Best Personal Finance Blog in India - The Financial Literates

Don’t Blame Brand Ambassadors for Your Wrong Buying Decisions

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May 5, 2016

Recently there was a news item about residents of a housing property trolling MS Dhoni on Twitter to be disassociated from being a brand ambassador. There was then a debate on various news channels if stars are to be held legally responsible for their endorsements that have gone wrong.

A celebrity gets money and popularity for endorsing products. Companies use celebrities as brand ambassadors for their products as fans will identify with the celebrity and copy his or her likes and dislikes. But it is irrational to think that celebrities should be made responsible for companies’ mistakes or our mistake. The celebrity cannot be expected to have the technical knowledge or know-how on the processes of a company. Nor can he be expected to visit the manufacturing units or check the logistics process unless he is part of the company.

Home Trade Scam 2002

What about Us

How many of you know what is happening in a different department of the company that you work in? A person working in operations has little knowledge of the finance department or administration department of the same company.

Don't Blame Brand Ambassadors for Your Wrong Buying Decisions Click to Tweet

Whose responsibility

The companies use celebrities as people are highly influenced by the advertisements that celebrities come in and can be influenced to use the products and services advertised. But the onus of responsibility of quality and legality should be on the company and not on the celebrities,

Celebrity is not responsible

If the celebrity comes to know that the product is not as per quality standards promised, then he should disassociate himself from it. If the celebrity has a partnership in the product or a profit oriented stake, then he can be made responsible to the extent that the other partners will be made responsible. Else if the company assures the celebrity that they are following rules and regulations, then the celebrity cannot be blamed. Maybe they can have an agreement in writing about the credibility of the product.(even if they don’t, it’s not their responsibility) There are many people working on the product, its marketing and other aspects. Everyone then has to take the blame for the product’s irregularities or the company’s wrongdoings.

Selection of Brand for endorsement is there choice

Yes, there could be a certain category of products that he/she can avoid. For example, some sportspersons do not endorse soft drinks as they are unhealthy and sportspersons are supposed to be living a fit and healthy lifestyle. Some do not endorse alcohol or tobacco products as they are harmful.

Some celebrities are realising the power of their endorsement and believe they should act more responsibly. For example, Amitabh Bachchan in a speech said that he has stopped endorsing a cola drink after a school girl questioned his role in its promotion. Dhanraj Pillay, the hockey great never used to endorse soft drinks as he feels as a sportsperson he cannot advertise unhealthy products. Wrestler Sunil Kumar said no to liquor ad or Kangna Ranaut doesn’t ad for beauty soap.

But

These are their personal choices & we appreciate them for their stand. It is good if harmful products are not endorsed by celebrities but to make them responsible for the products is stretching it too far. Even if they would have endorsed, we haven’t blamed them for our health or skin.

Do you know? Celebrities can’t endorse mutual funds in India?

Process

Instead of blindly following celebrity endorsements, before buying a product/service one should follow a rational process of buying. He should make an intelligent buying decision –

– What do you need?

– What is available in the market

– Which one suits my requirements and parameters for decision-making?

– Buy the product

– Evaluate product and buying decision.

Rather than aping celebrities blindly, this is a better and rational way of buying something.

Amusing Court Case

“Axe Deodorant Didn’t Get Him Girls for Last 7 Yrs, So He Sues the company” – it’s not a faking news but I know you are smiling 🙂

You may or may not agree with me – must share your views in comment section.

The Art of Thinking Clearly in Personal Finance

Investor Psycology

Hemant Beniwal

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April 28, 2016

12

The Art of Thinking Clearly in Personal Finance

Warren Buffett says “Until you can manage your emotions, don’t expect to manage your money”. Rolf Dobelli in his book, ‘The Art of Thinking Clearly’ has pointed out 99 cognitive errors (‘systematic’ deviation from logic) and behavioral traits that we use in our day-to-day thinking and decision making. Here are 6 common errors that affect our investment decisions and financial planning –

Image courtesy of jennythip at FreeDigitalPhotos.net

6 Cognitive Errors

1) Sunk Cost Fallacy

The author explains that many people sit through a bad movie because they have already paid the ticket price. By sitting through it, they waste their time and see something they do not like just because the ticket prices are paid – the money is sunk. But we do not gain anything by sitting through it. Similarly many of us hold on to bad investments made. There is no reason to retain the bad investments. They will lose more money over a period of time and the value of the overall portfolio will fall even more.

Read – Throwing Good Money After Bad

2) Herd Mentality

The stock market, real estate or any other investment, mostly is driven by herd mentality at the end of the cycle. When it is a bullish market, prices are rising, everyone clambers to buy. Most of them do not understand why the prices are rising. When the markets are falling, people panic and start selling off their without much thought. This drives the prices further down. We should look at the reasons why the market is going down and check if we have any investment that have the risk of losing value further or have any dud investment. We should sell only those and hold on to the investment which might have a fall in price but are fundamentally sound for a longer period.

Must Read – If 10 Cr people say something Foolish, it is still Foolish

3) Confirmation Bias

People seek out opinions that are similar to theirs. They filter out contrasting views and analysis. This affects rational decision making. Many of us do not like our opinions and theories being proven wrong. For example if we have decided to buy a certain investment based on our research, we tend to search for news and analysis for buying the stock. We tend to ignore stories that go against this decision. This might lead us to make wrong investment decisions. We should intentionally seek out contradictory opinions and views to make sure our decision is correct.

The Art of Thinking Clearly in Personal Finance Click to Tweet

I talked about this in 2011 – when Gold was at peak & investors were flocking to there new found love “Gold Funds” link. (must read comments on gold fund post – you will know how people react when there is euphoria in any asset class) That comment was not at all about timing the market but about investor behavior.

4) Scarcity Error

Shopkeepers and Sellers often say that there are only 2 units left or put notices – ‘Only Until Stocks Last’. Sometimes sellers talk of many buyers being interested in the item that we are thinking of buying. (Online stores play this very smartly) Many times such tactics are used just to convince you to buy it. We then worry that we might not get it and end up buying it. Instead of responding blindly to scarcity, we should assess if we really need a product or service and then make the buy decision irrespective of how many people are buying it or how many units of the item are there in the shop.

Read – How to stop buying things you never use?

5) Endowment Effect

Endowment effect is the ownership effect. This theory states that once a person owns something, he automatically ascribes more value to it. A person is ready to pay more to retain something than to buy the same thing if he does not have it. This affects financial planning. People who inherit some assets are reluctant to sell them even if those do not fit in their overall investment portfolio or are assets that might not be giving them the best returns. A person might buy a stock at Rs. 400 expecting to sell it at Rs. 500 within a certain timeframe. If the stock reaches Rs. 490 but then stalls there in that timeframe, the endowment effect stops him from selling it at Rs. 490 as he feels he is not getting his due. There are lot of people who would like to sell there investment properties, but they are not able to do this because the price that they are getting is less than what someone quoted 2-3 years back or their purchase price. They need to understand that market decides price – why you think that the price was right 3 years back?

6) Loss Aversion

‘The fear of losing something motivates people more than the prospect of gaining something of equal value.’ If we think that we might make a loss in some investment, we do not sell it thinking of the loss made. We hold on to it in the hope that we might be in the money in those investments some day. We sell the winners in our portfolio even though they might have potential to perform as we are happy to make a profit even if its not the maximum that can be made. This is incorrect. We should sell off bad investments and hold the good ones. (don’t try to link this with Asset Allocation)

We should plan our finances rationally. Investment decisions should be made on the basis of solid research, expert advice, portfolio fit and risk tolerance and risk capability levels. We should avoid getting influenced by such biases. Feel free to share your views in comment section – if you were impacted by such bias in past & later you realized, it was a mistake.

How to make sure that your health insurance claims are not denied

Insurance Planning

Hemant Beniwal

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April 22, 2016

3

How to make sure that your health insurance claims are not denied

This month I went through minor surgery & was hospitalized for couple of days; there I though about writing this post – what else you can think in hospital other than bills or insurance claim settlement 🙂

You did the right thing by buying health insurance for you and your loved ones. But you have to take care of a few more things so that the health insurance claim is not denied when it is required. Unfortunately, the claimant is at fault in many cases.

Image courtesy of iosphere at FreeDigitalPhotos.net

Let us look at some pointers to keep in mind so that a claim for health insurance is not denied –

Health Insurance Claim

Understand your Health Insurance Policy –

Before you buy the insurance cover, you should read the policy document and all terms and conditions carefully. You should clear all your doubts with the company representative and ask him to explain whatever you did not understand. The agent/company is keen to sell the policy and may not lay down all the facts and figures. You should make sure that you know everything about the policy. It is important to know what the policy covers and what it excludes. Some policies do have a cap on room rent (very tricks, make sure you stay in room approved by your insurer), some policies cover treatment at home and other policies may not cover certain procedures. There are policies that cover the family. You should be aware who is covered and who is not.

Read – Terms commonly used in health insurance policy

Take care of timeline and dates –

You have to remember to renew the policy before the due date else your policy will be treated as a new one and the benefits of continuous policy cover like no-claim bonus would lapse. Moreover the premiums paid earlier will be of no use. It is important to check if the cover is for hospitalization for 24 hours (I came across a case where hospital discharged patient in 23 hrs – claim was denied) or more or even less than that duration. You should also make the claim within the timeline indicated by the insurer else it can get rejected.

How to make sure that your health insurance claims are not denied Click to Tweet

Submit all the required information –

While buying the insurance policy, you should disclose all required details. Many times claims are rejected because at the time of buying the policy, all facts were not disclosed or wrong information or partial information was given to the insurer. Information can be related to spelling of name, age, type of occupation, existing medical conditions etc. You should give details of income and other policies. If you conceal relevant information, the claim can be rejected. The premium also depends on the relevant information you give to the insurer.

It is also important to fill in all the information in the insurance application form yourself and not allow the agent to complete the form or thoroughly check that. This will help in the form being more accurate and you are aware of the information given to the company.

Read everyting about – Health insurance policy portability

Cashless facility versus Reimbursement –

The insurance policy will have a list of clinics and hospitals that it has a tie-up with. These are network hospitals. If you seek treatment in one of these networked hospitals, you should follow the process to request for cashless treatment and the bills to the extent of the cover will be settled by the insurer/Third Party Administrator if all process and documentation is in place. If you are not in a network hospital, you should inform the insurer’s or TPA about the hospitalization and follow the claim process. You will have to pay the expenses yourself and then submit the hospital bills with relevant documentation such as prescriptions, reports, diagnoses etc. for reimbursement. (2 years back when I went through appendix operation, I was denied one medical bill because I lost prescription slip – that was for pre hospitalization expense)

Know what can be claimed –

The insurance cover will be for a certain amount and for certain conditions. You need to know what can be claimed and what cannot be claimed. You can claim again but it is better to claim properly the first time. You should not claim for ailments and treatments that are not covered by the policy.

Read – Should you buy medical insurance if you are covered by employer

Handle Rejection –

If your claim is rejected and you do not find the grounds of rejection satisfactory, then you can reach out to the grievance cell of the insurer. If that is also not satisfactory, you should reach out to the IRDA ombudsman within a year of the claim being rejected. You should submit a written complaint and you will be asked to go for a hearing and the ombudsman will give a decision. You can approach the consumer courts if you are still dissatisfied with the verdict.(One of my friends faced this situation where his claim was denied but when he approached consumer court, he got full amount)

Few Random Points

Cashless facility should be preferred over reimbursement
This point may not be relevant today but I can visualize that it will be very relevant in coming years. You should not go to BEST hospital for not very critical issues or BEST possible rooms in any hospital. You may have insurance policy which gives you complete flexibility & luxury but in future they will use this data to increase your premiums. (data mining is becoming talk of the town & you will be surprised data scientist is ranked as best job – Media is ranked as worst job)
Use your employers insurance policy
If you have insurance from your employer – still you should have a separate mediclaim or at least a top up cover.
Prescription, reports & bills should be kept for pre & post hospitalization expenses

It is important to understand your health insurance policy and the claim process properly so that when you or a loved one is unwell, you can worry less about the financial aspect of the medical treatment and concentrate your energies on the medical treatment. Must share your experience with health insurance claim settlement.

What should Women know about Retirement

Financial Planning

Hemant Beniwal

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April 7, 2016

2

We all wish for a long healthy life. But if we want to live long, we will be spending many years in retirement and we need money to take us through those years fulfilling our needs and wants. In case of a woman, retirement is a whole new ball game as there are different challenges and issues to tackle.

A survey of over 7000 women across 15 countries was conducted by Transamerica Center for Retirement Studies (TCRS) and the financial services firm Aegon on the topics of career, financial security and managing home and work. One of the main results was that women are at greater risk of a financially insecure retirement.

Check – Best retirement plan for individuals

Image courtesy of ponsuwan at FreeDigitalPhotos.net

How retirement is different in the case of women

Longevity – Women on an average live longer than men. In India, life expectancy for men is 65 years and for women is 68 years. This means, women live for more years post retirement and it is more important for them to plan their retirement well.

Take time off work – Today women are earning income and are self-sufficient in many ways. But they are also the ones to leave their jobs or take a backseat in their career when it comes to family conditions like childbirth, medical emergency, caregiving to the young, the old and the sick. This means their earning potential is affected and if this happens too may times or for too long a period, their retirement funding can go awry.

Read: Impact of career instability on financial planning

Part-time work/ Freelancing – Many women work in part-time jobs or freelancing assignments. These are good methods to earn money, do what interests you and have a balance between career and family. But these generally do not pay as much as a steady job or a running a business. Such assignments do not take care of pension or health insurance. It is important for women to be aware of the same and ensure that they plan finances to secure their retirement.

Retirement is not at the top of their mind – Women are not financially prepared for retirement due to many reasons. Some of them are not confident of planning their finances. Some of them are not interested in it and want to do it at a later point of time or depend on their spouse. Some believe they will work forever. Some of them are too busy with other things, that retirement planning is not a focus area. Many feel they are not knowledgeable in these matters and invest just in bank deposits. But considering inflation, lifestyle changes and rising medical expenses, investing in bank deposits is not enough. They need to have a proper financial plan with investment allocation across different types of assets to earn better returns and risk management.

Read: I am too young to plan my retirement is a myth

Social conditions – Let’s face it, society treats women differently. Women get married earlier which can sometimes hamper their career growth. Women are expected to take up more family responsibilities which can also put their career on the backseat. In the corporate world, women on an average get paid less compared to their male counterparts for the same work, role or designation. Over a long period, this is a significant loss. Women marry men who are older than them. Women’s longevity is also more than men. So when they are old, they are alone for a longer period of time which means they have to fund more for their retirement.

Must Read: Is Rs 1 crore enough to retire?

As a woman, here are some steps to have a financially secure retirement

You should have your retirement goals in the financial plan and invest towards reaching those goals. You should calculate the amount you need to fund your retirement needs taking into consideration your earnings, lifestyle expenses, medical costs and post-retirement activities and lifestyle. Then you should have an investment plan to reach this number.
You should read about finance, increase your knowledge on money matters so that you can make informed decisions and learn to manage personal finances.
You should take care of your health so that you are fit for as long as possible as being unwell drains finances apart from other problems.
If you are working, try to get a job with a company that offers retirement benefits or contribute in EPF,NPS or superannuation.
You should have medical insurance and disability insurance and invest in financial products so that retirement needs are taken care of.
If your husband is managing family finances & investments, still discuss with him to understand where you stand in comparison to your goals

Read: 10 big lies that skew Retirement Planning

Women have a higher risk of outliving their finances and it is important to manage this risk by planning retirement properly. Please share your experience or ideas…

All About Max Bupa Health Companion Plan

Insurance Planning

Hemant Beniwal

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April 1, 2016

0

All About Max Bupa Health Companion Plan

It is important to provide for adequate medical protection for ourselves and our family. There are many health insurance schemes available and we have to choose the one that suits our requirements the best. Max Bupa’s Health Companion plan is an individual and a family floater plan. It has been redesigned now to cover more family relationships. This is to address the needs of joint families.

There are three different sub-plans in it – Individual Plan, Family Floater Plan and Family First Plan. The Individual plan covers just 1 person.

The Family Floater plan covers medical expenses of self, spouse and up to 4 children.

Check – Best Medical Insurance for Parents

The Family First Plan covers a maximum of 19 relations. It includes self, spouse, sons, daughters, sons-in-law, daughters-in-law, father, mother, father-in-law, mother-in-law, grandparents, grandchildren, brothers, sisters, brothers-in-law, sisters-in-law, nephews and nieces.

Image courtesy of amenic181 at FreeDigitalPhotos.net

Features of Max Bupa Health Companion Plan

The insurance cover has 3 variants for each of the sub-plans. The following features are common for all variants of Max Bupa Health Companion Plan –

Features	Details
Pre and Post Hospitalization Expenses	Medical expenses due to illness is covered for 30 days before admission in hospital and up to 60 days after discharge depending on approval on the in-patient care hospitalization claim.
AYUSH Coverage	The plan covers all forms of treatment such as Ayurvedic, Unani, Siddha and Homeopathy for the base sum assured.
Network –	The plan has a geographical condition. There are two zones in the network Zone 1 – Includes Ahmedabad, Bengaluru, Chennai, Delhi/NCR, Hyderabad, Kolkata, Mumbai(including Thane and Navi Mumbai), Pune and Surat. Zone 2 – Covers Rest of India. If you stay outside Zone 1, you can choose from the network of cities. You can opt for one of these – 1) Cashless facility in Zone 2 cities 2) Reimbursement facility in Zone 1 cities with 20% co-payment 3) 10% discount for your premium calculation.
Tax benefit	You can avail of the tax benefit under Section 80D of the Income Tax Act.
Minimum and maximum Age	Medical expenses are covered for all irrespective of age once the person is over 3 months old.
Organ Donation	Medical expenses for organ donation are covered under the plan.
Emergency Ambulance Services	Emergency Ambulance Services are covered under the plan up to Rs. 3000.
Cashless Treatment	Cashless treatment is possible in over 3500 hospitals across the country.
Medical Tests	Medical test is required for sum insured up to Rs 4,00,000 and the applicant has to bear 50% of the expenses.
No Claim Bonus	If you have a claim-free year, you get 20% additional sum insured, up to a maximum of 100% of Base Sum Insured as long as there is no penalization in case of claim.
Discount on Premium	12.5% discount is available if policy is taken for 2 years.
Waiting Period	Treatment during the first 30 days of the policy, unless the treatment needed is for an accident will not be covered.
Exclusions	Some conditions like artificial life maintenance, dental treatment, eyesight, heredity conditions, AIDS, Reproductive Medicine, self inflicted injuries, sleep disorders, treatment outside India and claim arising out of unlawful activities are not covered.

Read: 5 Insurance policies that you can avoid

There are some differences in each of the variants for these features –

Features	Variant 1	Variant 2	Variant 3
Sum Assured, Top Up and Deductible Options	Rs. 2,00,000, Rs, 3,00,000 and Rs. 4,00,000 Top Up and Deductible Options of Rs. 1,00,000, Rs. 2,00,000, Rs. 3,00,000, Rs.4,00,000, Rs. 5,00,0000 and Rs.10,00,000 are available.	Rs. 5,00,000, Rs. 7,50,000, Rs. 10,00,000 and Rs. 12,50,000 Top Up and Deductible Options of Rs. 1,00,000, Rs. 2,00,000, Rs. 3,00,000, Rs.4,00,000, Rs. 5,00,0000 and Rs.10,00,000 are available.	Rs. 15,00,000 Rs. 20,00,000, Rs. 30,00,000, Rs. 50,00,000 and Rs. 1 crore Top Up and Deductible Options of Rs. 1,00,000, Rs. 2,00,000, Rs. 3,00,000, Rs.4,00,000, Rs. 5,00,0000 and Rs.10,00,000 are available.
Sum Assured, Top Up and Deductible Options	The Family First Plan has a sum assured of Rs. 1,00,000, Rs. 2,00,000, Rs, 3,00,000, Rs. 4,00,000 and Rs. 5,00,000 for individuals and a floater sum assured of Rs. 3,00,000, Rs. 4,00,000, Rs. 5,00,000, 10,00,000, 15,00,000 and Rs. 20,00,000. Deductible Options of Rs. 1,00,000, Rs. 2,00,000, Rs. 3,00,000, Rs.4,00,000, Rs. 5,00,0000 and Rs.10,00,000 are available.
Vaccination in case of Animal Bites	Not Covered	OPD treatment, vaccination and immunization is covered up to Rs. 5000 for reimbursement.	OPD treatment, vaccination and immunization is covered up to Rs. 7500 for reimbursement. The Family First Plan has a cover of only Rs. 5000 in case of all variants.
Renewal Benefits	No Claim Bonus and complementary complete health check up for main person insured and family once in 2 years.	No Claim Bonus and complementary yearly health checkup for main person insured and family	No Claim Bonus and free yearly health checkup for main person insured and family.
Pre-existing Diseases	Pre-existing Diseases are not covered until 48 months of continuous coverage from the first policy start date.	Pre-existing Diseases are not covered until 36 months of continuous coverage from the first policy start date.	Pre-existing Diseases are not covered until 36 months of continuous coverage from the first policy start date
Hospital Cash Expenses	For an additional cover, you can get Rs. 1000 per day for 30 days of hospitalization over and above the sum assured.	For an additional cover, you can get Rs. 2000 per day for 30 days of hospitalization over and above the sum assured.	For an additional cover, you can get Rs. 4000 per day for 30 days of hospitalization over and above the sum assured. The Family First Plan has a cover of only Rs. 1000/ Rs. 2000 in case of all variants.

Infographics – Terms Commonly used in Health Insurance Policy

How much premium do I pay?

For a 30 year old individual opting for a Family Floater Plan of Rs. 10,00,000, the premium amounts to Rs. 17,235 (2 adults +2 children)

For a 30 year old individual opting for a Family First Plan of Rs. 1,00,000 individually and Rs. 5,00,000 lakh cover for a family of 4 adults and 2 children, the premium amounts to Rs. 51,975.

Read: Top Up Vs Super Top up health insurance plans

All About Max Bupa Health Companion Plan Click to Tweet

What does the top-up deductible option mean?

The Top-Up option is an option available to you to buy additional cover. It comes into effect when the total claim in a year is more than the sum assured amount.

Here is an example –

Assume you have a medical policy of Rs. 5,00,000 and a Health Companion policy with a top-up of Rs. 3,00,000.

If you have a claim for Rs. 5,00,000 in a year, your medical policy will cover that amount.

Suppose you have two claims of Rs. 4,00,000 each in one year at two separate occasions, your medical policy will cover the first claim by paying you Rs. 4,00,000. For the second claim, the medical policy will pay Rs. 1,00,000 and the Health Companion plan with top-up will pay Rs. 3,00,000 for the second claim. The top-up option comes into action when the threshold limit (total sum assured) is crossed.

The plan is quite comprehensive as it covers many relationships and most day care procedures. It has some advantages like coverage of different types of treatment, hospital cash, annual health checkups and discount on premium. It is a good plan to consider if you want to provide medical cover for a large family.

It will be great if you can share the name of your health insurance plan & any specific reason for considering it over others.

This review is done by our Para Planner Ravi Viryani

You are Your Most Valuable Asset

Family Finances

Hemant Beniwal

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March 22, 2016

2

What do you think is your most valuable asset? You might have 2 houses, 3 cars and investments in fixed deposits and mutual funds. But unless you are not at your best as possible, all the assets are not of much use to you. For example, if you are unwell, you will not be using your cars to go anywhere. If you have a stressed life where you are working 18 hours a day and are constantly frustrated trying to balance life and work, you will not have time to enjoy the returns from your investment.

Image courtesy of iosphere at FreeDigitalPhotos.net

Another way to look at it is that if you do not improve yourself, you will be less valuable over a period of time. Just like the value of money falls over a period of time due to inflation, your value decreases with you growing older, being unaware of newer stuff in the world, people being younger and better skilled than you etc. You should strive to maintain the maximum value for yourself – this can be done in various ways –

Read: SmartPhones are making us dumb

Plan finances properly

You should plan your finances properly across various points or milestones in your life. At the start of your career, you should try to get a job that pays well and gives you a good head start in your career. Along the way in your profession, you should maximize your opportunities. You should try to get good roles in your career and a steady increase in your compensation package. You should maximize your tax deductions and other benefits. If you have your own business, you should constantly look at ways to expand, innovate and cut costs, without compromising on service levels and quality. At the same time, you should plan your finances to reach your retirement goals. When you near your retirement age, try to find some job/consultancy/activity in which you can earn income. It can be done at a slower pace or on a part-time basis such that your health is not affected negatively. This will keep you financially independent and will be mentally stimulating and you can stay away from negative thoughts, boredom and old age mind related health issues. This will ensure that you are at peace in your sunset years and have a relaxed lifestyle without worrying too much about finances.

You are Your Most Valuable Asset Click to Tweet

Invest in Professional Development

It is important to develop yourself professionally. Today you might have a good job, meaty role with a great package and responsibilities. But this can change if you do not keep up with the demands and the changing trends of your industry and profession. You should update yourself, be aware of developments in your area of expertise and slowly and steadily expand your role and responsibilities. This will make you more valuable.

Read: Money Vs Job Satisfaction

Insurance

You have to insure yourself well. You should have Medical insurance so that medical emergencies are taken care of from a financial perspective. You should take disability insurance especially if you are in a risky profession or live in a disaster prone area. You should take term insurance so that you do not have to constantly worry about your loved ones in case you are not there with them. Right Insurance gives you financial relief as well as peace of mind.

Self Improvement

You have to invest in improving different aspects of your life so that you remain valuable and can earn wealth and also enjoy the returns of your wealth. It is important to develop characteristics such as self discipline, self esteem, general awareness level, networking etc. Such characteristics add value to your personality and help you live a better life.

Respect your body and mind

You have to treat your mental and physical health with respect. You have to give your body enough rest so that it remains healthy. You should give time for activities such that your mind is rejuvenated. You should keep your body fit. There are a host of activities that you can do like Yoga, Trekking etc. You should eat sensibly. You should keep some time for engaging in activities that you like or enjoy such as pursuing your hobbies, socializing or devoting time to social causes. As the proverb goes, ‘Prevention is better than cure’, it is better to work effectively towards having optimal health than trying to repair what is wrong. A healthy body and sound mind go a long way in managing problems and stress efficiently.

It is important to treat yourself as an important asset as it will build resilience and confidence and you will be able to build a sound future. Must share what you feel about this & what you are doing to preserve human capital….

When not to invest in Equity Linked Saving Schemes (ELSS)

Hemant Beniwal

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March 17, 2016

27

When not to invest in Equity Linked Saving Schemes (ELSS)

Equity Linked Saving Schemes popularly known as ELSS funds are still struggling in the Indian market to establish themselves. Many investors, who are afraid of the equity market, choose life insurance or Provident fund to save tax. These products are few decades old and are very popular among Taxpayers. However, due to increase in the inflation and lower returns, these products are losing their market share. Investors are now looking for those products which offer growth in the long term and helps in wealth creation. ELSS is one such product which offers both, but due to the risk/Volatility associated with the product, people hesitate to invest in it.

I am firm believer that “confusion is the first stage of solution” –

so let me try to confuse you through this post 🙂

Chart – ELSS performance – 23 times or 2300% in 20 years

Few question before investing in ELSS

For a longer duration, any product which generates returns over and above inflation is good for investor and in the category of tax saving instruments, ELSS funds are best in the lot till date. But are these funds always good for an investor? Does this fund suits every category of investor? Are these funds successful in generating good returns in the short term? Have you ever thought about these questions while investing or just invested because you need to save tax? Let us today try to focus on above questions and find out which category of investors should avoid these funds and also in which situation one should stay away from ELSS funds.

When not to invest in Equity Linked Saving Schemes (ELSS) Click to Tweet

ELSS 1 Year performance – rolling return

Rolling returns display returns in overlapping cycles of any specific frequency – going back as far as the data we have available. The goal is to show you the frequency and magnitude of an investment’s good and bad performance periods.

Must Read – Best Tax Saving Option ELSS Vs PPF

Think Before you invest in ELSS funds

Post Retirement

All those investors who are senior citizens or retired and are looking for the investment schemes should try and avoid ELSS funds as tax saving tool. Post retirement is a phase where one should look out for those schemes which offer both liquidity and tax saving with fixed returns. ELSS fund comes with 3 years of lock in and is highly risky if you don’t understand volatility. Also, as there is no guarantee on returns, there are often chances that investor may lose the part of its capital. [we suggest even in retirement people would have decent exposure to open-ended diversified equity mutual funds based on risk profile & requirement – but after understanding risk associated with that]

ELSS 3 Year performance – rolling return

Investor’s Risk profile is conservative

If an investor’s risk profile is moderately conservative then he/she should not invest in ELSS funds, as these are highly volatile and does not guarantee returns. The conservative investor always looks for growth with security and a slight decline in portfolio makes them worried. So, they should look at other tax saving products which are less volatile and should ignore ELSS funds. [we may also suggest that if you are conservative investor & literally hate equity & volatility – this year add some amount in ELSS]

Rs 100 invested in Jan 2008

Investment horizon is less than 5 years

If an investor has a goal which is of less than 5 years then he/she should ignore ELSS funds as a part of equity investments. These funds have a multi-cap portfolio which invest aggressively into small and mid-cap and thus bears high risk. Ideally for a period of 5 years for equity one should only consider large cap fund which are less volatile than ELSS funds. [saying 5 years for equity funds doesn’t mean that it will not be negative if you hold for 5 years]

ELSS 5 Year performance – rolling return

Investing at the end of Financial Year

Most of the time people look for tax saving products only during last quarter of the financial year. It is the time when they (Employees) are forced to submit their investment details and thus in a hurry they invest in ELSS in lumpsum. Ideally, this is the wrong way to invest in ELSS. One should always plan their tax related investment in advance and invest through SIP mode in ELSS to get the benefit of rupee cost averaging. [it’s not about performance but discipline]

Saving Frequency: Monthly ● SIP Amount: 1000.00

Total Investment: Rs 2.41 Lakh ● Current Value: Rs 17.7 Lakh

What should you do?

To conclude, investors should avoid ELSS funds if they are looking for short term and are not comfortable with equities. However, one should also keep in mind that ELSS funds are not at all bad. In fact, ELSS is the best tax saving option available in India but only for those who are looking for long term and have the capacity to digest volatility. And for rest National Saving Certificates or Tax-free FD or PPF would be better as these are less risky (without considering inflation) and offer fixed interest. [if your income is less must invest some portion in ELSS for tax saving]

Let me share not a single client of our’s use ELSS for tax saving – in most of the cases 80 C is exhausted in EPF, home loan & term insurance premium. So, how do you invest in ELSS funds? Do you agree with the above points or have some other views? And if you are confused – add that in the comment section.

What Should I Know About the Union Budget 2016

Economic Trends

Hemant Beniwal

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March 1, 2016

2

What Should I Know About the Union Budget 2016

The Finance Minister Arun Jaitley presented the Union Budget today. He said that India had a robust growth rate in spite of a global slowdown and shortfall in monsoon in the country. There are further risks of the slowdown in the global economy and turbulence along with fiscal burden of 7^th Central Pay Commission recommendations. He pointed that fiscal deficit in RE 2015-16 and BE 2016-17 have been retained at 3.9% and 3.5% respectively and the Revenue Deficit target is down from 2.8% to 2.5% in RE 2015-16.

The government wants to use this year’s budget to focus on prudent fiscal management and give priority to the rural sector. It wants to provide opportunities to the infrastructure sector, employment generation and to bring macro economic stability. It wants to bring reform in different areas.

Image courtesy of zirconicusso at FreeDigitalPhotos.net

Here are the key takeaways of the budget –

What is new in the budget for the common man like you and me?

There are no changes in the personal income tax slabs but our Corporate tax rate is reduced to 29% 🙂
The HRA deduction for tax computation on rent paid will be raised from Rs. 20,000 to Rs. 60,000. This will help people living on rent.
There will be an additional exemption of Rs. 50,000 for housing loans up to Rs. 35 lakh if the person is buying the house for the first time and the purchase value is not above Rs. 50 lakh.
There will be no Service Tax for houses built with area under 60 sq m.
Under the National Pension Scheme (NPS), at the time of retirement, when the maturity amount is being withdrawn, 40% of it will be tax exempt. 🙂 (rest you can buy annuities – annuities are taxable)
60% of the EPF (& Superannuation) will be taxed at the time of withdrawal (any amount that is contributed before 1st April 2016 will not be taxed) – this tax is only on interest part. 🙁 (this is to bring NPS & EPF on the same page – there’s no change in PPF taxation)
There will be a 15% surcharge (earlier 12%) on income greater than Rs. 1 crore.
The government will pay EPF contribution of 8.33% for all new employees for first three years over and above the contribution by the employee and employer. 🙂
There is an increase in the tax rebate for people with income less than Rs. 5,00,000 per annum.The rebate has been increased from Rs. 2000 to Rs. 5000 🙂
The presumptive tax has been extended to professionals earning up to Rs 50 lakh per year.
An additional tax of 10% will be charged on dividend earned greater than Rs. 10 lakh per annum. (this will be applied on stocks – no tax in case of Mutual Funds)
Limit for contribution of employer in recognized Provident and Superannuation Fund of ` 1.5 lakh per annum for taking tax benefit.
Reduce service tax on Single premium Annuity (Insurance) Policies from 3.5% to 1.4% of the premium paid in certain cases
NRIs providing alternative documents to PAN card will not be required to pay higher TDS if applicable.
The government has limited the tax compliance window from June 1 to September 30 2016 for declaring undisclosed income at 45% including surcharge and penalties.
Expansion in the scope of e-assessments to all assessees in 7 mega-cities in the coming years. 🙂

Our Take – The income tax slabs remain same though taxes have been increased for some people. There are benefits like increased deductions. The government is trying to bring more people in the tax net.

What is in the Budget for the corporate world?

Corporate income tax rate has been decreased to 29% plus surcharge for companies with turnover less than or equal to Rs. 5 crore. Manufacturing companies incorporated after April 1, 2016 will have to pay a tax of 25% + surcharge provided they do not claim exemptions.
General Insurance companies will be listed in the stock exchange
SEBI will develop new derivative products in the Commodity Derivatives market.
There are incentives to be provided for deepwater gas exploration
There is a 2.5% tax on diesel vehicles purchase which is not so good for companies manufacturing diesel vehicles.
NBFCs can get a deduction of 5% of income for provision against bad debts.
The government has not announced any additional amount for funding banks’ bad debts and provision for bad debts. This will be seen as a negative factor as there were expectations of recapitalization.
There is a 1% cess on petrol and CNG cars
Tobacco Tax is up to 15%
Excise duty on retail garments is increased to 6%
The clean energy cess on coal production has increased to Rs. 400/tonne and there are exemptions for environmentally friendly cars.

Our Take – The clean energy cess might be passed on to the energy distribution companies who might not be able to pass it to consumers. This can affect their profitability. Tobacco products, cars, retail garments would become more expensive. This will be seen as a negative factor as there were expectations of more recapitalization. The incentives for the companies will definitely help. The cess on cars using non-renewable sources of energy and incentives for energy efficient cars depict that the environment is being considered.

What is in it for Rural Development?

A sum of Rs 35,984 crore is earmarked to be allotted to agriculture.
A crop insurance scheme, Pradhan Mantri Fasal Bima Yojana that was announced earlier will have a fund of Rs 5,500 crore. Farmers will pay a nominal uniform premium and the rest will be borne by the government.
A Long Term Irrigation Fund has been set up under NABARD
There will be incentives to improve dairy production.
There will be measures to bring focus on drought hit areas
There will be better e-market regulations in 585 regulated markets.
A Soil Health Card scheme will be implemented to cover14 crore farm holdings by March
Promote organic farming in NE India.
A new scheme Rashtriya Gram Swaraj Abhiyan has been proposed. It has been allocated ` Rs. 655 crores.

Our Take – The Finance Minister has taken many positive steps to provide impetus for growth to the rural sector.

What are other social developmental measures undertaken in the budget?

The government will provide LPG connection in name of women in rural households. A sum of Rs 2,000 crore is earmarked for this.
The Government will provide health insurance of up to Rs. 1 lakh per family and a top up insurance of Rs. 35,000 for people above 60 years.
2.87 lakh crore will be given to Gram Panchayats and Municipalities as grants.
The National dialysis service programme will come under PPP model which means certain equipment exempt from custom duty which will help patients.
The budget has allocated funds for two schemes introduced to promote digital literacy for rural India. It expects to cover 6 crore homes in the next three years.
A sum of Rs. 9,000 crore has been earmarked for Swachch Bharat Abhiyan.
The government will have 1,500 multi-skill training institutions in the country with the aim of teaching skills to about 1 crore youth over the next three years so that they are employable or can start their own profession.
It plans to have CCTVs in all the important train stations over a period of time.
A Higher Education Financing Agency will be set up with an initial funding of Rs. 1000 crores.

Our Take – The government has tried to address many social development causes and tried to bring the benefits of economic development to a larger population. The health care sector and tourism sector have not been offered any benefits.

What is the impact of the budget for entrepreneurs?

Minimum Alternate Tax (MAT) will be applicable for startups that qualify for 100 per cent tax exemption.
500 crore has been allotted to a scheme to encourage entrepreneurship among SC/ST and women.
A tax holiday has been announced for startups up to three of five years of setting up the company.
It has proposed a Stand Up India Scheme. This will facilitate at least two projects per bank branch. This will help many entrepreneurs.
A programme for Entrepreneurship Education and Training through Massive Open Online
Courses has been proposed.

Our Take – It is too early to analyse how these steps will affect entrepreneurs but the finance minister has considered entrepreneurs in the budget.

What are the Other Measures taken?

A Price Stabilisation Fund for stability of prices of pulses has been initiated. It has a corpus of Rs. 900 crores.
All new schemes sanctioned will have a sunset date and outcome
There will be a one-time dispute resolution for ongoing cases under retrospective amendment in case of tax issues for companies.
13 different cesses levied by various departments which have a revenue collection less than Rs. 50 crore in a year will be abolished in an attempt to simplify tax regime
It wants to give more power to the AADHAR platform to ensure benefits reach the deserving.

The 2016-17 Budget is comprehensive and has covered many key areas. We will be able to see the real impact of the Budget once the steps are implemented.

What Can You Learn From Well Behaved Investors

Hemant Beniwal

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February 26, 2016

4

What Can You Learn From Well Behaved Investors

Movement in the markets depend on 2 factors – One is the actual numbers like growth rate, company performance, prices of commodities and local and global economic conditions. The second is the behaviour of the market participants that is the people and their beliefs, sentiment, fears, optimism and pessimism. We think second factor is more important & that’s the reason we keep repeating… Investing is not a number game, it is a “Mind Game”.

Infographics – It’s a bull run when….

It is not enough to have only technical and financial knowledge if you want to be a successful investor. You should also manage your emotional quotient properly. Some investors do better than others in investing. One of the main reasons is that they behave appropriately in different market conditions and while taking investment decisions.

What these investors do different to be more successful –

1) Sometimes it is okay to not make any investment decisions –

There are a lot of news items on the economy, prices, markets all over the place. Many investors constantly want to keep doing something. They want to buy or sell else they feel left out even if they do not understand where the markets are heading. well behaved investors take a step back and take time to assess the situation. It might be profitable in terms of time, money and mental peace to not react to market movements and wait till the markets are more steady or make more sense.

Read: Keep Away from too much news

What Can You Learn From Well Behaved Investors Click to Tweet

2) Loss Aversion –

Sometimes as investors, we do make the wrong purchase decisions. Sometimes, due to economic conditions or company performance the stocks/sectors that we thought would perform well do not perform as expected. It’s important to keep asking a simple question to ourselves – “If I weren’t already invested in this ……, how much would I invest in it now?” It is difficult for most of us to admit that we made a loss or sell and accept the loss.

Read: Sunk Cost fallacy – throwing good money after bad

3) Overconfidence –

Many investors tend to be overconfident and estimate their ability to pick investments that can give very high returns to be very good. This can backfire as the investments picked may not give the most optimum returns or even run into losses. It is even worse if the investors overlook the mistakes they have made due to overconfidence. Well behaved investors estimate their investing capabilities realistically. They try to improve their skills in different ways and also take the help of professionals to make the right investments

Read – Don’t believe PREDICTIONS

4) Understand the difference between skill and luck –

Sometimes we make profits or get high returns from our investments because we have made the right investment decisions and sometimes it is because of a little luck. Well behaved investors know and acknowledge the difference. If we attribute all profits to our skills and capabilities and all losses to bad luck, we may not be interpreting correctly. This will impair our rational behaviour and we will not take steps to improve our investing skills.

Read – Herd Mentality

5) Keep emotions out while investing –

Humans have a range of emotions – greed, humility, impatience, fear, self-confidence levels, frustration, anger etc. These emotions can play into an investor’s mind and bias the investment decisions. Some people are scared of making any decisions which might make them lose opportunities to make money. well behaved investors keep emotions and intellect required for investing separate. They do not let emotions cloud their mind while deciding on their next move. They may not watch the market closely but learn and assess rationally. Just as professional investment managers behave rationally while taking investment decisions. Well behaved investors also do not have extreme reactions for profits and losses. They continue with the right strategies and change the wrong ones.

Read– 3 Principles to generate superior returns

6) Well behaved Investors are disciplined and persistent –

Well behaved investors are disciplined when it comes to investments. They stick to investing rules. They have a well-thought-out investment strategy in place and follow it even if there are sudden changes in the market. They update their strategy only if it is required. They have certain standards and make sure they follow them. For example, a well behaved investor might have kept a target to sell a stock that he owns when he gets a return of X%. Now if the market swings wildly and the stock keeps going up, he will not get greedy and wait for the stock to go Y% higher to sell. Chances are that the stock might drop to much lower levels and he will end up getting less profits or even make losses. Of course it might happen that after he sells as per his target, the stock price goes higher. But if there are no indicators of the same earlier as per his analysis, he would stand by his strategy.

Read – 7 types of investors

7) Well behaved investors are also persistent –

They work hard and persistently follow their investment strategy. They keep updating their knowledge and look for opportunities. They review the investment strategy and update it as required. They will not succumb to market tips and rumours. They would have set their financial goals and work towards achieving them.

Many of our investment decisions are clouded by behavioural aspects. We should emulate well-behaved investors to be successful investors. To begin with, we should find out which emotional aspects affect our investing capability and then work on each of them so that they do not affect investment decisions negatively.

Keep Away from Too Much News

Investor Psycology

Hemant Beniwal

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February 11, 2016

0

‘Keep away from too much news’. Read on to find out why I want you to stay away from 24-hour news updates –

Image courtesy of David Castillo Dominici at FreeDigitalPhotos.net

In today’s wired world, we are connected all the time and therefore, get too much information. We have 24 hour coverage of all events across the world. It is also true that bad news travels faster. We get constant updates on news across the world and the financial media reports analyses and presents effects of the news on the stock markets, investments and economy.

Here are some news items collated from news websites last year –

Speaker writes to MPs: Maintain discipline, decorum of House
50 most dangerous air crashes in the last 50 years
Jayalalithaa chairs first cabinet meet since becoming CM again
Climate Change Could Force 100 Million into Poverty
At least 16 people have been wounded in a gunfight at a park in New Orleans, USA

We keep getting such news tidbits throughout the day and our mind is overfilled with information that may not be really useful. This constant flow of news prevents us from taking a step back and thinking clearly.

Now check out these views or predictions that have been done by the experts which were in the news –

In 2011, it was predicted that China would find it difficult to control inflation over the next few years.

Keep Away from Too Much News Click to Tweet

But the reality today is that the Chinese are worried about deflation.

In August 2008, there was a ‘buy’ rating on Lehman brothers by an expert analyst.

But in September 2008, Lehman Brothers fell and faced one of the biggest bankruptcies.

WHY NEWS

The news channels, websites etc. constantly feed us information and news. It is their business to do that. They keep feeding us information as silence on their part will affect their visibility, sponsorships, revenues and profits. But we should take a step back and decide if we really need to be so updated all the time. Is all this news adding value to our lives? Do they help us taking better decisions?

Usually we tend to pay more attention to bad news and such bad news is propagated even more as for news channels, more sound bytes means more business and for websites, more eyeballs means higher valuation. Each media outlet tries to outdo the other and keeps throwing nuggets of information, views, analysis and reports at us without really understanding if we need the information or not.

Financial News

As you saw earlier, news and views are not accurate all the time. From a financial perspective as individual investors, we tend to hoard all the information and react on it. Many times, if we hear bad news or read negative reports, we do not plan much and end up taking rash decisions which may not always be financially prudent. We should remember the following so that we do not read too much into the news and reports and be careful while dealing with our finances –

1) Reaction to Past News or news that has already been factored in –

News and analysis on events like falling crude oil prices, election results or falling and rising interest rates generate reactions from investors. They buy/sell assets without much planning. But the market generally has generally factored in the news. One should take a long-term view before taking any financial decisions.

2) Short-term Volatility should not affect long term investments –

Sometimes there are wild swings in the market due to some news. There will always be some volatility. If one has invested in certain assets as per his/her financial plan, he/she should stick to the plan. If changes are to be made, they should be made considering all factors and options. The financial plan and asset allocation must be kept in mind. The actions should be well thought through. In the long term these volatile movements will not mean much if one has developed a good financial plan.

3) Unprecedented Reaction to Usual Events –

Usual Business Events are analysed too much or people try to read into them too much. Dividend declared, earnings releases, stock splits, drop in sales or earnings are taken too seriously. If there is a slight drop in dividend or earnings, people panic and sell the stock or funds. This is not a smart move. One should research properly before making buy/sell decisions.

Irrespective of whether the news is good or bad, one should remember that –

Media organisations want you to feel you are on top of the things when you know every news piece. But it is better to know what news to consume and what not. This will help us to think clearly and concentrate more.
Many people who consume news all the time skim through information are incapable to read lengthy articles or books. They get tired and are not able to process all this information properly.
Many times, we are overloaded with bad news, news of violence, corruption issues etc. and this makes us passive and numb to everything.

From a financial perspective, you should take care that –

You should have a diversified investment portfolio so that risks are managed well.
It is important to not over analyse news and views. It is good to be aware of events around the world but one should take a rational view of one’s investment portfolio. If you are tempted to make a change to your investments on the basis of every news item you read or hear, it is probably better to follow the news a little less.
You should try to read news that give opposite views. You will get different perspectives and be able to make a better judgement.
There will be news on stocks, economy etc. with recommendations to buy and sell assets – its just entertainment if you analyse after few years. So it is important to sift the valuable news from the other news so that you invest in the right manner and do not just end up trading.

On the financial side, people make rash decisions when they hear bad news on the financial front. They should always remember that markets will move up or down on future events which cannot be predicted accurately. Therefore, they should not speculate but concentrate on investing and making their wealth grow.

Is it important to be aware of every news and events around you??