Have you seen a Diamond or anything equivalent to that ? No ? I will show you one today . I am going to review a fund which has performed so well that It despite being a Debt oriented Mutual funds has given returns which we expect from Equity over long term . Yes !! ..
This fund has no more than 30% allocation in Equity ever and despite that, it has given a long term return of 16.6% (at the time of writing) and has many more accolades to its credit . Lets have a deeper look .
Most of us run around to find the best equity fund who will give us excellent returns . In long run , an average person requires 12-15% of annual returns on his investments , and this fund has given close to 16% return Since Inception . This kind of return what we should expect from equity in Long term .
This is a Fund which is open only for Women of India , Males who wish to invest in this Fund can ask their wives to Invest , Make sure you understand the Income tax Clubbing rules .
Highlights of this Fund
8 yrs old Fund (Inception Apr 2001)
No Entry Load
Exit Load of .75% if sold before 1 yr (as on 21/10/09)
Return Since Inception : 16.6%
5 yrs return : 18.28%
Best return in 1 yr time frame is +54%
Worst return in 1 yr time frame is -10% .
Consistently outperformed Its Benchmark ( Crisil H 75:25 ) and ‘Category Average” in all the time frames
Can not invest more than 30% in Equity .
Well Diversified Portfolio across Equity and Debt investment .
Comparison with Nifty
Below is the chart of Nifty and UTI Mahila Unit Scheme till Dec 08. You can see how its has given close returns like Nifty. Primarily this fund is a Debt Fund, 70% of this Fund is always in Debt + Cash, only maximum 30% funds are in Equity at any point of time, And still this fund is giving such an excellent Returns.
Who should Invest in This Fund ?
Mainly this fund is a very less risky fund with very high return , You can invest in this fund in Following Scenarios
If you have short term goals for 2-3 yrs, You can invest in this fund, You have to accept that event this fund has equity exposure and in really bad times, even this can disappoint you. Don’t expect it to return the above returns with surety, Its just expectation and you know how “expectations” are broken in Life 🙂 . Key to Happiness is Low expectations 🙂 .
People near their retirement life and who can take moderate amount of risk can park some part of their money in this fund (Dividend Option) .
People who are very conservative and adore Fixed Income Products like FD’s , Endowment Insurance , NSC etc and willing to taste “high returns” can put some money here.
Other Alternatives or Good Funds in Same Category
UTI CRTS 81
Unit Linked Insurance Plan ’71
FT India Life Stage FoF 40s
Birla Sun Life Asset Allocation Conservative
Disclaimer
I have suggested this fund to some of my Paid Clients as part of their Investment Planning , but final decision of Actually investing in this fund is their itself if they want to invest in this or not !! . I do not guarantee the returns (who does ? )
Comments
Please share your valuable comment and tell us about some other fund as an option . Also let us know if you found this Mutual funds good or not !! .
Note : Wrote this article while travelling from Varanasi to Delhi
How do we get a consistent income and good growth both at the same time from our investments? In this article, I have talked about, what is dividend Investing and what are the important things we have to consider for investing with the purpose to build consistent income from such investments.
We will see the concept of Dividend Investing and the risks involved and some examples of stock which are considered to be good Dividend Stocks.
What is Dividend and Dividend Yield?
When a company earns the profit, it has two choices:
Either invest that profit in back in the company advancements
Payback profits to its shareholders so that they get some return from the investments they made
So, generally, companies declare some part of the total profit as Dividends to its shareholders. Suppose a Company earns the profit of Rs.200 crores and it wants to give 100 crores as Dividends back to shareholders and there are a total of 10 crore shares in the market.
It will come out to be a dividend of Rs 10 per share. Now, if the face value of each share is Rs.100 (10/100), then it will be called as 10% dividend declared by the company, but if the Market price of that same share is Rs.200, then the dividend yield would be just 5% (10/200).
So what matters is the Dividend Yield and not the percentage of Dividend that is declared.
Suppose, you have 200 shares of Infosys and its current market price is Rs.1000, whereas the fave value of Infosys was Rs 10 and Dividend per share is declared at Rs.50, then the dividend percentage will be 500% (50/10), but the yield would be just 5% (50/1000) and your Dividend income will come out to be just Rs 10,000, which is 5% of your shares current market value of Rs 2,00,000.
See the Video Below to understand a little more.
How to create a regular and consistent Income from Dividend Investing?
So, the basic idea here is to invest in those stocks which have an excellent history of paying Dividend. The important point is to note the dividend yield earned from these stocks. You might be interested in Stock Market Analysis using Nifty PE
The advantage of Dividend Investing:
Your Investment Growth: The stock price will have good growth over the long-term and the share prices will grow.
Consistent Income from Dividends: You can also get a good income from the dividends you receive from Stocks
Tax-Free Income: As per current income tax rules, the dividend received from Stocks are 100% tax-free, unlike Mutual funds dividend where there is Dividend Distribution Tax.
Note: So Even if your Stock grows at 7% per year over long term and has a Dividend payout of around 5% every year… your actual return from the stock would be 12% approx which is a very good return.
People who have a good amount of money to invest in the stock market and also want consistent returns per year can look for investing in good (researched) Dividend Stocks. This will give them good investment growth and regular income.
“Don’t judge a person by their Sunday appearance” applies to Mutual funds also. Best Mutual funds are the best over most the time frame and Worst mutual funds are the worst performers in most of the time frame.
What I mean by this is that the best performers return wise in 5 yrs, 3 yr and 1 yr are almost at the top and worst performers are always in the bottom for 5 yr, 3 yr and 1 yr time frame. Let us look at the Chart of mutual funds performance
I compiled a list of 78 top mutual funds on the basis of 5 yrs Return and plotted a graph of returns for 5 yrs, 3 yrs and 1 yrs for them accordingly. To smooth out the data, I took a 10 period moving average (i.e. I took an average of Top 10, then an average of 1-11, then 2-12…) Just want to see what is the pattern of Mutual funds list. Have a look below:
Source: Valuereserchonline.com
If you look at the chart above, you will see that the Best performers (Top 10) were in the best performers list for 3 yrs and 1 yr time frame also. And at the same time, the worst performers in 5 yrs time frame were the worst performers in 3 yrs and 1 yr time frame, whereas the opposite was not true… See this video post on how to choose a good mutual fund for yourself?
Here are the Learning’s and conclusions:
Do not judge a mutual fund by it’s short-term Performance like 1 yr
There were many mutual funds who gave top returns in 1 yr time frame (See the orange line, see all the top positions) but not all of them were the best in 5 yrs time frame. The same thing happened with 3 yrs time frame: there were 2-3 mutual funds at the top in 3 yrs time frame but they were not best in 5 yrs time frame. See why SIP works well in long-term
Short-term performance does not give enough indication of Long-term
This is common sense, just like meeting a person for few hrs or days cannot tell us about his/her nature or behaviour, the same way a mutual fund cannot give a good indication of its long-term perspective from short-term performance.
In the above chart you can see that if I gave you just one year performance chart and it was sorted by returns, you could never tell which amongst the top would also be at top in 5 yrs time frame.
Bad performance in short-term should not be taken too seriously.
This is kind of same thing which I said above, but let’s see it with a different perspective. Short-term performance should not be the only reason for selling your mutual fund or Shares. We generally take our decisions based on short term performance, that is true for Life also.
We need patience and give time to our investments to show its true colors. Good investments happen by giving time to your investments and Early Investing, not just by choosing one.
Comments please, your 4-5 kind words will help me know if you liked it 🙂
We will discuss about LIC’s Jeevan Tarang Policy today, One of the readers asked me my review about Jeevan Tarang in “Ask a Question” Section.
I thought it would be a good idea to discuss it with every one here. So lets see Whats the policy and lets evaluate and answer the question “Is Jeevan Tarang worth consideration or Not”? Also see How can we beat this Policy by huge margin.
Jeevan Tarang Policy Highlights
Jeevan Tarang is a Whole Life Plan from LIC, Whole life plan means that you are insured for whole life (max age 100) The plan offers three Accumulation periods – 10, 15 and 20 years. A proposer may choose any of them. This is the Tenure by when your Policy Matures.
Whenever you die, you will ge the Sum assured and then the Policy Expires. This policy will expire if you are at age 100.
If you Die before the Maturity, you will get the Sum Assured + All the Bonus Accumulated till date.
The yearly Premimum will depends on two things, your Tenure and your Age. It can range from 11% (Policy for 10 yrs), 7-8% (Policy for 15 yrs) or 5-5.5% (policy for 20 yrs).
For exact numbers see here. The percentages are with respect to your Sum Assured, 5.5% premium means 5.5% of your Sum assured. so Rs 10,00,000 of Sum assured means 55,000 of Premium each Year .
Incase you surviuve till your Policy Tenure, then at the end of your Tenure, you will get Bonus accumulated (not the Sum assured) and an annuity of exact 5.5% each year after the Policy Matures. One will get 5.5% of the Sum Assured each year till his death or upto age 100 whichever is earliar.
If you can not pay the Premiums and want to stop the policy (only after 3 yrs), you have two choices, either make it a Paidup policy or take back the Surrender Value. This is explained in detail later, so move on.
These are the main basic and approximate points of the Policy, for exact detials see the policy page at LIC website.
Let us now see an example with different Scenario. This will help you understand it better. Read Important of Life Insurance
Now let take Scenario’s
Ajay’s age is 30 and he takes Jeevan Tarang Policy for a tenure for 15 yrs with Sum Assured of Rs.10,00,000 (10 Lacs). His Yearly Premiums will be 71.40 for every 1000 sum assured, which is 7.14%. Which comes to 71,400 per year.
If Ajay dies before 15 yrs
In this case he will get Sum Assured + Bonus Accumulated till date. The Bonus amount is not fixed and we can not tell how much it will be now , But on LIC webpage its mentioned in range of Rs 20-88 .
Lets take a good figure of Rs 30 . In that case Per year it would be 30,000 more . So If he dies in 8th year , it would be 10 lacs (Sum Assured) + 2.4 lacs (bonus for 8 yrs) = 12.4 Lacs and the policy Expires .
If Ajay survives the Policy and does not die at all
In this case, Ajay will pay his premium upto 15 yrs and then in 15th yr, he will get back the Bonus accumulated (not sum assured), so may be it would be 4.5-5 lacs assuming Rs 30 as Bonus for every 1000 SA. Also he will get 55,000 per year(remeber 5.5% of Sum Assured) as annuity till he dies or upto age 100 .
He will also get Loyality additions , this will again be a very small amount just like Bonus , but this is not assured at all. Read this for same concept : Term Insurance with Return of Premium
If Ajay survives the Policy and Dies Later.
Its almost the same case as above, in this, Ajay will get Bonus at the end of 15 yrs and then He will start recieving 55,000 ever year. And suppose he dies before age 100, he will receive the Sum Assured of Rs.10 lacs and thats it .. The game is over and then LIC doesnt recognise him there after.
Ajay is not able to pay premiums because of some problem and wants to stop.
This is possible only after 3 yrs of taking the Policy, If he wants to stop it before 3 yrs, then sorry buddy, just forget your Money and go home cry. If its after 3 yrs, then He has two choices
Make the Policy Paid up : In this case, you stop the Premium payments and you will get your Premiums and Bonus Accumulated will date at the end of the Maturity. You Sum assured will also reduce in Proportion to Premiums Paid, so if you stop the policy in 6th year, your Sum assured will reduce from 10 lacs to 4 lacs (40%), as you have paid the premium only for 40% of the tenure (15 yrs), thats 6 yrs.
Take your Money Back : After 3 yrs of completion, the Policy acquires a Surrender value, generally its the Net Present Value of money in todays term what you are going to get at the end. See this post on Net Asset Value. So if you are going to get 5 lacs at the end of 15 yrs and todays worth of that money is 2 lacs, you will get 2 lacs today.
Watch this video to know about other features of this policy:
What is the Return of Jeevan Tarang Policy overall ?
Even if you receive all the annuity upto your age of 100 , the CAGR return for this policy using IRR Analysis comes to mere 4.72% .
I have taken the above example and assumed 5 lacs of Bonus and no loyality additions , even if we consider 7-8 lacs of Bonus and Some loyality additions, the CAGR return Does not cross 6% CAGR .
Why this Policy excites people and general people get fooled?
These kind of Endowment policies make sure that you concentrate too much on numbers and it traps your mindset in the present moment , One who is able to forsee beyond “now” can understand the real value of these Policies .
We concentrate on numbers, If we get something for a long time and we pay for less time, it appeals to us, and hence this policy takes care of that very beautifully, You pay for 10, 15 or 20 yrs and you get back till you are Age 100, Sounds great !!0
Psychologically our mind is programmed by nature to think about the best case for ourself, but how many of us will survive upto 100 yrs to get annuity back, The average person thinks emotionally , Insurance Companies work on Data, Statistics, probability Theory and complex calculations, which tell them that average person will die at 60-70, and only 1-2 will survive till 100 years of their age.
Most of the people see Numbers and Present, The policy will demonstrate how much You will get at the end of the Maturity but it never tells you how much will it be worth then and how much will it help you in your Financial goals. We never think that Rs.100 today can buy much more than Rs.100 after 15 or 30 yrs.
We know this somewhere inside us, but out mind just doesn’t feel everytime the same way, that’s the reason you need to calculate things by hand, on paper or computer and do some small analysis like I did on this article. Then you get the clarity
Trust and Blind Faith, We trust companies because they have been in existence from long time and our parents were made to believe that these are the best friends in our life, they will protect our Future. Love and “Taking Endowment Policies” in India has similarity.
I grew up hearing Love is Blind and experienced it too, and I feel that its same with Taking Endowment Polices. People just take it blindly, some new Policy comes up and bang !! It has to be great, no matter what, because it comes from the GOD company !!
Why age 100? How many people are going to live upto age 100 , why putting that number at 100, why not increase it to 500, even though life expectancy is just 60-70. Not more than 1-2 in 100 live upto 100.
In case of Ajay, if his monthly expeses is 30,000 (considering married, even though I doubt he will ever get any one), after the accumulation period of 15 yrs, he will start receiving yearly pension of 55,000 per year, read it again, 55,000 per year, but now after 15 yrs, even with 6% of inflation his monthly expenses has gone upto 72,000 . And his policy pays him 55,000 which cannot even take care of his 1 month of expenses . Now i can see him pulling all his hairs .
If he is dead at age 70 , His family would get back the Sum assured of 10 lacs and at that time , it can only pay for his family’s 3-4 months of expenses and his Funeral cost , thats it .. Aha .. atleast something , so one this is confirmed , There will be no financial burden , pun intended .
This is the question which we should always ask in every situation of our life, not just Financial planning. Lets take care of Ajay’s situation in Jagoinvestor’s way and plan him something better than Jeevan Tarang.
With Rs.71,600 per year to pay for 15 yrs, lets see what can we do.
First thing First, Lets cover his Family first from the Mis-happenings of life an secure his dependents, Lets take a Term Insurance of 50 lacs for maximum tenure of 30 yrs, Premium would be close to 13k or 14k approx, lets assume 14k. So out of 71,600, 14k is gone and we are left with 57,600.
Now lets put 21,600 each year in PPF for 15 yrs. We are now left with 36,000 to invest, we will start Rs.3,000 SIP per month (Rs 1000 each in 3 different Equity funds) for 15 yrs . See list of some good Equity Mutual funds for 2009 .
PPF will accumulate to 6.3 lacs in 15 yrs and Mutual funds will accumulate to 15 lacs in 15 yrs assuming a pessimistic return of just 12% (Historical return has been more than 17% and last 5 yrs return are more than 25%). Lets assume just 12% and not 18-20% even though its possible because our aim is to do better than Jeevan Tarang and achieve our goals and not compete with some one.
So total amount will be around 21.3 lacs at the end of 15 yrs. Now lets visit and see our Scenario’s again and hows does it compare now.
If Ajay dies before 15 yrs :
Gets 50 lacs from Term Insurance and also the money from PPF and mutual funds, which will be more than 50 lacs 🙂 . We beat Jeevan Tarang by huge margin in this case.
If Ajay survives and Does not Die at all :
In this case he already has 21.3 lacs accumulated and now he can use this amount to buy an Annuity which will pay him more than 1.6 lacs Per year, much more than what he was getting in LIC policy.
As a toppings, he also has a 50 lac cover for another 15 years. We can generate 3 times more annuity than Jeevan Astha here, again beat by huge margin.
If Ajay survives the Policy and Dies Later :
In this case if he dies in next 15 yrs , his family would get 50 lacs from Insurance (10 lacs in LIC), apart from this he will have his 21.3 lacs growing every year.
If he dies after 15 more year, There will be no Insurance money, but his money would have grown a lot by now .. If he dies after 15 yrs (total 30 yrs from starting), his money would have grown to 1.17 crores assuming 12% return per year (no annuity every year). and if he dies after 25 years (total 40 yrs from starting , means at age 70), his money would have grown to 6 crores.
Now incase you don’t want to faint, don’t ask me how much would have he had if he lived till age 100 and left his money to grow, Its 13 crores 🙂 . I have not assumed any annual annuity here, we can do that but the result would remain almost same. We beat Jeevan Tarang by hugest margin in this case. See how we can create Wealth using Equity in Long term.
Ajay is not able to pay premiums because of some problem and wants to stop.
His money will still be in PPF and Mutual funds and keep growing, there is no liquiditity issue with Mutual funds, he can withdraw from mutual funds anytime, even from PPF he can withdraw partially.
If he has limited money, he can at least pay his Insurance premiums and still get covered for 50 lacs, no big deal there. In every aspect it beats Jeevan Tarang
Note : For doing better than Jeevan tarang we have invested in Mutual funds which are risky instruments , but anyways we are not in great position with Jeevan Tarang .. so taking risk is worth it . If one is too concerned about risk , then even plain PPF will be better .
Conclusion :
Think Logical , Think mathematical , Think smartly and at last THINK !! .
Note : The figures have not considered the rebate provided by LIC, and hence the actual figures can deviate a bit from the actual numbers used here, but it wont be significant and the review still holds . ahh .. tired now !!
In this post I will teach on how to plan for retirement. We will use simple tools like Mutual Funds and PPF for building Retirement Corpus.
We will also see what factors you should take into account when you plan for retirement. There can be other ways of doing this and it can be very complex with very advanced calculation. But in this post we will look at it in a very simple way which a common man can understand.
So you are finally deciding to plan for your Retirement. You need to understand following steps:
Finally coming up with the corpus you would need at the retirement
Calculating how much you should save per month
Understanding where to invest the money
We will see all the above points in detail and go through some examples side by side to understand the process in well. Let say we are taking an example of Ajay who is married and has 2 kids below the age of 6 yrs. He has a monthly salary of Rs 40,000 per month. His age is 32 yrs and he wants to retire at age 60.
Step 1: Calculating you Current Yearly Expenses
Take a piece of paper (do it now as you read this) and make a note of your expenses, things like Rent, House hold expenses, Children fees etc etc. You should have a rough idea of what is the minimum amount you require per month for living a good life. You should also try to save a part of your salary every month, Ask your self Can you live with 90% of your Salary ?
Ajay calculates his expenses:
Rent – Rs.10,000
House hold expenses – Rs.11,000
Medical Expenses : Rs.1,000
Entertainment and outing : Rs.3,000
Total Monthly Expenses : Rs.25,000
Yearly living Expenses : Rs.3,00,000 (12 * 25,000)
Other Expenses like Vacations and Surprise Expenses : Rs.50,000
Total Yearly Expenses : Rs.3,50,000
Step 2 : Understanding how much Inflation would be there in coming years
This is the inflation you expect in coming years till your retirement. I calculated the average inflation from last 28 yrs (1990-2008). The CAGR inflation was 7.3% Source.
Considering a better economy in future I expect the inflation over next 20-30 years to be 6-6.5%. Lets take 6.5% for our calculations here. However you can assume your own rate as it depends on your understanding.
Step 3 : How much amount would you require in your Retirement
By this we mean how much money will provide you same standard of living as of today. This will depend on the Current Yearly Expenses, inflation expected over the years and years left for retirement. Just like we require Rs 105 to buy something of cost Rs.100 in 1 yr at 5% inflation. The same way we can cost how much is is needed after X yrs.
So formula would be
Retirement yearly Expenses = Current Yearly Expenses * (1 + inflation)^(number of years left)
Ajay has already calculated his yearly expenses as Rs 3,50,000. He has 28 more years at hand. He calculates his retirement yearly expenses.
Now one can tweak this figure depending on whether you want to have higher standard of lifestyle than now (earning years) or more simpler life. You can decrease it or increase it to the quantum of your compromise. You won’t have to compromise on your Retirement if you are a Early Investor.
Step 4 : Finally coming up with the corpus you would need at the retirement
Here you may want to receive the monthly income for whole of your life and preserve the capital for your Children or any nominee. So you need a corpus which if you put in Bank or invest in some “guaranteed return fund”, you should get an amount per year which is equal to your Expected Expenses per year.
So suppose you expect to get a return of 7% per year. Then you need X amount at the end where 7% of X is = your yearly expenses.
Corpus needed = (Monthly Expenses)/(interest expected )
So in the case of Ajay the yearly expenses expected was Rs.20,40,000 and return expected is 7%. So we calculated the amount required for Retirement that is 20,40,000 / .07 = 2,91,00,000 (2.91 crores).
Note:
You can also buy an Annuity for a fixed number of years till when you want to receive the income (which also means you should have an idea of when will you die, which is not easy). So for example if you want to receive the the monthly Income till you are Age 80 (for 20 yrs).
PVA = Present value of Annuity (Amount you need to have at your retirement)
r= Rate of interest you expect to get
n = Number of years you want the Yearly Income .
So at the end of this, you will have the Amount you need for your Retirement.
Do you calculations online just now Here OR download the excel sheet Here.
Watch this video to learn how to do your own retirement planning :
Step 5: Calculating how much you should save per month
Here comes the interesting part, here there are two things
How much Return you expect to earn in long term
How much you can afford to invest per month
Both are related to each other. If you expect more return, then you need to invest less every month and if you can afford to invest more every month, you need to generate less returns for your investments.
So which is the better way? What should you decide first? The returns expected or monthly contribution you can make? I would recommend the other way, better we first decide how much we can invest per month, because that is what we can control better way. We cant control returns !!
I have this monthly contribution calculator to calculate how much you need to put every month to generate Rs X after Y years if you expect R returns, please feed these inputs there and get your numbers. To understand how its calculated you can see this video which explains some important formula’s in Financial Planning.
So here is the process
You figure out how much you can save
Then you find out how much return you need to generate
Then you decide where to invest to generate that return
You can also go the other way deciding how much return you can generate and based on that how much you need to save. But I prefer the first way because then you control things in your hand but you can go the other way too.
So our friend Ajay has a saving of Rs 15,000 at the moment (40,000 – 25,000) And he thinks that he can easily invest 10,000 per month at least over a long term. So the return he needs to generate per year CAGR for 28 yrs to generate his retirement corpus of 2,91,000,00 comes out to be 12.25%, see the calculator mentioned above.
So now you got to know how much you need to get per year in returns.
Step 6 : Understanding Where to invest it
This is the last step as per our article. So you got the CAGR return number which you need to generate over a long term. This number will decide how much risk can you take and where can you invest depending on your time frame. See below to understand which are the suitable products you can invest to get your returns.
Understand the ground Rules
Higher the return expected, higher the risk you need to take
More the Tenure, Lower the risk
Above 15% : Direct Stocks, Sectoral Mutual Funds, Equity Diversified Mutual Funds
10-15% : Equity Diversified Mutual funds, Balanced Funds
8-10% : Mix of Balanced Funds Debt Funds
Less than 8% : FDs, PPF, Debt Funds, Balanced Funds [ find out which FD is best ]
However, if the tenure is more than 10 yrs you should always go for Equity Funds. Never go for FDs or Debt funds if your tenure is long enough. Understand the Chemistry of Equity and Debt please.
So in our Example of Ajay, he requires a return of 12.3% CAGR in 28 yrs, so for this, he can invest in Equity Mutual funds through SIP he has different ways to achieve this like Doing a SIP in 3 Equity mutual funds OR combination of PPF (25%) and SIP in mutual funds (75%) OR Direct Equity (5-10%) + PPF + Some Balanced Funds. You got to be creative in this :), there are endless ways of doing it.
Conclusion :
Here you go!!, you just did your Retirement Planning 🙂 . You can do your retirement planning yourself easily. A financial planner will look into more details and will do perfect planning for you which would be best but this is pretty much great way you can adopt your self.
Involve yourself in this journey of Financial planning and you will be amazed to find how much Fun it is.
Recently I saw a perfect example of ULIP misselling. One of my friend’s parents gave their money to a close friend who was working for some Investment firm and assured them of doing great investments on their behalf.
The total money involved was more than 10 Lacs. I don’t know what else he did, but he bought a ULIP from their money and its the perfect example of miss-selling here. Lets see it in details.
Now 48% goes in Premium Allocation charges, rest of the money will grow at moderate return because it was mix of bear and bull market which the money was invested.
Why was it invested in ULIP first of all and that too Rs 3 lacs as premium!! This is one of the costliest ULIPS in market and has to track record. Why was family financial needs not considered before investing? Why was their risk-appetite not considered?
What kind of agent is this? He takes advantage of trust and invests in something which gives him maximum commission. There was no proper communication about charges and no statements reached them on time.
What is miss-selling here?
Giving “Wrong-Information” is not a big issue, the bigger issue is not giving “any information”. One of the reasons why this kind of things happen is lack of accountability on agents side. You take the product and sign the documents means you are responsible for your decision. While that is true legally, its totally unacceptable morally.
The only thing the investor can do here is make an issue out of it and tell the Insurance company that’s agent miss-sold the policy to him and did not tell him about the charges. Worst thing is investors don’t even know about the “Free Lookup Period”, which is 15 days from purchase of policy before which Investor can cancel the policy of they don’t like it or change their mind.
UPDATE
This is an update after my friend Rishi, whose case we are discussing commented on this article, I am putting up some more thoughts in this below. In case he takes some legal action on this matter. I can think of following things which will be useful and important to quote.
1. As everything was done legally, documentation and signatures taken from investor etc etc. The one thing which can make your case stronger is “explaination” from HSBC people that on what grounds “that Ulip” suited your needs.
How did they come up that this ULIP was the best choice for your family, I hope being the “trusted” and “portfolio managers” they think of your profits and hence they must have figured out why this ULIP was the best in the industry for you guys.
2. How do HSBC products best for you people (i hope 70-80 products they choose were HSBC products)?
3. as per IRDA “it is the moral obligation of the insurer to maintain the ethics and spirit of business across its workforce”. The mere fact that premiums were stopped after 1 yr and now your people are not happy with this shows that obviously you people were not informed well about the cost structure in the start.
Finally this is more of a matter of “Unprofessional Behaviour” than miss-selling per se. I am not sure how much HSBC will help you, as they generally pass the buck on “agent” and “investor who invested”.
You might have to take this case with IRDA. You must first talk to Bank, agent etc and then after you are not satisfied with them, you should go complain at the IRDA ombudsman: https://www.irdaindia.org/ins_ombusman.htm
The ground of plea should be based on “monetary + psychological loss”.
You can read here Confession of an Insurance agent in his own words
Please share if you think there is a good way for getting justice on this matter. Your comments are valuable? Should this is taken into court?
I came up with the first ebook on “Basics of Technical Analysis” . For now I have used the data of my earlier posts only for this ebook , but it has all the data at one place and hence will be good for readers who only want to concentrate on Technical Analysis . Download Link
Please let me know how is the Ebook and If you are finding any difficulty in downloading it . Also feel free to share the ebook with your Family and Friends . No issues .
I hope to come up with another Ebook soon , on “Basics of Financial Planning for New bees” .
As always , Shyam Pattabi came up with an excellent article on his blog where he shares his views on how mis-selling happens in India and why people fall in trap of “advice” and “calls” from agents and other financial services companies , And his analogy on he post is excellent . I came up with similar topic some days back on “Why do you need a Financial Planner” , have a look on that too .
In this short article, we will see a very useful website which gives you all the information on Fixed Deposits and Banks in India
FD is a tool of saving some part of your income in a fixed account for a fixed time period and earning some interest on that amount. It is a traditional way of saving and we observed our parents taking advantage of Fixed Deposit account for investment purpose since our childhood.
Different banks offer different rate of interest on FD accounts. If you want to invest your income in this traditional tool then you should search for the best bank with best interest rate before investing your money.
Let’s take an example..
Person ‘A’ says: “I want to invest Rs 1,00,000 in a Fixed Deposit for 2 yrs in a public Sector Bank. I come in 30.9% Tax bracket. Which is the best Bank for me that will provide the maximum return?”
He again says: “I also wan to get all the information on the Bank in India at a single place; Which is the website I should checkout?”
How do you answer this question?
You will find the solution for these questions once you read this complete article. Let’s go for this step by step….
How to find out Best Fixed Deposit?
FD accounts are offered by banks and NBFC’s (Non-Banking Financial Companies). NBFC’s offers higher interest rates to attract more accounts and raise capital.
If you want a safe FD then banks are the best option. If you want to invest in companies then before investing you should search for the company details before investment. You can see the criteria and schemes of top companies here.
So if you want to invest Rs 1,00,000 for 2 yrs and 3 months in a Public Sector Bank and you belong to 30.9% Bracket, it will filter out the the list of best Banks that suit your needs and provides best return.
It will also tell you what will be your final profit after paying tax and what will be your gain after factoring in Inflation (based on your expectation of inflation percentage).
See the following screenshot for the above figures. (click to enlarge)
In current time there are two banks which are offering higher interest rates on FD. These banks are ING Vysya Bank and Lakshmi Vilas Bank. The rate of interest they are providing is 9.25%.
Maturity amount
Interest Earned
Interest After Tax
Gain After Inflation
Currently The information on the website is updated twice a week.
Information about a particular Bank
The interest rate is different for each bank. So if you want to open your FD account in a bank, you should check for the interest rates offered by different banks.
Also checkout this link to learn some basic stuff . Way2Goals Software India Pvt Ltd is the company behind http://www.way2goals.com/ . Conclusion
This is an excellent tool dedicated to Banking Information especially information on Fixed Deposits. Way2Goals is one stop destination for any information on Banking Sector. There is scope of adding lots of things, but I believe it will come with time as any other thing in Life. Great tool!!
If you come up with tools like these please share it with others here :).
“Investors will not have to pay an entry load for investing in mutual fund schemes anymore. They will instead pay a commission to their distributor or advisor directly and the quantum of the upfront commission would be mutually agreed upon.”
More Competition and hence little cheaper for Investors
Now agents will not be getting commissions from Mutual Funds companies which means that now there is direct competition among Agents. The agents can only ask for more if he really gives good service to buyers else they have to settle with a low commission which will be decided by customers.
This means now we can bargain with the agent on commission percentage and if he is not ready with what we offer him/her. We can look for someone else who is better and fits us.
Higher Quality of Service and more transparency in Market
Now agents will have to deliver much better quality of service and be more transparent with investors as their bread and butter is directly linked with Investors and not with the Mutual Fund Companies.
Lots of agents will now move to sell ULIPS rather than Mutual Funds
This move will also force lots of mutual funds agents to shift their focus on ULIPS and similar products which have commission linked with premium paid by customers rather than fee based model like we now have in case of mutual funds. This means more miss-selling in ULIPS is on the cards.
See the following New Video To understand
Update: thanks to income.portfolio for this.
AMC’s are allowed to use 1% of redemption in mutual funds for commission to agents and all the marketing costs. Its the money from exit loads which has to be utilized in commissions and other marketing costs. Most of the mutual funds have less than 0.5% of 1% of exit loads at this point and with this rule of SEBI, it can not go above 1% in future. Also it can be “up to 1%”. So this 1% will be used for every type of cost incurred by mutual funds.
Now most of the funds will have exit loads only if investor gets out in short term like 6 months or 1 yrs. Hopefully it will not be after 1 yr. So its a concern for those who are short term investors. Its not a matter of concern for long term investors as far as I think.
Also, now there is no need for PAN Card for investing in mutual funds up to Rs 50,000 through SIP as per SEBI new rules.
I am out for a 2 day weekend Trek to Kumaraparvata. So no article till Monday morning. I will post the 2nd article of “How a newcomer should start in Stock Markets?” Read Part 1 Here .
This is going to be important and useful series of article. Today we will discuss how a new-comer to stock market should start. In these series of articles we will discuss following things.
Why stock markets attract and look easy
Understanding what you want to do exactly
What are important things when you are in stock market
How a new comer should start in stock markets
Why Stock Markets attracts?
You must have heard lots of stories about people who became millionaire over night or in a short span of time from stock markets trading.
There are two kinds of people who make money from stock markets:
# First kind, are the people who make money because of luck. They buy some thing, it goes up and they think it was their skill that made the profit. Next time they buy something again and wooo!!! It makes money again and now they are the king!!
Then comes one day when their “best time in the market” is over and they start loosing money and this time its “bad luck in market” as they say!! They keep on trying to prove that they are knowledgeable and have mastered the skill to understand how markets operate.
At last they go bust and return from where they started. Smart people in this category are those who make money once or twice because of luck and don’t come back. I appreciate their smartness.
# Second kind of people are those who are real game players, They have done their homework, failed lot of times, learned from their mistakes and worked hard to make money. They know the rules of stock markets and take it seriously.
They are successful traders or investors.
People hear that lots of people make lots of money in short span of time from stock market and how easy it is to just open your trading account then choose some stock, later on buy or sell and magic happens! You make money. This is Far from truth!!
This thinking that “Lots of money can be easily made from stock market without much hard work” is the main reason why stock markets attract lots of people.
Why it looks easy?
“BUY OR SELL”, that’s all you have to decide? Either you will Buy something or you have to sell something. One of the renowned trader Larry Williams says this is the reason why most of the people think that its an easy thing to make money in stock market because they have very less decisions to make i.e. BUY or SELL
This is a human psychology which tends to believe that anything with less decisions is easy and one can do it. Everyone thinks “I am different”, “I know all these people where not able to make money, but I can understand things better and I can do it in a different way”!
This thinking is appreciated but, until it becomes over confidence. It’s true that you are different and you can do it but each and every area has some ground rules and unless you follow it thoroughly it’s almost impossible for you to succeed.
What you must understand?
You have to understand that you are a newbie and a small player!  A new born baby ,who cant even crawl in  the world of stock markets, but dreams of running a marathon and that too on one leg 😉 . Each profession needs specialization and experience and Making money from stock markets is no different.
Just like becoming a Doctor, Engineer or anything like that demands extreme study, experience, knowledge and other things specific to that profession, stock market demands all of that. The people who want to make money without doing it can not sustain for long and will hurt themselves very very badly.
We will discuss more of this in 4th part of this article “How a new comer should start in stock markets?”.
