .
