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What should investors do with Fidelity Funds?

Mutual Fund

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March 29, 2012

What should investors do with Fidelity Funds?

Another deal struck in the mutual fund industry – L&T Finance is taking over the Fidelity Mutual Fund Indian business. After months and “if”, “what”, “who” finally the picture is clear for the investors who hold more than 8500 Cr of assets.

Fidelity Mutual Fund – Run Out

But this is just not the owners or the managers that will change. There is lot more for the investors of Fidelity MF. Change in management brings lot more challenges and they all have the bearing on the performance of the fund. After all you invested for returns and not for the corporate daily soap featuring mergers and the take overs.

When you should sell your Mutual Funds?

In a nut shell one can exit his investments in mutual funds if:

Your life-cycle stage has changed impacting your risk profile
If the expense ratio of the fund rise
If there is a major change in the attribute of the fund
If the fund manager is changed
If fund is not complying to its objectives as laid down

If you see there is a likely possibility that the fidelity investor may face few of these. In the current scenario we assume following things will happen:

What should investors do with Fidelity Funds? Click to Tweet

1) As per media reports the deal is “with employees” but without Investment Team as fidelity wish to keep their investment professionals as they are into research for their parent company regarding the markets of Asia-Pacific region. Hence the investment team will manage the funds for brief time and will completely hand over the funds to L& T.

2) Also media reported that Fidelity had a high cost structure. And majority of it was on employees. How does management deal with this is yet to be seen. But this will be a tough job, accommodating high cost manpower in the scenario when industry is all guns to reduce cost as margins have shrunk owing to the regulatory changes which have reduced the business for small & mid-size mutual fund companies.

3) We will see huge turnover in both equity and debt category. Majority investors in equity invested for the brand ‘Fidelity’. Institutional investors will also redeem as they will refrain from doubling exposure in the resulting one mutual fund company. So performances will be impacted.

4) If you see L&T, they have not created much value for investors in past. They have grown inorganically as they first acquired DBS Cholamandlam AMC and now Fidelity. This is a huge challenge for L&T team to retain Fidelity assets, with present performance and structure.

Fidelity Mutual Funds Performance Vs Sensex

	6m	1yr	3yr	5yr
BSE Sensex	4.11	-9.62	70.39	32.89
Fidelity Equity	3.09	-4.55	104.69	64.66
Fidelity India Growth	2.84	-5.01	106.05
Fidelity India Special Situations	7.25	-1.26	123.73	47.88
Fidelity Tax Advantage	2.76	-4.62	108.18	72.24

These are hard times but with challenges one also gets opportunities.

Fidelity assets are major into equities and with this kind off assets L&T can attract good fund managers.
Similar challenges were faced by HDFC AMC and Birla Sun Life AMC when they took over Zurich and Alliance AMC. And these AMCs have created value for the investors.

Few Such Deals in Past

Source Business Standard

So it will be exciting times to watch as this entire merger may take few months or so subject to necessary approvals and due diligence.

Commenting on the transaction, Ashu Suyash, MD, Fidelity India said,

“The foundation that underpins this transaction is the shared values of L&T Finance and Fidelity and the high standards of business ethics that both Groups value and cherish. The business models of L&T Mutual Fund and Fidelity Mutual Fund are complementary, thus creating strong synergies. I am happy that business continuity has been addressed with the team moving along with the assets – this will help us continue serving our investors and our distributors with the same levels of commitment as they enjoyed over the past 8 years.”

Investors will be given a one month no exit load window by SEBI but this is going to be a very tough decision to exit or stay in the same funds.

Are you a Fidelity or L&T Mutual Fund investor? If yes, share your views or post anything which you feel discussing.

Free Look Period in Insurance – Benefit & Process

Insurance Planning

Hemant Beniwal

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March 19, 2012

28

Free Look Period in Insurance – Benefit & Process

Insurance is like marriage, a long term commitment. And, when it comes to marriage if you get a wrong life-partner, entire life becomes a tale of adjustments. But the good news is if you have landed yourself into a wrong/not -required policy contract, the Free Look Period clause comes to your rescue. Free Look Period facility is a great tool to avoid the mis-selling of insurance and has saved lot of people from dragging on to something they do not want to continue or require. But remember this friend is there for only 15 days.

What is a Free Look Period in Insurance?

A policy holder can return the policy back to the insurer within 15 days from the receipt of the policy documents. This can be done only for Life and Health policies.

Free Look Period in Insurance – Benefit & Process Click to Tweet

Benefits of Free Look Period

In case the customer feels he has not received what was being told or discussed with the agent he has an exit route through Free Look Period. He can go through the finer details of the contract and if not satisfied can return the policy.
In cases of mis-selling, Free Look Period is used to safeguard the customer’s interest. There have been cases where customer has been explained a different policy and he receives a different policy or customer gives cheques for FD to a banker and he receives a single premium policy. Intentional mis-selling can be controlled through the Free Look Period facility.

Deductions while applying for Free Look Period withdrawal

In case of Free Look Period withdrawal, the policy gets cancelled and entire premium is paid back to the investor deducting following things:

Charges incurred by the insurer for medical tests of the policy holder.
Administrative and service cost like stamp duty etc.
Charges for mortality for the period the policy was in force.

In case of ULIPs the policy holder will have to bear the NAV movement.

Procedure of using Free Look Period

In case you wish to return the policy, immediately call the insurer customer service department and enquire about the procedure. They may ask for the return of the original policy contract and the cancellation form. You may also visit the local branch in person to do the required formalities.

Catch here….

1) It has been noticed that some insurers send the policy documents to the Agent. And in case of hanky-panky business the agent makes sure that he delivers you the documents only after the expiry of 15 days. Make sure that you follow up with the agent and get the documents on time.

2) Once you have expressed interest of not carrying further with the policy, agent will try to counter and will try to linger on certain days promising you to “get rectified” or “will provide details” kind of excuses. In a scene like this, keep track of the days and go directly to the insurer and submit back the policy.

3) Insurers have different procedures for this facility. Some insist on informing the call-center and some have specified format. It is better to get details of the procedure and act accordingly.

4) Do keep margin for the transit time. There can be postal/courier delays etc.. Act well in time and take care that you do not goof up with the deadline. Do collect POD or acknowledgement once you surrender the policy so that if required in future you have evidences to fight in case insurer rejects your Free Look Period request.

But as they say, “Be aware”. It is better to let your agent know in the first meeting itself, that you know all about the Free Look Period clause. Enlighten him that if he tries to conceal or mis-represent you will exercise your right.

And as mentioned in the opening line, for those who are still thinking about Free Look Period facility in marriage, my sincere apologies and best wishes. Do share your Free Look Period (insurance related and not your marriage related) experiences/concerns/queries in the comments section.

Few Important Points shared by Abhinav Gullechha

In case a policyholder has suffered from mis selling, limit of 15 days is not applicable. He can come back anytime during the policy tenure, however, it is advisable to write to insurance company as soon as the mis selling is noted. The greater the delay, it gets more difficult to prove the fact of mis selling…
In case of Freelook, it is advisable to directly contact/ write to the customer care rather than depending on the agent. In case the agent delays the case, it may be difficult to explain the delay to insurance company, in absence of any documentary evidence/ correspondence with the agent.
On the policyholder’s part, it’s a good idea to make a note of the policy received date on the face of the policy document, as it can greatly help in tracking for Freelook, if need arises
Freelook option must not be misconstrued as an option that allows the policyholder in being lax at the time of product selection. Prospect should do his/her own due diligence at time of product selection. Its no great fun wasting all the time in the world applying for a product without adequate research and then making a Freelook claim. And yes, if one cant make the choice himself, its better to take expert advice.

Must share Free Look Period concept with your friends – let’s save few more financial lives.

Banks are Mis-Selling or Bankers are Mis-Selling

Mis-Selling

Hemant Beniwal

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March 16, 2012

23

Banks are Mis-Selling or Bankers are Mis-Selling

We have always brought to your notice that insurance is grossly Mis-sold in India, specially through banks. Last week received a comment on LIC Jeevan Vriddhi Article – which was shocking, as bankers are clearly fooling their clients with support of their bancassurance tie-ups.

Go through the Message from reader & Mail from HDFC. Also read what others have to say on Bancassureance Nexus including IRDA Committee.

Must Read – Exit Strategies for mis-sold insurance policies

Message that I got from the reader:

I appreciate the time and energy you spend in the financial education. Two weeks of going through the site encouraged me to walk into banks to open SIPs.

When I walked into HDFC for the last two SIPs, the Relationship manager tried to convince me for ULIPs. I wasn’t convinced then so I asked him to send me some explanation. The reply is appended below. At the outset, for long term the ULIP capital left after charges seen to be a lot compared to MF. Not sure what I am missing here. Basically the contention was that for ulips, the 1st, 2nd and 3rd year charges are 40 %, 15 % and 10 %. Thereafter it remains at 2 % of annual premiums where as in MF it si 2.25 % of the total corpus every year as maintenance charges. So if you were to invest Rs 100 every year for 30 years, for ulips you pay Rs. 119 as total maintenance charges and for MF you pay Rs.1046.25 at the end of 30 years. He said something about the fund charges for ULIPs being capped at 3 %. Has the ULIP policies changed since your articles on ULIPs ? Hope you could provide guidance

Read – Mis-Selling Tricks by Mutual Fund & Insurance Agents

Mail that he got from HDFC

It is Shocking that he got this mail from HDFC Life Insurance but he is client of HDFC Bank. (CC in this mail was marked to HDFC Bank employee)

Banks are Mis-Selling or Bankers are Mis-Selling Click to Tweet

HDFC Email

Further to our discussion please find the bullet points .

1. Long Term Perspective: The Fund Manager cannot have a long term perspective as MF are highly liquid. Whereas ULIPs are long Term in nature with a mandatory 5 year lock in period. Hence they have the better probability of generating better returns in the long term. Longer the money is invested more the returns.

2. Liquidity pressure: MF being highly liquid in nature AMC has to set aside a significant portion of money in liquid assets which are low generating Income avenues. Whereas ULIPs strictly invests as per the Fund opted and can afford to invest in Long Term Investment Avenues.

3. Retail Participation: In MF Institutional Investors also participate in the same fund. They always have the edge over any retail investor in terms research and analysis. Hence can influence the NAV as they invest in huge amount.

4. Fund Manager: The investment for AMC is being managed by individual Fund Managers ,Hence it solely depends on one person thinking who also happens to earn his reputation and earnings from the Fund Performance. Whereas in ULIPs there is a Committee comprising of Deepak S Parekh ,Chairman, Keki M Mistry and AK T Chari -Independent Director, Amitabh Choudhury-MD and CEO, Paresh Parasnis-Executive Director and COO,Vibha Padalkar- Chief Financial Officer,Srinivas-Appointed Actuary, Prasun Gajri- Chief investment Officer. The entry of exit of one person doesn’t effect the long term strategy of Fund Management unlike AMC.

Check – 10 investment mistakes to Avoid

5. Fund Management Charges: The charge is deducted while calculating the NAV .The average FMC ranges from 1.5-2.25% of the fund. The newer funds have higher fmc and the older funds have relatively less. Please find the impact of such charges over a long period of time. Also comparison with the charges deducted from the premium .Currently the Initial Allocation Charge is 4%,3%,3%,2%,2% for CREST- Free Asset Allocation and 1st and 2nd year -7.5% 3rd to 5th year is 5% and 6+ year is 0%.

Whereas in ULIP the charges are highly regulated and is capped at 3% over a 10 years and 2.75% for a period more than 10 years excluding the mortality charges.

6. Fund Options and Tax implications: The flexibility to invest in 5 fund options ranging from -100% Money Market Instruments to 100% Equity and various combinations of Debt and Equity .Fund switches can be easily done online .The maturity amount in ULIP is tax free irrespective of Debt+Equity Composition whereas in MF only equity investments for more than one year is tax free.

7. Fund Performance HDFC LIFE ULIP Products lease find the fund performance of all funds launched since inception of the company against the benchmark . Also attached in the zip file of the oldest 100% Equity Fund -Growth Fund with the portfolio details .(16% over a period of 7 years till year end 31st Jan 2012)

8. MF Fund performance over a period of 5 years till year end 13th Feb 2012. -Refer to OLM-50(Out look Money -7th march 2012).

Equity large Cap:
Min : Franklin India Index Nifty 5.65%
Max: UTI Opportunities 15.09%

SATELLITE:
Min : IDFC Imperial Equity -A 8.53%
Max: UTI Dividend Yield 14.95%

Equity- Mid Cap and Small Cap
Min: GS Junior BeES 8.16%
Max: Birla Sun Life Dividen Yield Plus 15.17%

9. Insurance Charges: Insurance Charges in the Term Assurance is paid in equivalent instalments over the entire period ie higher charges are recovered in the earlier part of the year and lesser is recovered in the later period of the contract period. Whereas in ULIPs risk charges increases with age and you pay as and when risk increases. A 10 times coverage also ensure ur financial objective is achieved even in case of any unfortunate event -A small protection against the targeted maturity amount.

Read- Club Mahindra Membership is my biggest Financial Mistake

Sky is not the limit in mis-selling…

Can someone write such a long message to sell one insurance policy or this is a copy paste which is going to lot of people??

I would not like to comment on the mail but would like to share – what others have to say:

Monika Halan, Editor Mint Money (Hindustan Times) recently wrote an article – Should Banks sell Insurance at all?

She wrote “With banks mis-selling and not taking responsibility, and RBI unwilling to take the brokerage route, why sell insurance at all?”

Article also quotes one point from published report – bancassurance draft guidelines by IRDA committee.

The committee worries about the unequal relationship between banks and insurance companies and it says: “The insurer ends up paying a fat upfront fee running into tens of crores, at least one-fourth of the prospective business, training costs, infrastructure costs to the bank brochures, expenses towards the transactions, incentives, travel, entertainment for the bank staff are some of the heads under which the insurer is fleeced. The accounts at both ends are opaque and the payouts exceed the prescribed commission by a large measure.”

It is interesting to note that what Deepak Satwalekar(retired CEO of HDFC Standard Life Insurance Co.) have to say.

“…as stated by the IBA (Indian Banks’ Association) representative, the banks are unwilling to assume any responsibility, or risk, of the result of their mis-selling. RBI is also wary of banks taking on the role of a ‘broker’ as it would mean that they assume the role of a ‘principal’ in the sales process with the consequential responsibility and potential risk. Possibly the banks are better aware of the deficiency in the sales process practices by them and hence their reluctance to assume any risk.”

Recently an article from employee of Goldman Sachs is making buzz – this shows conflict of interest between bankers & client is same across the globe. You can read that article here – Why I am leaving Goldman Sachs

To put the problem in the simplest terms, the interests of the client continue to be sidelined in the way the firm operates and thinks about making money. Goldman Sachs is one of the world’s largest and most important investment banks and it is too integral to global finance to continue to act this way. The firm has veered so far from the place I joined right out of college that I can no longer in good conscience say that I identify with what it stands for.

He further adds – What are three quick ways to become a leader in Goldman Sachs?

a) Execute on the firm’s “axes,” which is Goldman-speak for persuading your clients to invest in the stocks or other products that we are trying to get rid of because they are not seen as having a lot of potential profit.

b) “Hunt Elephants.” In English: get your clients — some of whom are sophisticated, and some of whom aren’t — to trade whatever will bring the biggest profit to Goldman. Call me old-fashioned, but I don’t like selling my clients a product that is wrong for them.

c) Find yourself sitting in a seat where your job is to trade any illiquid, opaque product with a three-letter acronym.

But we can’t always blame the seller. Bemoneyaware wrote an interesting article – It’s Mis-Selling or Mis-Buying: It’s My Money, My Responsibility

There is a quote in Hindi Chahe chakko tarbooz pe pade ya tarbooz chaooke pein par katda to tarbooz hi hai (If knife falls on water-melon or water-melon falls on knife it’s the water-melon that will get cut). As it is your hard-earned money you have to take responsibility for a fool and his money is soon parted. Do you think products are mis-sold or mis bought? Is it only insurance products or ULIPS but others too? Do you think we need to take responsibility for our actions ?

Also read our earlier articles on the same issue:

If you have ever faced a similar situation– must share it in comment section, it may be of great help to other readers.

Balanced Mutual Funds – Best of both worlds

Mutual Fund

Hemant Beniwal

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March 12, 2012

132

Balanced Mutual Funds – Best of both worlds

We Financial Planners always insist on asset allocation, which is optimum mix of different asset classes. Each of these asset classes are available for investment and we can make different recipes out of them, but in Mutual Fund we find a category of fund called the “Balanced Mutual Funds” or “hybrid equity oriented funds”, which are ready-made meals for asset allocation. Through this post, let’s try to understand the feasibility of investing in a balanced fund and why should an investor invest in a balanced fund? (You can also check which is Best Balanced Mutual Fund)

In life also we balance lot of things – the professional life and family life, rented house and own apartment, needs and wants etc. And, if you get a formula to balance any one of these, you will be thrilled. I recently read “8 hours sleep & rest, 8 hours recreation, family, friends and 8 hours of work. Tweak this rule and your life will tweak.”

Same way balanced mutual funds can also be helpful in balancing your portfolio & provide you higher returns. Investment in them can provide you certain benefits as mentioned below. If you feel you are facing these situations, balanced funds can really be a good solution.

Balanced Mutual Funds – Best of both worlds Click to Tweet

Benefits of Balanced Mutual Funds

1. When you are not diversifying at all: Lot of investor put money as per the climate. When equities will do well they will draw cheques for equity investments only and when they suffer a loss the money is diverted to bank FDs. And when the market roars they grump and get premature withdrawals on FDs. This happens when person does not understand the nature of these asset classes. But point is “baseball cannot be played with a straight bat”. You need to be “with the assets” to gain from them. Either leave it on your financial planner or invest in balanced mutual funds. Let this worry of “investing in which asset class” pass on to the fund management. The experts are better bet for taking a decision on whether you should be over or under weight on equity or debt.

2. When you are investing for one goal or expenses: If you have a one goal or a funding requirement in long run investing in balanced fund can be a way out. One of my friend start a SIP for 5 years in a balanced mutual fund the day he buys a new car. The proceeds of this SIP are used as down payment for the next car. Similarly if you have a goal which is long term in nature and you need to accumulate a corpus over a period of time, instead of the regular RD or timing the market it is good to invest through a balanced fund. By this you will be able to diversify and allocate asset for isolated investments.

3. When you are looking for smooth landing: Investing in equity is a bumpy ride but for best return in long term you need to be friends with equity. But investing in equity needs a sound heart and patience. If you feel you cannot cope with the volatility still wish to have better returns than debt you can choose balanced funds. The returns will not be as spicy that of equity diversified fund but you will get a good deal. Also when you compare these returns on the risk-adjustment parameter, balanced fund will give you more returns on the risk taken by you.

Read – Understanding Mutual Fund with Different Perspective

Few Limitations of Balanced Mutual Funds

1. Minimum 65% in equity: Fund Managers have limited freedom as 65% is the minimum requirement to take benefits of taxation. So in case even if fund manager feels that minimum equity exposure is beneficial for the portfolio he cannot do it beyond 51%. So if you thought balanced means 50:50 or anything else – this is now part of mutual fund history.

Read: Mutual Fund Taxation in India

2. Partial withdrawal: That’s a big problem with balanced funds – think of a situation when you need some amount for your emergency need but you have parked your whole amount in balanced funds. As you don’t have any choice you will redeem from balanced funds & that mean for every redemption of Rs 100 you are actually redeeming Rs 65 from equity & Rs 35 from debt. Even if you are long term investor in equity, automatically your equity gets redeemed. In case of proper asset allocation you could have avoided this thing.

3. Limited Choices: If you want to have exposure to midcaps or only large caps, this is not possible with balanced funds as you can’t dictate your terms to fund managers.

Best Balanced Mutual Funds in India

You can check performance of top balanced mutual funds.

Balanced Mutual Funds	1yr	3yr	5yr	10yr
HDFC Prudence	3.37	37.91	14.58	25.40
HDFC Balanced Fund	8.62	35.17	14.99	18.14
Reliance Regular Savings Balanced	2.86	32.90	14.81
Canara Robeco Balance Fund	5.77	30.29	12.03	20.15
Tata Balanced Fund	6.47	29.58	12.44	20.03
Birla Sun Life 95	-3.62	27.68	11.35	19.60
ICICI Prudential Balanced Fund	8.70	26.19	8.12	17.66
DSP BlackRock Balanced Fund	2.99	25.04	12.37	20.56
UTI Balanced Fund	-0.88	24.39	8.57	15.54
Franklin Templeton FT India Balanced	2.78	22.85	9.14	17.84

Also Check – Best Mutual Funds to Invest

HDFC Prudence Fund – the Ultimate Fund

If we are talking about balanced mutual funds & not talk about HDFC Prudence Fund – it’s like a DAY without SUN. This fund is a gem offering of Mr Prashant Jain – he is managing this fund since 1994 (since inception). I worked for HDFC Mutual Fund & got couple of chance to interact with Mr Prashant Jain – he used to say “I never changed my company. Once the private Mutual Fund opened in 1994 I started with 20^th Century Mutual Fund, they sold it to Zurich & finally HDFC bought them.” That’s a big commitment from a Fund Manager, where these days’ people change their jobs like shirts.

Below you can check 3 year rolling chart of HDFC Prudence fund – if someone had invested for 3 years in this fund, he always got positive returns.

Read: How to set Financial Goals

If you compare HDFC Prudence with its category – it has outperformed the category in every single period. Even it has outperformed Sensex by wide margin baring period ending 2007. This is magic of Asset Allocation.

Planning for investments is not a fixed solution concept. We have to arrive at an investment mix by checking on various ingredients and readymade concepts. Balanced fund is such concept.

I have given you enough reasons why you should or why you should not invest in a balance fund. Hope this will clarify what you are looking for in a Balanced Mutual Funds. Share your views & questions in the comment section.

LIC Jeevan Vriddhi Review – Think Twice

Insurance Planning

Hemant Beniwal

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March 3, 2012

258

We are in the last month of Financial Year 2012, and once again LIC has come up with a new plan with name LIC Jeevan Vriddhi. And once again just with the announcement of launch queries are raining.

“I want to know your opinion (merits and demerits) on Jeevan Vriddhi launched by LIC. I will be really grateful to you for your reply.” Mayank
“What about LIC Jeevan Vridhi, can I invest some amount in that?” Vishal

I don’t understand that why people get so curious about products launched by LIC. Even if the product with different name and with different company is already there in the market, but if LIC has come up with it then people feel “there must be something special”. And moreover when a product by LIC comes up with a word called “GUARANTEED”, excitement gets doubled – limited period offer always excites people so this will LIC Jeevan Vriddhi will be closed before 31st May 2012. Let’s see how this plan looks like & should you put your hard earned money in it.

Check-LIC Jeevan Arogya Review – Should you buy it?

LIC Jeevan Vriddhi Plan – Review

LIC Jeevan vraddhi is a single premium payment plan which offers a guaranteed maturity amount plus Loyalty additions if any at the time of maturity. The insurance cover would be 5 times of the premium amount. (Review of LIC Jeevan Ankur)

LIC Jeevan Vriddhi Review - Think Twice Click to Tweet

Basic Features of LIC Jeevan Vriddhi

Person between age group of 8-50 years can apply for this plan.
Minimum Premium Rs 30,000/- thus minimum sum assured would be Rs 1,50,000/-
There’s no cap on maximum premium payment.
Policy term is 10 years , but this policy can be surrendered after 1 year.

Must Read- LIC Wealth Plus – Aapki ya Aapke Agent Ki

Other benefits of Jeevan Vriddhi

The major feature of this policy is that it offers guaranteed maturity benefit which depends on the age at the entry and premium paid at the time of purchasing the policy plus

The loyalty additions if any which depends on the corporations experience with the policy. Also the rate and terms will be declared by the corporation, that too at the time of maturity.

Check – New LIC Jeevan Akshay VI a Crazy Guaranteed Annuity Plan

INCENTIVE FOR HIGHER PREMIUM in LIC Jeevan Vriddhi

Incentive for higher single premium by way of increase in the Guaranteed Maturity Sum Assured is as under:

Tax benefits on Jeevan Vriddhi LIC

As the sum assured is 5 times the annual premium , so right away as per current income tax laws the policy gets eligible for Section 80C benefit and also the maturity will be tax free as per Section 10(10)d. (Read Year End Tax Planning Guide)

Check- LIC New Jeevan Nidhi Review – Pension with Tension

Let’s do some MATHS – LIC Jeevan Vriddhi Policy?

Certainly on the face of it LIC Jeevan Vriddhi looks quite attractive, but when it’s a question of finances one should be double careful. Let’s see what guarantee they are actually offering. I am sure that you are interested in guaranteed maturity benefit and not in the loyalty additions which may or may not be declared. Below is the illustrative chart as on the website of LIC which clearly shows the guaranteed maturity value one will get by investing Rs 1000/- in this plan. I have added 2 more columns just to get the actual premium outgo after adding Service tax and what would be the annualised yield at the time of Maturity.

Check- LIC Samridhi PLUS Review – Don’t Invest

The above table clearly shows that like any other endowment policy, this plan also is generating return in the range of 4%-7%.

Now let’s look at the illustration which shows the variable part also, i.e. loyalty additions

Read – What is Insurance?

The above illustration is exclusive of tax, but your premium will be inclusive of tax. So we need to calculate returns on with tax premium which comes out to be Rs 30463/- ( @1.545% service Tax). Thus with the guaranteed maturity value of Rs 58665/- the annualised return comes to 6.77% , and with assumed variable return maturity benefit of Rs 65998/- the annualised return coms to 8.03%.

In this case your Premium inclusive of tax will be Rs 101545. And annualised returns will be 6.85% Guaranteed and @ 8.12% NON Guaranteed.

Read- Review: LIC New Term Plans – Amulya Jeevan II & Anmol Jeevan

Should you invest in LIC Jeevan Vriddhi

We are always of the opinion that whatever financial decision you make should support the overall financial goals and thus for the betterment of Finances. You should always keep 3 points in mind before zeroing onto any policy

1. There should be a proper reason attached to any of your financial product purchase.

You may want to attach reason for doing tax saving or investment with this product. If you invest in this for tax saving then the annualised return will improve as the net outflow from your side will be less, but this product is not looking suitable for investment purpose as the returns are just at par with average inflation rate. Even if talk about insurance it’s just 5 times of premium.

Read – What is Family Floater Health Insurance Policy?

2. Besides return you should also be aware of the risks associated.

Inflation risk. As this product is not offering that much return which can beat inflation.
Taxation risk: Pls keep in mind that the proposed Direct tax code provisions of taking sum assured equals to at least 20 times the annual premium , only then that policy will be non-taxable at the time of maturity. As the DTC is yet to be announced and this policy has 10 years term so ambiguity is still there.
Opportunity Risk: 10 years is a very long time. You may get very good returns if you invest in equity related instruments for this much time frame. If you or your advisor knows how to invest in duration funds then you can take advantage of debt funds also.

Read – Types of Risk

3. You should be aware of all the alternatives to decide better

There is alternative for everything like for tax saving there are many other options available like ELSS, 5 year fixed deposit, National savings certificate etc., for investments also there are many options and even in this policy category (guaranteed maturity benefit) there are many options like ICICI I Assure single plan, Birla sun life Rainbow fund, Bajaj Allianz guaranteed maturity investment etc. My advice is not to mix investment with insurance.

I hope I have empowered you with enough calculations, reasons to invest or reject LIC Jeevan Vriddhi. Now better take informed decision and that too for the betterment of your finances.

Review of LIC Jeevan Vriddhi is done by Manikaran Singal, CERTIFIED FINANCIAL PLANNER^CM– the views expressed herein are the author’s personal views.

If you have any questions related to LIC Jeevan Vriddhi or any other life insurance policy – feel free to add it in comment section.

When is the Right time to send money to India?

NRI

Hemant Beniwal

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March 1, 2012

23

A lot of our clients are NRIs – so this question is a FAQ for us – “When is the right time to send money to India?” Clients who have spent some time with us know the answer but they still probe ahead like – “I would like your outlook on the Indian Rupee vs Dollar in the next few months. Is Rupee going to depreciate further? How far do you think it will fall? No one can predict due to the numerous factors but I want your feedback.”

New clients have more expectations “Some quick help needed. I need to transfer some funds from UK to India. Can you suggest when should I initiate that transfer? Is it the right time to send money to India or should I wait for a while.”

The cheapest way to send money to India

When is the Right time to send money to India

With domestic interest rates peaking and showing a sign of reversal, NRIs have this question in their minds- should they be remitting money to India for investment purpose or not, at this time?

A few figures just to tell what kind of money we are talking about:

The remittance to India is increasing constantly. Indian bourses did not do well in 2008 to 2011 but the remittances were constant.
Money remitted to India in 2011 was $57 billion where as China received $56 billion. India has the largest 12.5% share of the total worlds remittances followed by China (11.6%) and Mexico (5%).
These remittances exclude the NRI bank deposits hence this is the money that goes into local markets for consumption and benefits the economy. For example, the Money Transfer industry in India itself is growing at an average of 20%.

Tax Planning for NRIs

Why do NRI transfer money to India?

NRI remit money to their families for sustenance in India. Inflation has been on upside here so we can see NRI will send more money for consumption.
They send money to invest in India. Major investment goes to Bank deposits and property. These are sometime done due to emotional reasons also as they feel their roots are here and there is chance that they may return in future to avail benefits arising out of these investments.

Note: Effective December 2011, the RBI has deregulated the interest rate that was payable on NRE (Non Resident External) accounts. Hence banks can interest rate of their choice. Following this liberty the rates on these deposits have gone up from a level of 3.7%-3.8% to a level of 7% to 10% for different maturity deposits. Hence these NRE accounts have become more lucrative as NRIs can catch the peak deposit rates as FD rates in India will go down in future.

NRI Savings Account

Now the million dollar question – Is it the right time to send money to India?

Benefits of transferring money to India Now:

A PE multiple of 15X for March 12 and a GDP of 7% to 7.5% in more than enough to attract money and capital markets will reflect the solidity. NRIs from developed countries are already struggling with the returns that their markets are giving. Also they will take time to come out of the recent turbulence. They can look for good tax free returns from India.
RBI’s deregulation on NRE deposits is providing a good opportunity to NRIs from country that have lower rate of deposits. Since the principal and the earnings are repatriable and convertible this is a good bet for deposits ranging from 1 year to 5 years.Develop countries still have deposit rates in range of 1% to 5% – which are very low in comparison to Indian deposit rates for NRIs.

Tip: RBI has allowed that now NRE/FCNR (Foreign Currency Non Resident) accounts can be hold with a close relative in India on former and survivor basis. This means your relative can also operate the account as Power of Attorney. This will smoothen the banking process and funds can be managed even in case the NRI himself is not present for transactions.

NRI DTAA

Caveat of transferring money to India Now:

The biggest fall back is the exchange rate risk. Rupee as a currency has shown it weakness in Nov-December 11 periods. Expert say it will take time before it goes into stable range. The rupee depreciation will be beneficial when you are getting funds in India as you will get more rupee per unit the foreign currency and vice versa. Check out the recent volatility as Depositor has to face this during the time he is invested.

Dollar Vs Rupee Chart

Euro vs Rupee Chart

Although the returns on FCNR and NRE are tax free in India but they are taxable as per the structure of the country where NRI lives. This can be as high as 55% for some countries and this will bring the actual returns lower. For this please consult the tax advisor before investing in India.
The rules and caps over investments in foreign currency keep on changing on frequent basis. These rules are covered in various acts like RBI Regulations, FEMA and different banking regulation acts and guidelines. NRI needs to be proactive and informed in this matter.

Our take at present – on sending money to India for Investments:

At present times it makes sense that NRIs should remit more money for investment purpose in India. The overall returns from India looks promising as Indian Growth Story will continue going forward and will be an exception to many countries. Also rupee will appreciate against dollar in long term, so during maturity you will have more number of dollars to take home. But again each country is different in terms of regulations and tax implications. Do no invest without pondering over these and taking expert’s advice.

TDS for NRIs

Disclaimer: The data related to capital markets or bank rates as mentioned in article in no way should be considered as advice for investing in Debt or Equity securities, directly or indirectly. Readers are requested to consult their Financial Advisor for any investment decision they take.

Feel free to ask any question or share your experience regarding transferring money to India, add it in the comment section.

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Your Chartered Accountant is not a Financial Planner / Advisor

Hemant Beniwal

-

February 18, 2012

91

Your Chartered Accountant is not a Financial Planner / Advisor

As I interact with a lot of investors, I find that some investors, particularly the HNI segment, have this habit of referring their Chartered Accountants (CA) for every financial decision including investments. I am not saying that this is completely a wrong practice, but one must also check that, is your Chartered Accountant so efficient that he can advise you on your investments or financial planning matters? By efficiency, I am in no way referring to his qualification, but yes I am referring to his area of expertise.

I have seen that Chartered Accountant being given god-status in some households. Once I was with an aged investor and he was looking for tax-efficient returns without any exposure to equity as this was an investment for around 6 months. The investor was into the highest slab bracket hence I recommended him a Fixed Maturity Plan from a reputed mutual fund house. But the investor insisted that I should explain the product to his Chartered Accountant. Reluctantly (because of my past experiences) I agreed. The first question that was asked by the CA was pretty basic- “is this an open-ended product or a close-ended product”. If an expert asks a question like this we all know the fate. He insisted investors go for a Bank FD saying that the mutual funds are not safe and banks are. So invest in a PSU bank. And then he went for the final kill and suggested that since the equity market is in the bull phase, you should take 2-3 large-cap stocks and sit tight. You will make the same money in one month that this FMP would give.

Your Chartered Accountant is not a Financial Planner / Advisor Click to Tweet

Although this Chartered Accountant had no vested interest and was working in favor of his client but his knowledge limitations ruined the investor’s portfolio.

Chartered Accountant is not a Financial Planner

Consider these following points before you refer to your Chartered Accountant (CA) for any of your investments decision or Financial Planning:

CA is an expert in accounting and tax practices. He is not an expert on assets like Equity and Debt. Also, he is not an expert on tracking or researching factors that are a must for any investment decisions you take. These factors can be macro like European Crisis or micro like inflation. He may have a view on these as a spectator but he is in no way qualified to analyze these facts to form investment advice.
In the case of the individual investor, a CAs job ceases after he calculates the amount of tax that the investor needs to pay. Investments to save this tax fall under the purview of your Investment Advisor or your Financial Planner. He will help you invest a suitable tax-saving instrument taking care of your overall portfolio, asset allocation and other needs.
CA has no role in Financial Planning. He is not equipped to assist you in your goal planning or risk assessment. Also since he is not an asset expert he cannot help you in assessing your future finances and portfolio. CA engaged into advising on investment just does it for the sake of not losing their clients or for some monetary gains. Beware as his advice will never be comprehensive.
Your Financial Planner is expected to have detailed knowledge about the economy and individual assets. He can also deal with tax-related matters if you don’t have too complicated financial life. Also as he is associated with you since the early stages of investments, he has a broad picture of your individual requirements. He is aware of your family’s needs and you get personalization.
In some cases, CAs act like product sellers for your insurance needs or tax savings bonds. This is not a correct practice in fact the Chartered Accountants are prohibited by their practice guidelines to act as commission agents. It is prudent that you take the service of a professional who is suited. For all financial planning-related aspects, your Financial Planner is most suited.

Read: How fake financial planner puts his clients into trouble

Roles of different Financial Professionals

If we look at the roles or the expertise Chartered Accountants are not Financial Planners or even Financial Advisors.

Chartered Accountants (CA) work in fields of business and finance, including audit, taxation, financial, and general management.
Financial Advisor is a professional who renders financial services including investment advice, which may include pension planning, advice on life insurance and other insurances such as income protection insurance, critical illness insurance etc., and advice on mortgages.
Certified Financial Planner (CFP) is a practicing professional who helps people deal with various personal financial issues through proper planning, which includes: cash flow management, education planning, retirement planning, investment planning, risk management and insurance planning, tax planning, estate planning and business succession planning (for business owners).

So next time if you suffer a prolonged common cold it is better to show this to a doctor who is an expert in Internal Medicine and not to a Cardiologist, even though the cardiologist is your friend and provides free advice over the telephone. For god, sake stop worshiping the wrong deity.

Must share your experience with Chartered Accountants for financial advice.

Complete Health Check Up Annually – Yuvraj’s message for You

Hemant Beniwal

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February 14, 2012

46

Complete Health Check Up Annually – Yuvraj’s message for You

“Your report says, you have CANCER”… can you just imagine what would have gone under Yuvi’s head when he heard these dreaded words from a doctor? Although treatable, but still the word Cancer, is enough for anyone to imagine the death bed and last rituals. This gives us a clear message that a complete annual health check up should be on your must to do list.

These are unavoidable circumstances, but they have deep impacts on one’s social and professional life. Yuvraj comes from an affluent family, his father being a cricketer himself and Yuvraj himself a youth icon with crores of income from the game and the endorsements. He can even earn from his illness- check out his advertisement for a life insurance company.

Message is right but product is wrong… Anyways it fits well with yuvi’s current situation. A person who was man of the series in world cup is facing such a bad phase of his life. What about a common man? Think if you face similar situation at peak of your career…

Read – what is Family Health Insurance Policy

Yuvi can afford to get treated in one of leading hospitals in cancer care and Government and Cricket Board came to his rescue, but can we afford the same? I know some of you can, and few of my smartest friends would have taken a Health Insurance policy & Critical Illness insurance for them self and family to avoid these circumstances. Believe me this write up is not about Health Insurance or any of the illness plans, but this is about the first step before the insurance itself. We all have heard the proverb “a stitch in time, saves nine”. So why don’t we just recollect a few facts, so that we have a lesser chance to come under “Surgeons knife” or before “popping the pills”.

Ask – Insurance Questions

How can you avoid Health Hazards?

You know we can save a lot of money, by following certain health rules. These are not 100% scientific rules but yes they can be very helpful. These rules are:

1) Know your Heredity: these are generic transmissions from parents to kids. There will be days in future when you would be able to change the structure of your biological traits, but for the time being you can just follow these rules. Observe two things: one your appearance like you are plump, athletic, obese etc . Second watch for any disease history, which can be genetically, be transmitted. Major common ones are Diabetes and Hypertension. Once you are done with these two things, just follow what rationality suggests. Of course give up sweets if your family history is “sweety”. If you can’t give up at least curtail the intake. After all we are planning to save some money here and each penny counts!!!

2) Avoid: even if your chromosomes permit, avoid these below listed things:

Junk food. Oily food particularly the deep fried dishes.
Stress. Mismanaging the routine chores.
Undisciplined food and sleeping habits.
Life on couch. Nor using your physic.
Alcohol, Nicotine and other brothers & sisters of this illustrious family.

Simple 5 things but not so simple to follow.

3) Live in a Healthy environment: live with people who lead a healthy life. Get inspired from healthy people. Gain positive energy from them. Instead of watching movie trailers in morning, tune the channel which airs the fitness program. Subscribe a fitness magazine & take action. Watch live sports or matches. Develop friends who are fitness freaks. Do not neglect the fitness topic.

4) Must do: these are again very small things and you will have to spend also on these a bitbut this works in longer run and will cut your medical bills to a large extent. These are:

Exercise regularly: Walk, Jog, Swim, join a Gym or a sport like tennis or badminton. But shake those legs.
Eat on time and eat healthy.
Plan life and your work. Be smart.
Develop a De-stress mechanism. Meditation may help before medication. Spend some time on something, you wish for.
Go for complete health Check up.

Good Health in your Budget

Complete health check up

Just heard – that Yuvraj’s father has advised – the cricketers that they should regularly go for Health Check-ups. Why only cricketers Sir? This should be for everyone. Our Army follows this system. Each of the grounds-men, be it any rank, has to go for a regular health checkup after a fixed interval of time. They are even graded (shape 1, shape 2 etc.). Even after retirement they go for annual complete health check up. Army men, cricketers are tough guys, as they are surrounded by medicines, injections, pain-killers etc., but we are not. For us doctors are like “devdoots” on a mission. We avoid them till the last moment as we all know, “emergency unit is open for 24 hours”. So why plan for a regular complete health check up? Just see around yourself and ask people how many of them go for a regular check-up? People who can afford also do not go for simple reason of fear and laziness. You know Government is planning to add a 10% cess in your income tax, if you do not provide an annual fitness certificate!!! Just a joke!!! For those who believe that they will only go for regular checkup when it is “Mandatory”.

Free Health Check up

Do you know that Health Insurance policies also provide you a free complete health check up at regular intervals? Normally these are given if there is no claim made in certain number of years. Rationally this should not be point for Health Insurance Portability. Check few such offers – they can depend on the policy variant so please read your policy document:

Apollo Munich – Cost of health check up are covered up to 1% of sum insured, subject to a maximum of Rs.5,000/- per insured person and provided only once at the end of a block of every continuous three claim free years.
Iffco Tokyo – Health check up costs are covered once in a block of 4 claim free years.
United India Insurance – Cost of health check up at the end of block of every three years where no claims made during the block.
ICICI Lombard – Free health check-up coupon for any one insured family member, valid for the policy period.

Even the diagnostic labs (Religare, Apollo, SRL etc) also organize free Health Seminars and provide discounts on comprehensive health checkups. Participate as these are good for us, even though it means spending a few bucks.

Health is Wealth

There is a very philosophical relationship between money and Health. I meet lot of clients who say they lose health because they are earning money. A sales person says he skips lunch and adjusts on a Samosa since he is on constant move. A doctor says he works at odd hours to comfort his patient. Normally when I get a mail after 12 AM & if client is from India – I reply with health tips. (Hi Doc are you reading??) Recently I met a PSU bank manager who said that he consume 35-40 cups of tea as water is contaminated in their region and tea is a boiled so he will not have water-borne ailments. Yet on the other side, I also hear from senior people that they did a mistake of not taking care of their health and even though now they have money but they do not enjoy life because of health related issues. (Also Read: HDFC click 2 protect)

But we require both Money and Health, and that is a tradeoff. Very few people have managed both. Health and Critical Insurance policies and other things can take care of financial burden but do feel secure about our health. Hence we need to feel healthy and that can be achieved by following certain rules as mentioned.

Also, a point here that to save medical bills you will have to shell a small amount today. Fruits are luxury and joining yoga will cost you & some time you may get it free in Baba Ramdev’s camps. Annual health check up will be an expense and some of your friends will also discourage to continue for next year. But, believe me it is not a waste of money and it exceeds the money spent when your doctor with a smile says “Excellent Health, you are fit”.

I am not a doctor so take my advice with pinch of salt. I will love to hear your views on annual health check up.

SIP Investment – SIP is not an Investment

Mutual Fund

Hemant Beniwal

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February 6, 2012

212

SIP Investment – SIP is not an Investment

These days SIP Investment is turning into a generic term, few people even think Systematic Investment Plan a.k.a. SIP is Mutual Fund. To give you clarity, “SIP is not an investment” it is a “way of investing systematically/regularly” in an asset class. Even Mutual funds are not investments – Mutual Fund is a term used for investment vehicle, which invests in Equity, Debt or other asset classes.

Read: Magic of Systematic Investment Plan to know what is SIP, how it works, its benefits, SIP Calculator & also check SIP Presentations.

SIP Investment – 11 Myths

SIP is a great way to invest but there are few myths surrounded. Let me burst few of these through this post.

SIP Investment – SIP is not an Investment Click to Tweet

SIP Investment – Myth 1

SIP in direct equities/stocks is a biggest myth

When you do a direct investment in Equities the first decision that you take is why you are buying a particular stock? Are you aiming a Value buying or a momentum gain? And in both the cases a prudent investor is clear of an entry level and target appreciation when he would enter or exit a stock. So why would he try to do a Rupee Cost Averaging if he has done the fundamental analysis? One would do a SIP in direct equities if he is unsure of growth of a particular company and sanity says one should invest equities when you have done your homework. But if your reason is that you don’t have a lumpsum amount to invest, I have another important point to share.

Second reason is SIP works for portfolios/indexes/mutual funds and not stand alone investments. Imagine what will happen to your investments if that stock price never recovered but now you will say that you will do SIP only in bluechip stocks or index stocks. And I am not surprised by your argument but let me tell you that even couple of year’s good performance of a stock or sector can make it a bluechip & even part of index. Let me share:

Do you know about Zenith Ltd – I am not talking about Zenith Computers. Zenith Ltd was a top steel company & part of Sensex from 1982 to 1992.
Few more stocks (definitely bluechips of that time) that were part of Index Couple of years back – Premier Auto, Arvind Mills, Balrampur Industries, Century Textiles, Hindustan Motors, Indian Organics, Indian Rayon, Mukund, Zee Telfilms, SCI India, GE Shipping, MTNL, NIIT.(If you keep interest in direct equity investments then you can check what happened with these stocks)
What happened with Jaiprakash Associates – it was part of Index till Jan 2012.

Now you can say I would have avoided all these stock & many more that have not performed good. Just would like to share Warren Buffett here “In the business world, the rear view mirror is always clearer than the windshield.”

SIP Investment – Myth 2

SIP is for small investors or salaried guys

Once I was talking to an HNI, and was explaining him about SIP, he was grinning all the time and at last he asked- Do Mutual Funds allow SIP of Rs 5 Lakh per month? Yes why not? It is made to believe that SIP is for Rs 1000 and that’s all. In fact the messages have gone wrong that if you are salaried and have a small disposable income; SIP is the only tool for wealth creation. SIP as we all know is a concept and not limited to the amount of investment. Irrespective of the amount one invests, he is investing in an asset where instead of timing the purchase he is averaging his per unit cost of his investment. The returns that he gets are in percentages and he tends to benefit in proportion to his investment.

SIP Investment – Myth 3

SIP is a fund or a scheme

As I mentioned in starting that SIP are not mutual funds. When I was working for HDFC Mutual Fund, investors called and asked “What’s the NAV of HDFC Top 200 SIP Fund”? Lot of people thinks that SIP is a security or a fund. Basically SIP is a concept and not a fund or a stock or an investment avenue. It is a vehicle to invest. So almost all open ended mutual funds (yes, including debt and money market funds) offer a SIP. Besides mutual funds one can do a SIP in almost every asset class. Do you think a person investing Rs 5000/- every 1^st of the month when he gets his salary in NPS is a SIP? Yes it is a SIP investment your ULIP investment & similarly.

SIP Investment– Myth 4

SIP should be started when markets are high and should be stopped when it is low or vice versa

If you know when the markets will be high or low why are you doing a SIP in first case? SIP is a method where you tend to average the cost of investment through the volatility that is built in the price of the asset in which you are investing. So when we say something is volatile it means that it will have ups and downs. So if you play only when it is “up” or “down” how do you expect that the concept will work for you? SIP works when you give it time, whether the time is smooth, breezy or cyclonic. I know it is tough to invest when markets are bad, but here comes the Financial Behavioral aspects of disciplined investing.

Read: Do you really understand SIP

SIP Investment– Myth 5

I can withdraw money entire from ELSS after 3 years of SIP

It is true that you can withdraw the money in ELSS after 3 years, when you invest in a lump sum. But in case of a SIP each installment is a purchase transaction and each of these installment is locked for 3 years from the day it is invested. It works on the First-in First-out (FIFO) method. So in case you wish to withdraw entire amount you invested in 3 years through SIP, it will take 6 years. Be clear of it and then take a decision to invest.

6 Additional SIP Investment Myths by Anil Kumar Kapila (He is an avid follower of TFL; and always try to help other reader by solving their personal finance queries.)

SIP Investment – Myth 6

SIP is a magical prescription for success

Many readers after reading the Magic of Systematic Investment Plans get the wrong impression that an SIP is a magical formulation that works irrespective of any other criteria. It is true that SIPs make more money even if the sensex goes nowhere over a period of time. It is also true that you can expect to make some money even if you are investing via SIP in an average mutual fund. But it must be realized that no investing strategy is immune to the kind of collapse that the stock market witnessed in 2008-2009.

An SIP does not guarantee returns or positive returns. If you opt for an SIP in a falling market and the market continues to fall as it happened last year, then your investment will suffer a loss on the whole.

The choice of the fund, the tenure of the SIP and the period of investment have a bearing on your overall returns. SIP works on the simple principle that you get more units at low NAV and less units at high NAV. Over time it evens out. It works best when the market is in the doldrums. Unfortunately, during this time most investors panic and terminate their SIPs in disappointment.

SIP Investment – Myth 7

SIP gives better returns than lump sum investment

Just because SIP is considered to be the best way of investing in a mutual fund does not mean that it always gives you the best returns. If you make a onetime investment when the sensex is at its bottom, then lump sum investment will perform better as compared to carrying out an SIP by spreading the investment over a period of time. SIPs work to smoothen out the volatility in the medium term. Over the long run, in a rising market in a growing economy like India, lump sum investing will always out perform an SIP.

However, we should not be comparing returns of SIPs with lump sum investing. Both serve different purposes. In reality investments are made at various points in time and it is not possible for anyone to know the top or the bottom of the market. Moreover, most small investors do not have the financial capability to make large lump sum investments. As soon as you decide to invest lump sum amounts, you are instantly a host to market timing.

If you have strong stomach and don’t panic on seeing your money evaporating in the short term, you can definitely try your luck at lump sum investing. But if you are a normal investor with a comparatively low risk appetite, it will be better for you to stagger your investments via the SIP route.

SIP Investment – Myth 8

There is a right time for SIP investing

Many investors are always trying to time the market. They do not understand that it is time in the market not timing the market that is important. The most common question of the investors- Is it the right time to start SIP? Obviously the correct answer- All times are good times for starting SIP.

SIP Investment – Myth 9

I cannot miss my SIP dates

You must always ensure that sufficient funds are available on the SIP date in your bank account. SIP is entirely at your free will. If for some reason you are not able to maintain balance in your account for the SIP it simply means that you will miss one SIP but you will not be penalised for that from asset Management Company. (you can check what your bank charges ) Your SIP account remains active even if you miss one SIP date but after 3 miss it get cancelled.

SIP Investment – Myth 10

I cannot make lump sum investment in a fund where my SIP is running

Some investors think that they have to maintain separate accounts for SIP investments and lump sum investments in the same fund. SIP is just a mode of investing in a mutual fund. You can always make some lump sum investments in a fund in which your SIP is running. There is no need to maintain separate accounts.

SIP Investment – Myth 11

SIP dates are important

Many novice Investors feel that SIP date plays an important part in their SIP returns. SIP date has no significance in long term. It is just a date for your convenience.

Now hopefully you will not say SIP Investment is giving good returns or these days, SIP Investment is negative. Feel free to add your SIP related questions in comment section.

LIC Jeevan Ankur – Returns are just 1.53%

Hemant Beniwal

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January 25, 2012

442

LIC Jeevan Ankur – Returns are just 1.53%

Let’s review LIC Jeevan Ankur plan and try to come at a decision that one should buy this plan to fulfill the needs of child or with this plan LIC is fulfilling its own needs of business.

As a reviewer’s job (right now you can also call me a critic), it is very interesting when you are doing a review on a product which is from the giant Life Insurance Corporation of India. From a player which has a history and the backing of profitable books, coupled with most respectable (trusted) brand you expect a multi-bagger. Here comes their new offering LIC Jeevan Ankur, which is an endowment plan targeted for Child Future Goals.

Read What is Insurance?

LIC Jeevan Ankur in nutshell

In LIC’s words “Jeevan Ankur is a conventional with profit plan, specially designed to meet the educational and other needs of your child”.

It’s an endowment plan. (sorry and sick to say that these are even worse than a ULIP)
The life assured is the parent and not the child. This is good as logic goes that the economic loss is encountered when the bread winner meets a causality and loss of child’s life is an emotional loss and not an economic loss. (few child polices defies even this simple logic, they give benefit to parents on death of child)
The basic plan comes with Accidental and Critical Illness rider. (obviously with additional premium)
The plan will not have a loan facility so HNIs looking for a refinance on the policy cannot avail the benefit of leveraging.

LIC Jeevan Ankur – Returns are just 1.53% Click to Tweet

Features & Benefits of LIC Jeevan Ankur

You check the presentation; I am waiting for you on the other side of it to explain what’s wrong with LIC Jeevan Ankur & how it will generate only 1.53% return (you can also check calculations).

Curious Case of Endowment Plans

My question is – why would somebody invest in an ENDOWMENT PLAN? Why LIC or a matter of fact any other insurer is offering an endowment plan wrapped in some emotional name and trying to pull business?

The basic problem with any endowment plan is that it offers very little returns and forget about the return part, it barely covers the inflation itself. If you consider the inflation, the inflation in education sector is around 10-11%. So if some college is charging Rs 4.5 lakh today for any course, will charge around Rs 30 lakh after 20 years. And to get this money a person will have to invest around Rs 4200/- on monthly basis if he is sure of getting a 12% per annum return. Do you think it is possible to get even double digit returns from any endowment plan? I don’t think but I am sure that LIC Jeevan Ankur will provide less than 6% returns.

If I take the present returns that endowment plans offer, these are around 5-6% if you are lucky. I have seen policies giving return less than 5% also & you will see 1.53% for LIC Jeevan Ankur. And I am not cursing the product manufacturer for the returns part as they have very few things in hand to deliver returns. The product by nature is low on returns due to its rigid fund management & high on expense due to heavy commission to the distributor. But when they also know that the product will just give marginal returns, why do they promote and market this kind of product? What kind of financial planning are they trying to promote when your offering cannot even beat the inflation. Is this not a mis-selling case when you use heavy and emotional word like “Child Future” and offer a product which is for your “Own Future”? And when I say “own”, it includes the manufacturer and the agent.

Have you ever thought why agents are ready to pay your first cheque in a quarterly premium policy? The answer lays in the fact that endowment plans offer the best & consistent commission which is available in the entire financial product category be it Equity, Mutual Funds, Small Saving instruments or Banking Products. At present the commission to the agent is around 15% to 35% for the first year and 5% to 7.5% in the subsequent years. Now you may guess!

Read Back gear of your Investment Vehicle

Illustration of LIC Ankur Jeevan

Death benefits in this Policy

In the event of unfortunate death of the life assured, payment will be (let’s analyze according to above illustration – assuming someone expires after paying 5 premiums)

a) One sum Assured Immediately (Rs 1 Lakh)

b) 10 % of Sum Assured every year till maturity (Rs 10000 for last 5 years = Rs 50000)

c) Maturity benefits (Sum Assured and Loyalty Additions*) at the end of the term. (Rs 1 Lakh more – there is no guarantee that someone will get loyalty benefit)

Mortality Charges – how much you need to pay to get this benefit in case if you choose to go for some term plan. If you buy LIC Amulya Jeevan, You need to pay Rs 1683 per year for Rs 5 Lakh Sum Assured. If we assume total death benefit of Rs 2.5 Lakh in above illustration, you need to pay just Rs 841 per year. (this data is used in next calculation)

LIC Jeevan Ankur returns are just 1.53%

Would you like to buy a product which gives returns less than saving bank account? If yes, LIC Jeevan Ankur is a no brainer.

Let’s check returns as per above mentioned illustration. Yearly premium shown in illustration 2 of LIC Jeevan Ankur is Rs 9055 & if we add service tax, premium will be around Rs 9192 per year. So total premium paid will be Rs 91908 & final maturity according to scenario 1 (Projected Investment Rate of Return assumption of 6% p.a. – being traditional plan it will be illogical to assume scenario 2 that is based on 10% returns) will be Rs 1 Lakh. So if you calculate IRR (Internal Rate of Return) this will come around 1.53%. For other calculations check below table – you can check mortality charges in death benefit point.

If you still don’t believe these figures read an article from Moneylife Magazine “Just 2% from Your Life Insurance?”

“The kind of return you would get if you buy a traditional plan, depends on which one you buy. If you are not careful about what exactly you are buying—and most of us are not—it could be a pathetic 2%-4%.”

Should you buy LIC Jeevan Ankur ?

Does this question still make any sense? I have already said a lot now and you know what will be my answer. So in the language of a decent film critic my rating to LIC Jeevan Ankur is – Compulsory Miss.

If you agree with my views must share this article with your friends – we can save few more financial lives this year. If you have any question regarding LIC Jeevan Ankur or any other LIC policy, feel free to add in comment section.