How to choose best Term Plan ?

Hemant Beniwal
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431
How to choose best Term Plan ?

We keep getting lot of questions on how to choose the best term insurance plan or which is the best term plan or which is the cheapest one. So let’s go deep to understand more about it. To know the basics you can read what is term Plan? Let’s begin with understanding the importance of it & later we will see 3 criteria to choose best term plan.

We all know death & taxes are unavoidable – we plan for taxes to avoid trouble but do we plan for other one. NO… most of the Indians don’t. People look so sure that nothing will happen to them. That makes their families life miserable in case of sudden demise of the bread winner.

How to choose best Term Plan ? LIC in Nanital – Insurance means Safety.

Let me share a real example one of my sister’s friend expired due to food poisoning – he was under 30 years of age. He never thought, what will happen if he will not be there?? He left this question unanswered for her wife & 2 year old daughter. No one can fulfill the emotional vacuum but what about finances? If he would have given some importance to this family would have been financially secured. In some cases death occurs at young age when the life deceased has loans to pay. See what happened in Japan. Do you think the banks will not ask for the home loans or personal loans repayments from the families of the deceased?

How to choose best Term Plan ? Click to Tweet

So don’t delay this & take a term plan today. But which one is still not answered. Simple answer is going for the policy which is having least premium. NO this will be a big mistake. Read a case…

Got a comment/question on term insurance plan from Sumeet Gupta (We must appreciate him the way he has researched for his policy):

“I had asked for the quotes for Term Insurance from various Co’s about the sample insurance of Rs. 50 lac for 31 yrs. old. The various quotes have made me more confused than ever.

The rates vary from Rs. 5, 800 to Rs. 15, 450.

Could you understand what the difference between the followings is?

Sample Quotes of Term Plans received were:

  • Age – 31 Yrs
  • Policy Term – 25 Yrs
  • Sum Assured: Rs. 50, 00, 000
Company Name Plan Annual Premium
Met Life India Insurance Met Protect Rs. 5,800
Aegon Religare Life Insurance iTerm Plan Rs. 5,900
ICICI Prudential Life Insurance iProtect Rs. 5,900
Kotak Mahindra Old Mutual Life Insurance E-Term / E – Preferred Term Rs. 6,370
Kotak Mahindra Old Mutual Life Insurance Preferred Term Plan Rs. 7,638
Bharti AXA Life Insurance Elite Secure Rs. 9,850
Future Generali Life Insurance Smart Life Rs. 10,050
HDFC Standard Life Insurance Term Assurance Plan Rs. 11,871
Aviva Life Insurance Life Shield Plus Rs. 12,243
Bajaj Allianz Life Insurance New Risk Care Rs. 13,540
Tata – AIG Life Insurance Life Raksha Rs. 13,900
Birla Sunlife Insurance Term Plan Rs. 15,332
LIC of India Amulya Jeevan Rs. 15,450

His Questions on term plan :

Which of the above insurer’ I may approach for insurance and could anyone guide me on the matter as to how:

  • Q1 The premium rates of basic ‘Life Insurance’ policy differ with such a wide margin?
  • One of the reason is most of the insurers don’t want to compete in this product including LIC.
  • Q2 Is there any basic difference in coverage amongst the insurers or is there any restriction of coverage?
  • Not much difference but few of the insurers allow people only under some particular age or keep risk of group less by proper checks.
  • Q3 Which is the best term Plan in your opinion?
  • For this read remaining part of this article.

How to choose best term plan?

As I always say there is no best financial product be it mutual fund or insurance. If they are best today there is no guarantee that they will be best when we will need those most. So as a client you have to stick to some basic principals while choosing the products. So let’s check this for term plans.

Important factors in choosing term insurance plan

1 Claim settlement Ratio: The most important criteria of selecting any insurance policy including term plan is claim settlement ratio. Why we are buying life insurance? If I am not there my family will get the sum assured & have financial security. But what will happen if our claim gets denied – whole purpose of taking term plan will be defeated. So it’s better to check it rather than sorry. You can check claim settlement ratio here & also latest one here(December 2010 Quarter at onemint).

How can you reduce chances of claim rejection?

  1. Don’t allow agent to play checkers. If you are buying term plan there is 90% chances that you called the agent. He is in very hurry to fill the form & pocket his commission.
  2. Don’t hide anything – if you smoke or drink mention it – if you have any other medical ailment disclose it.(even if you think it is very small)
  3. Mention which other life insurance policies that you hold – from any insurance company including ulip & endowment.

If you follow these points there is a good chance that your claim will not be declined.

2 Reputation of the company – there is no definition or cannot be easily explained as it depends on 2 factors working style/financial health of the company & your past experience. So it is very subjective & changes with the time but still will be considered to increase your confidence. Or take it other way round there are 10-15 good insurance companies & you are not having confidence on 2 of them you can eliminate them from total choices.

3 Low Premium – People think this is the most important criteria but actually it is least important. This criterion should be explored only when you have shortlisted polices on above 2 points.

Pattu shared this article “Can Private Insurance Firms be Trusted” by Livemint

So this way you can reach the term plan that you should buy.

In Financial Planning there are many strategies that can be followed to make sure that you are adequately insured & your claims will not be denied but there is a very simple strategy that I think everyone should follow.

Divide your Term Plan into 2 parts:

There are lots of benefits of this strategy.

1 In case if in future you realize that your sum assured is more you can discontinue one of the policies. This can happen due to either demotion or loss in job OR a windfall profit that you get which was not anticipated.

2 In case one of the insurance claims got denied or delayed still your family has a chance that they will not lose everything.

3 If you have rightly filled details in the forms & one of your claims got denied – your family or your advisor can reach insurance ombudsman that claim got passed from X co but Y co has denied it. Your family has a great chance that even this claim will be passed if followed properly.

Now, you know how and which term plan to choose. Reach your financial advisor & ask him to calculate your insurance requirement. Go for it and believe me your approach to life will change.

Please share your views – may be helpful for other readers.

Ask Readers: Can you Share LIC Samridhi Plus Review

Hemant Beniwal
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7
Ask Readers: Can you Share LIC Samridhi Plus Review

This week we wrote review on LIC Samridhi Plus. The response was very good from the readers. It seems, TFL readers are getting smart or may be only smart people are reading TFL.

The recent unfortunate update is that, LIC Samridhi Plus has already sold more than 75000 polices & collected more than Rs 300 Crore. And the bad part is these policies are sold by people who don’t know how it will work – even they don’t know what is equity & debt. Worst of all is that these are purchased by those who don’t understand anything & mis-understand everything. Can we help them?

Ask Readers: Can you Share LIC Samridhi Plus Review

I am writing this post just because I want to request one thing to every TFL readers.  Hope you have read review of LIC Samridhi Plus & my views on it.

If you agree with those views will request you to visit

LIC Samridhi Plus

& share it with all your friends.

Why you should Share LIC Samridhi Plus Review with friends?

  • We all have heard that “Knowledge increases by sharing”. Plus today you will share something good with them & in future they will share something good in future as they know you have interest in this subject.
  • It is also possible they may not agree with you but it’s good that you can discuss on this matter.
  • This will motivate me to write better.
  • And the biggest reason you are contributing in spreading Financial Literacy in India.
Ask Readers: Can you Share LIC Samridhi Plus Review Click to Tweet

Comments that I got on LIC Samridhi Plus Article

Naresh Said “You have rightly said that the insurance should not be mixed with investment. So one should take “term insurance” only as per his/her requirements. For investments, there are various other options like Mutual funds, equity market, Debts, etc. to chose from.”

Sanket  Shared “Thanks for the valuable info given here. I am an LIC agent myself but have been advising people against buying ULIPs. I have burnt my own hands buying ULIPs. Only after I became an agent I understood how I was at a loss. Though the idea is great as in it takes the headache out of paying separately for insurance and investment purpose, the way it works is flawed. One would rather invest in MFs for growth and term plans for risk cover and have peace of mind.”

How you can Share LIC Samridhi Plus Post

Facebook: It is a great medium to share news/views with friends. Just visit LIC Samradhi Post – at the bottom you will find F SHARE button click on it & follow the process.

Or just copy this URL & paste it on your facebook wall.

You can also tweet or email it to your friends through buttons at the bottom of post.

With your support we can save few more financial lives this year.

Let’s spread it.

LIC Samridhi PLUS Review – Don’t Invest

Hemant Beniwal
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290
LIC Samridhi PLUS Review – Don’t Invest

Got a question on ASK US “Please let me know your take on the LIC Samridhi Plus, whether one should go for it. Any other option which will be better than the LIC Samridhi Plus. Is Guaranteed Highest NAV usually preferred or not?” and I simply replied “My answer is NO”. So let us understand why I said NO to this scheme.

First check – What is LIC Samridhi Plus (Table No. 804)

lic jeevan samridhiLIC’s Samridhi Plus is a market linked insurance plan that claims that it safeguards your investment from market fluctuations, so that your investments are protected in financially volatile times. This plan will offer you benefit when the term of the plan completes and the payments are based on the highest Net Asset Value (NAV) over the first 100 months of the policy, or the NAV as applicable on the date of maturity, whichever is higher. NAV of the fund will be subject to a minimum of ` 10/-, so Rs 10 is Guaranteed.(but not your investment amount)

Let’s me share a presentation on features & benefits of LIC Samridhi Plus & later you can check 5 reasons why you should not invest in this yojana.

Must Check- New LIC Jeevan Akshay VI a Crazy Guaranteed Annuity Plan

LIC Samridhi Plus Features & Benefits


ULIP plan 804 –

5 Reasons why you should not buy LIC Samridhi Plus

1 Because LIC Samridhi Plus is an Insurance Scheme

Oh! What went wrong everyone knows this is insurance policy from LIC.

We have always said that one of the biggest mistake people do is mixing insurance & investment. If your need is just insurance, that is, you just want to build up a cushion against the risk over your life this policy is not for you. If you are aiming that you get good returns that market is offering over a long period of horizon, again… but this policy is not for you.

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

2 Because LIC Samradhi Plus is a Highest Guarantee NAV Scheme

First people confuse Highest NAV with Highest return. Second highest guarantee NAV does not mean that the amount in your investment account is guaranteed. (Because expenses are charged by redeeming units)

Also Read: Psychology of an Indian when it comes to Life Insurance

Let’s understand what is highest guaranteed NAV is?

“Most of them use an investing strategy called dynamic hedging or constant proportion portfolio insurance (CPPI). Under this, the fund manager will constantly reallocate money between debt and equity classes to assure the previous highest NAV.

LIC Samridhi PLUS Review – Don’t Invest Click to Tweet

In year one, your investment will be split between debt and equity in such a manner that you get an assured NAV of Rs10 at the end of 10 years. Over the year, if the equity market goes down, your capital stays put as you have bonds. But if the market goes up, you will see the NAV rising. So, let’s say, we are at an NAV of Rs15 after a year and the market sinks 15%. The fund manager will sell equity and buy bonds to secure the highest NAV till then.” Source Livemint

Must Read – Story of a Life Insurance Advisor

If you can notice it works against principal of equity investing. Rule says invest in equity while market is down but fund do just opposite of it.

3 Because similar scheme like LIC Samridhi Plus have poorly performed

Last year LIC launched similar scheme even with more pomp & show by the name LIC Wealth Plus. Its NAV is right now below 10 and mind you expenses are deducted by reducing units & not from NAV. In the same period SENSEX has delivered return of 15% & even Monthly Income Plans have delivered good Returns.

Also read what we wrote at the time of LIC Wealth Plus Launch.

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

4 Because LIC Samridhi Plus is playing Gimmick with Accidental Benefit

I read it in Economic Times “Accident benefit option is also available under this plan that will be equal to the life cover up to a maximum of Rs 50 lakh, subject to certain conditions.”

Why they always add condition & * with simple things.

It’s not free – they are charging for it.

Accident Benefit charge – It is the cost of Accident Benefit rider (if opted for) and will be levied every month at the rate of ` 0.50 per thousand Accident Benefit Sum Assured per policy year.

Must Check – LIC New Jeevan Nidhi Review – Pension with Tension

5 Because LIC Samridhi Plus is Expensive

Let’s compare LIC Samradhi Plus regular premium expenses with equity diversified Mutual Fund.

  • Premium Allocation Charges: 6% in first year & 4.5% thereafter. (Mutual Fund NO Entry Load)
  • Fund Management Charges: .9% every year. (Mutual Funds average charges 2% but you have variety of funds available to choose from & you don’t have compulsion to stick to a fund)
  • Guarantee Charges: .4% every year. (Guarantee is a gimmick still they are charging for it)
  • Mortality Charges: This is the cost of life insurance cover which is age specific and will be taken every month. The life insurance cover is the difference between Sum Assured under Basic plan and the Fund Value after deduction of all other charges. (Even if you buy term plan you have to pay mortality charges)
  • Policy Administration charge in LIC Samridhi Plus `30/- per month during the first policy year and ` 30/- per month escalating at 3% p.a. thereafter, throughout the term of the policy shall be levied. If we convert Policy Administration charges in yearly Rs 30 x 12 = 360. Now if we see it in percentage terms it is 2.4% every year if premium is Rs 15000 yearly. I am never able to understand this charge. (In few other ULIPs I checked this charge sometime goes as high as 5-7% every year)

Right to revise charges in LIC Smradhi Plus (Source – LIC website): The Corporation reserves the right to revise all or any of the above charges except the Premium Allocation charge, Mortality charge and Accident Benefit charge. The modification in charges will be done with prospective effect with the prior approval of IRDA.

Although the charges are reviewable, they will be subject to the following maximum limit: Policy Administration Charge – `60/- per month during the first policy year and ` 60/- per month escalating at 3% p.a. thereafter, throughout the term of the policy. Fund Management Charge: The Maximum for Fund will be 1.30% p.a. of Fund Value. Guarantee Charge shall not exceed 0.60% p.a. of the Fund Value.

So charges can be hiked & they are not hiding it.

My View on LIC Samridhi Plus

If I were a film critic my rating would have been some what like “waste of time (& money also)” or “must avoid”.

The thing that pains is a responsible company whom billions trust with their money, when it comes to last days of year and it knows that this is the time most people will complete their tax savings and every year launches a product just to boost it sales and forgets the investor’s benefit(Read: Exit strategies for mis sold insurance polices). Remind me of a sher (poetry):

“EK HI ULLU KAFI HAI BARBADE GULISTAN KARNE KO,

ANJAME GULISTHAA KYA HOGA JAB HAR SHAKH PE ULLU BAITHA HO.”

Would you like to share your views or ask any question?

How a fake Financial Planner Puts his Investor into Trouble

Hemant Beniwal
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19
How a fake Financial Planner Puts his Investor into Trouble

Sometime back when medicine was at its initial stage in India there were many quacks that used their half-baked knowledge to treat people & people were exposing themselves to huge risks. Even now you can find such quacks in smaller cities or towns. These quacks mushroomed as there were loose regulations and checks.  In another Industry, financial planners in India are facing a similar situation… any one can make a claim about himself/herself being a financial planner. There are no regulations about who can actually be a financial planner.

How a fake Financial Planner Puts his Investor into TroubleAgents sell financial products like Washing powder or Soap. A wrong washing powder or soap may not cause too much damage… but you cannot say the same thing about financial products; wrong financial products have the power to ruin your family’s future.

There are lots of Madoffs & Puris in India who can easily destroy a financial life. These can be some of the troubles that a fake financial planner can bring to you:

  1. If he doesn’t suggest you to build a 3-6 months emergency fund – you will always dip in your long term investments & that can be disastrous in situation like bear market.
  2. If he doesn’t advice to repay your expensive debt before starting investment – you will always be in danger if tide goes out.
  3. If he misjudge your insurance requirement or suggest an expensive endowment or ULIP policy as a solution rather than term plan – you will probably not be able to achieve your financial goals.
  4. If he suggests you to trade in equity or take leveraged position in the markets – high probability is that your capital will be wiped out.
  5. If he is showing you the moon about how he can generate highest returns by churning your Mutual Fund portfolio – actually he is talking how he can generate highest income for himself & your fund will never grow.

There can be n number of examples that can be quoted here but before we publish this there will be a new list ready.

Can you identify a fake note??

Is it important to identify a fake note? Yes because it is not going to add any value & sometime it will also invite trouble. 🙁

So check these points before & after hiring financial planner:

  • Trust but always verify.
  • Always take advice in writing.
  • Ask what he will be earning from implementing a plan – you can take this in writing.
  • Do not sign any blank document or cheque & always ask for a copy of final documents submitted.
  • While taking insurance always fill the form rightly – don’t allow agent to just play checkers in the form.
  • Never give unlimited access to your money to advisor that includes full power of attorney.
  • Be suspicious of pressure selling techniques like time deadlines & best investment.
  • Always ask for negative side of every product – if there is nothing negative better don’t invest as you are going to get shock at some later stage.
  • Always check that any product fits or helps you to achieve any of your goals – just don’t invest anything for the sake of investment.
  • Consider timing of the proposed transaction. May be the product manufacturer is motivating the advisor be it month end, year end or some through a trip that he will get if he achieves his targets.
  • If you don’t understand something ask again & again – put your hard earned money only when you have clearly understood that thing.
  • Always take a second opinion – every 3 years get your advisor’s recommendation audited by someone.

It’s always Buyers Beware & Buyers Be-aware.

Would you like to share your experience??

What is Indian Union Budget ?

Hemant Beniwal
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4
What is Indian Union Budget ?

The news related to budget must have started flowing around you. Budget is now more of a media event rather than an accounting exercise. Forget for a minute about the Indian Union budget just answer a simple question: What is budget? The definition goes like this – A budget is a list of all planned expenses and revenues. It is a plan for saving and spending. Be it you who do budgeting for your monthly income or expense or be your organization where you work – a budget is an organizational plan stated in monetary terms.

Check-How Does 2017-18 Budget Affect You

In the end of the article you can check highlights of latest budget.

What is Indian Union Budget ?The purpose of budgeting is to:

  1. Provide a forecast of revenues and expenditures. On this our strategies, events and plans are carried out.
  2. Gives us a chance to measure actual to forecasts.

If you experience practically this is what we do in our investments also. We try to check our earnings and expenditures. The excess of earnings over expense is our saving and we put that saving in some capital use so that we get benefited in future. When this activity takes a macro form and is done by a nation, it becomes a Union Budget. Let’s try to figure out how does a Union or country like ours prepares it budget.

Read More – Budgeting – The First Step to Financial Success

What is Indian Union Budget?

The Budget is the annual statement of Government of India (GOI) accounts for the previous fiscal year. The Government makes provision for it expenditure. These provisions are compared with the actual income & expenditure. It is also a statement of next year’s tax and tariff provisions and a projection of the receipts and disbursements in the next fiscal year.

What is the Finance Bill?

It is the part of budget which are basically numbers. The Finance Bill contains the tax and tariff provisions and it has to be passed by parliament. If there are no changes from previous provisions, there can be a Vote on Account to extend previous provisions rather than a new Finance Bill. Once approved the Bill becomes the Finance Act and it is for a specific period. This is Part B in the Budget Speech.

Read – Budget for your savings and not spending!

What is the structure of the Budget?

The GoI finances are organised under three accounts. There is the Consolidated Fund, the Contingency Fund and the Public Accounts. There are receipts and disbursals on each account.

The Consolidated Fund includes all disbursals and receipts on the Capital and Revenue Accounts.

Contingency fund includes moneys at the disposal of the President and governors to be used to meet unforeseen expenditures in case of disasters.

The Public Account includes receipts and disbursals on the Small Savings, Public Provident Fund account and well as the government reserve and miscellaneous accounts.

What does the Revenue Account cover?

This is how the government earns. The revenue account includes tax and non-tax receipts and disbursals. Non-Tax receipts include accounts such as fiscal services (currency, coinage), Interest receipts, dividends and profits and other non-tax revenues such as receipts of different departments, and also grants such as external assistance.

What is the revenue deficit/surplus?

The difference between Revenue Receipts and Disbursements on the Revenue Account is known as the revenue surplus or deficit depending on whether receipts exceed disbursements or not. A Revenue Deficit is a dangerous signal since it means that government is spending more than it receives just keeping routine business running.

What is the Capital Account?

The Capital Account includes receipts and disbursals on the account of Public Debt and the recovery / disbursals of loans from state government.

What is a Capital Account Surplus/Deficit?

The difference between capital receipts and disbursals is the Capital Account Deficit or surplus. Wise investment on Capital Account is required to build infrastructure and other developmental activities since revenue account disbursals keep current programmes running. A Capital Account deficit may be justified if it is building assets that will be useful in future.

Read – India Shining – We will Rule the World

What is the Fiscal Deficit?

If you read any review on Indian capital markets from any of the Foreign Institutional Investor, it will always contain concerns over fiscal deficit. You keep this hearing it too often as a warning siren.

The difference between total government spending on account of revenue, capital and net loans and between total government receipts on account of revenue and of capital receipts that are not borrowings.

The important point to note is that accumulated interest burden from previous years is reflected in the Fiscal Deficit as well as this fiscal’s revenue and capital surpluses/ deficits. The Fiscal Deficit is usually shown as a percentage of GDP. A low Fiscal Deficit is considered the best symptom of financial health. India has a FD in the range of 5.6 per cent. This is much higher than considered safe.

What is plan and non-plan expenditure?

There are two components of expenditure – plan and non-plan. Plan expenditures are estimated after discussions between ministries and the Planning Commission. Plan Expenditure is designed for asset-building and infrastructure projects.

Non-plan revenue expenditure is accounted for by interest payments, subsidies (mainly on food and fertilisers), wage and salary payments to government employees, grants to States and Union Territories governments, pensions, police, economic services in various sectors, other general services such as tax collection, social services, and grants to foreign governments.

Non-plan capital expenditure includes defense, loans to public enterprises, loans to States, Union Territories and foreign governments.

The Non-Plan expenditure is generally considered useless at generating assets. However the NP Capital expenditure can include funding to states to help development projects in the states. In general, Plan expenditure is more useful however. So a cut in government spending that impacts Plan Expenditure may cause stagnation in future.

What is fiscal policy?

Fiscal policy is the taxation profile. Governments usually change taxation, volume of spending, and size of the budget deficit or surplus to affect public expenditure. This is voted in the Finance Bill. Fiscal policy is combination of a nations policy towards Taxation, Government Expenditure, Employment, Development of a country & Deficit planning.

What is the monetary policy?

Monetary Policy is the control of interest rates and money supply. Much of this is theoretically under the control of the autonomous RBI rather than the Finance Ministry. But some rates such as PPF / Small Savings are controlled by FM. They may be changed in the Budget.

Key Highlights of Indian Union Budget 2011-2012

  • Income Tax Exemption limit increased from 1,60,000/- to 1,80,000/-.  No change for Female Assesses.
  • Sr. Citizen Exemption raised to from 2,40,000 to 2,50,000/-.
  • Sr. Citizen eligibility criteria for age reduced to 60 from 65.
  • A new category of Very Sr. Citizen created for age 80 and above with a tax exemption limit of 5 lacs.
  • Mutual Funds permitted to accept investments from foreign investors in their equity schemes.
  • Surcharge on Income tax for Corporates reduced to 5%.  Minimum Alternate tax increased to 18.5%
  • GDP grew by 8.6%
  • Agriculture sector grew by 5.4%, Industrial Sector by 8.1%, Services sector by 9.5%
  • Direct Tax Code to be implemented from 1/4/2012
  • Divestment target for 2011-12 is 40,000/- Crore by maintaining 51% share in the companies which will be divested
  • Fiscal Deficit down to 5.1% and estimated to be 4.6% for 2011-12
  • Direct transfer of subsidy in cash to Below Poverty Line to be formulated soon under Nandan Nilekani.
  • No other major change

Key features of budget 2011-2012

Key features of budget 2011 2012 This article is written by guest author Madhupam Krishna. A Post Graduate in Finance, currently he heads sales function for Rajasthan for Principal PNB Mutual Fund.

Disclaimer: This post represents the opinion of its author only, and does not in any way reflect the opinions of  the author’s employer, The Financial Literates or the other authors who write content for this Website.

Why Fixed Deposit & Debt Returns will always be Negative [With Calculation]

Hemant Beniwal
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56
Why Fixed Deposit & Debt Returns will always be Negative [With Calculation]

These days you keep hearing that you are getting negative returns on bank Fixed Deposits & other debt instruments. After reading this article you may feel that it’s a big conspiracy done by government against you so that you never become rich.  Sounds shocking? But it’s true and that too across the world. And if we talk about India where our 90% of financial savings are in debt instruments, the problem is even bigger. So first let’s understand why & how you get returns on your debt instruments & later we see why it will always be negative return.

Why Fixed Deposit & Debt Returns will always be Negative [With Calculation]Debt Return

Let’s start the discussion with the government bonds (security) interest rates. This rate forms the basis of other debt instruments, be it bank deposits, post office scheme, corporate bonds/fds rates. The Government Bond debt return is build up of 3 components:

Inflation: Long term expected inflation is already build in your debt returns. Basically this is the power that money looses over a period of time. In normal circumstances you can call it the dearness that the economy experiences.

Real Riskless interest rate: Some small percentage that you get because you are giving your money to someone for use today. And this someone is the government in this case.

Premium for bearing interest rate risk: Interest rates keep fluctuating and that is risk for your debt investment. There is a negative correlation between debt(bond) investments & interest rates – if interest rates rise your debt instrument will give negative return & vice versa. (This premium increases with time which you can see in next chart)

These things will be clearly visible in long term. But to keep things simple let’s assume that inflation is expected to be 6% in next 3 years, Real Riskless interest rate is .5% & Interest rate risk premium is .5% – so if we total all this we can get return of 6%.

One thing is very clear from this that major portion of return is coming from inflation. So if inflation rises the interest rates are also expected to rise & which is happening right now. Wasn’t it simple? Let’s now see interest rates on other debt instruments.

Also Read: Personal Finance Tips

As already mentioned above 3 components will be same for any debt interest rate instrument but 1 more component is added for any instrument other than government bond.

Credit Risk Premium: Credit Risk Means there is risk that Debtor (to whom you are giving money) can default or situations may arise that he cannot pay. So you want some risk premium depending on the risk profile of the debtor. So in case of Government this will be Zero but in case of SBI Bank this can be .5% or 1% in case of private bank & may be 2-3% in case of co-operative bank.  (Even bank FDs are not 100% secured – so in case if some bank defaults you are only guaranteed to get Rs 1 Lakh as this portion is insured by RBI)

Let’s understand this by comparing few other instruments.

Must Check- Top 10 Personal Finance Articles

So it is clear from the above chart that Inflation & risk are the biggest component of interest rate. Onemint keeps updated list of Best Fixed Deposit Interest Rates in India.

Now you have understood that how returns are generated in Fixed Income or Debt Instruments. And thing that can be clearly seen from last graph is if x is saying I will pay you 7% & Y is giving 9% it’s nothing but the risk premium. So there is no guarantee that you will get your money back if some corporate FD will give 13-14% return & this has happened lot of time in Indian debt market history. Names like CRB Capital, Modern & recent one Panjon Pharma still haunt people.

Nominal Return Vs Real Return

Till this time what you have read in this article is called nominal returns. Nominal return is actually what you are going to get in rupee term or what is written in the contract between creditor & debtor. But this doesn’t consider inflation impact; the real enemy of every investor.

What is investment? Investment is the amount that we don’t consume & keep aside for some future need – we park this amount to someone who needs it right now & he pays some rent (interest) to use that amount. So take one example you were having Rs 50000 & 2 choices available – first you can purchase ABC right now & second you lend this money @6% now & purchase it next year. But actually ABC prices rise by 10% in this period. So have you made the good decision by landing money? This can’t be clearly said by this example but if you were planning for your retirement & your money have grown less than inflation it would have significantly impacted.

Calculate Real Return

Real return is when inflation is removed from your nominal return or return after impact of inflation.

This is as simple as Real Rate of Return = Nominal Return – Inflation

Actually formula is different & bit scientific but we will use above formula to keep things simple.

So if Nominal Return is 7% & Inflation is 6% your Real Return will be 1% (With actual formula it would have been even less)

Negative Real Rate

But what is happening now is nominal rate is less & inflation is high so Real Rate is negative. Consider SBI Bank FD Giving interest rate of 7.5% & inflation at 8.5% – this means a negative return or negative interest rate of 1%. So inflation is working as a black hole in your pocket.

Now actual conspiracy of government & why your returns will always be negative in debt investments

You have checked impact of inflation on Nominal Rate but have you ever tested impact of TAX on debt returns.

Let’s assume that you got return of 8% on 3 years FD & you are in 30% tax slab – so after tax return will be 5.6% & if we assume an inflation of 6% your returns are negative. Even if you are in 20% slab & other things same, you will be getting just .4% after tax returns.

Do you think these returns are sufficient to make you rich? – I don’t think so. But still 90% of Indian financial savings are going in such instruments. So what are your views?

Note: Figures that are used in this article are assumed figures rather than actual – idea behind this article was to explain you the concept. Hope you enjoyed reading it.

Ask Readers: Who Should Invest in Reliance Gold Savings Fund

Hemant Beniwal
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25
Ask Readers: Who Should Invest in Reliance Gold Savings Fund

Recently I wrote on Reliance Gold Savings Fund – should you invest?  I think I invited a storm by writing that. The article received lots of comments with different perspectives. People who shared their views included Financial Advisors, Mutual Fund Employees, day traders & investors. What a day to launch the NFO – 14th Feb (Valentines’ day) creating love in mind of investors 😉

Before taking my shots over the other comments, I am raising two most important questions and my views over them.

Q1. Should you invest in Reliance Gold Savings NFO?

Ask Readers: Who Should Invest in Reliance Gold Savings FundWithout keeping any suspense answer is a BIG NO. This not only applies to Reliance Gold Savings NFO, but to all Mutual Fund NFOs. One should never invest in Mutual Fund New Fund Offer for few reasons:

  • Saves you from getting in herd mentality. Take the time out and go back to your asset allocation to check if the fund offers you something unique and worth allocating your money.
  • Gives you time to analyze that is it right investment for me to achieve my goals. Lot of people will just invest because this is investment in “Gold” lot of will invest just because it is “Reliance” & few other because it is “SIP”.
  • May be in first 2-3 months you come across some hidden thing in the product.
  • Few more reasons like we don’t know the future of kid when he is just born, sometimes fund charges get reduced after NFO etc.

So my suggestion is don’t invest in Reliance Gold Savings New Fund Offer now as this is an open-ended scheme so you don’t lose anything by not investing now.

Ask Readers: Who Should Invest in Reliance Gold Savings Fund Click to Tweet

Q2. Who should invest in Reliance Gold Savings Fund?

Now I am not talking about NFO I am talking about when this fund will re-open for fresh purchase.

Even after reading my last article people asked me through mail & comments “Advise me on the investment in this scheme.” My answer is it depends – every investment instrument is not good for everyone.

So I am throwing this question to all readers “Who Should Invest in Reliance Gold Savings Fund?” You can analyze yourself & tell whether you should or should not invest in this fund for any particular reason. (Even you can imagine a person & tell he should invest in this scheme or not – if you are a MF advisor it is for you to relate with profile of investor)

Our last article on Reliance Gold Savings Fund also got published in Business Bhaskar. (Click here to read Full article before interpreting anything from title)

You should also keep in mind there are few more investment instruments to put your money in gold than Reliance Gold Saving Fund like:

  • Exchange Traded Fund (ETF)
  • E-Gold
  • Coins & Bars
  • Golden Harvest Scheme from Tanishq

So here are my views on few of the comments at earlier article on Reliance Gold Saving Fund (first read this) – don’t feel offended just sharing what I feel:

1. Mutual Fund Advisor Said “It’s sure that I am going to log in more than 25 SIP applications of Reliance Gold Saving Fund on opening day itself…..” I don’t think he is doing right to his investors or any of the advisors who is promoting any of the MF New Fund Offer. They should give time to investors to think wise rather than thinking of closing date. The pressure to get into “number game” is indirectly a pressure on the investors, who trust you so much.

2. One AMC guy said “I emphasize appropriate asset allocation to my clients ” Do people really understand what is asset allocation – if YES they will already be having gold in their portfolio & if NO people are using this term to mis-sell Reliance Gold Savings Fund to them.

3. One MF advisor said “gold will touch $1800 in 3 years & also added it will not go below Rs 16000”. Someone wrote “gold prices are going to crash now” who are we do decide gold prices. Let’s understand our limitations as the prive of a commodity is guided by N number of reasons. Do not invest by taking a call on prices, rather invest if you like the asset and feel will enrich your portfolio.

4. Someone said “its not investment, its just saving towards a defined goal to be met in future.” I would like to ask is there any relevance of colour of money? If Next year RBI decide to change green color Rs 500 note to black colour (Oh! this will create problem how we will differentiate which is black money & which is BLACK MONEY. PJ) let’s say blue color will it change something significant. Still it will be able to buy goods or services worth Rs 500 if there is no inflation. If idea is just to save for some particular goal (even if it is of buying jewellery after 15 years) why not invest in instrument which can fetch better returns. That’s the power of money – if our goal is to buy Mercedes after 10 years we don’t keep buying tyres this month & gears next month and keeping them in garage.

5. Someone Said “I was planning to go for 5 micro Sip of 200/- each for different dates in a month (to get the best avg rate/month) and let it continue for 15 years.” Let me ask is SIP only way to invest? Undoubtedly SIP is the best way to invest but again is it the only way to invest? Your parents achieved all their goals without even listening to this term. Coming to his point – You are investing for 15 years and than too caring for monthly volatility. This is a big myth what he is thinking “5 micro Sip of 200/- each for different dates in a month (to get the best avg rate/month)”. In long term this strategy will not be having any impact. This will just create lot of confusions in your bank account & mutual fund statement.

Warren Buffett said “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

Waiting for your comment & answer on – Who should invest in Reliance Gold Savings Fund?

We will miss you Mr Bhave

Hemant Beniwal
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8
We will miss you Mr Bhave

There are hardly, few people who actually have made difference in your life & you would definitely love to remember such people. And if I talk about my life, Mr C B Bhave, Chairman SEBI holds very high place in that list. He helped me as an investor & also as an advisor.

His decision of removing entry load was a milestone (for some it was the dead end board) in Indian Mutual Fund Industry.  At that time I wrote one article that never got published anywhere as I was not having freedom of speech (At that time I was working with Mutual Fund Company).  But this article got engraved in my heart.

I think that frustration of ‘not expressing & my passion towards personal finances guided me to start The Financial Literates & my own financial planning firm. Our first article was “Mis-selling Month” clearly hinting towards what is going to happen with you – but at that time we had hardly any readers.

Read this article – this was written on 2nd July 2009 but still holds true.

Great move of SEBI by introducing ‘No Entry Load’

We will miss you Mr BhaveSEBI took a great decision.  ‘Brave Heart’ Mr. Bhave.
This will completely change the way financial advice would be delivered in future – industry shifting from commission based to fee based Advice. This is the healthiest thing that has ever happened to the craft of advice, but it needs a sea change in the way advisor relate to their Clients.

We would like to share our views on this irreversible change:-

  • In the present system, the way financial services are delivered, is by way of agency model and not by way of financial advisory. Most of the so called service providers are basically product providers. This entire concept was wrong and this move will rectify the problems associated to this industry in the times to come.
  • If we look at the Equity Asset Under Management (AUM) growth of the industry, it was Rs.24000 crore as on June 1st, 2000. As on today we are just above 140000 crore.

It was even less than 1 lac crore during the worst time of Market in 2009.

If we are not wrong the AUM, if would have left untouched in some good funds, then also we would have achieved the same AUM or probably more. Average Return of diversified equity funds from June 1st, 2000 more than 18 % per annum and the best fund gave over 30% per annum return.

So what efforts the industry and the distributors have taken to increase the market. Because of Entry load and excessive remuneration offered, the money kept churning from one scheme to another.

If we look at the growth of Insurance Industry, they are growing because they keep looking for new money in the system. But most of the Mutual Fund distributors were interested in sharing the existing cake itself. The Mutual Fund industry needs to make efforts to increase the size of the cake.

Let us share some data to highlight this real issue that would probably be shocking to most of the readers.

(From June 1st, 2000 to May 31st, 2009)

NFO Sales Regular Sales Total Sales Redemptions Net Sales
119009 292708 411717 301532 110185

(All figures in crore)

We have not taken Dividend Payout into consideration for these calculations. If we would have taken that, the additional investments figures would be close to zero.

Can you imagine what cost investor paid during this period for this snail pace growth. Believe it or not it is more than 9000 crore (411717 * 2.25% = 9264 crore).

  • SEBI being the regulator must see that the growth of the industry takes place and not just the growth of the distributor alone.

By introducing no entry load and restricting exit load to 1% for marketing and distribution expenses, the regulator is trying to make an effort that both investors and distributors are satisfied.

In any service industry the price of the service is dependent on the quality of service and terms and condition between the user and the provider and now same will happen in MF industry also.

  • Many people say that this move by SEBI will hamper the growth of Mutual Fund industry. We believe Mr. Bhave is 100 % right when he says that he doesn’t want the growth of the industry by wrong methods. Take for example NFOs: Reckless introduction of NFOs by AMCs have lead to huge churning in the industry. Had the industry think tankers thought of a longer version of the game then they would have garnered more fresh money in existing schemes which would have been solid growth. For investors and for the industry overall this new regulation will bring good business sense. There would be reduced level of churning & entire industry will concentrate on creating large asset base by selling good existing schemes.
  • Those AMCs which encouraged hot money will now be forced to work on their long term AUM. More stress will be given on SIPs and retail money. Every one in the industry who ate more and did less exercise, time has come for them to shed load and get fit. Now more efforts shall be put for ‘Investor’s Financial Literacy and Low cost Distributor training’.

This tectonic change in the mutual fund distribution model will have its ripple effect in all the financial products sold in India. Insurance industry where the maximum wrong selling takes place shall be forced to change its distribution structure in times to come.

Finally we would like to conclude that this change will take us to new heights, but we all have to change; need be AMCs, Distributors or the final consumer i.e., THE GREAT INDIAN CUSTOMER.

“He who rejects change is the architect of decay.  The only human institution which rejects progress is the cemetery.” Harold Wilson

————————————-x——————————————-

There is n no of policy changes that happened in his time – hope you also remember his famous fight for ULIPs which shook India.

3 years is a very short term to bring changes (if we actually see some bureaucrats & politicians who are sitting on SINHASANS from last 30 years) but he made the difference in everyone’s life.

List of his fans is countless. Do you think Mr Bhave affected you in some way? Express yourself.

Reliance Gold Savings Fund Review – Should you Invest?

Hemant Beniwal
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147
Reliance Gold Savings Fund Review – Should you Invest?

Reliance Mutual Fund has launched the Reliance Gold Savings Fund & there is a big buzz in market around this product. What a great time to launch such fund when gold is rising and equities are a bit in problem.  Investors are tempted to open a Systematic Investment Plan (SIP) in Reliance Gold Savings Fund.  First let’s understand this product, its benefits, taxation, how it’s different from Gold ETFs & later we will see if is Worth Investing or not. (You will be shocked – Guaranteed)

Reliance Gold Savings Fund Review – Should you Invest? What is Reliance Gold Savings Fund

Reliance Gold Savings Fund is a bit of a new concept of investing in gold as it allows you to invest in gold without a demat account. Reliance Gold Saving fund is a Fund of Fund & it endeavors to near the returns of Reliance Gold Exchange Traded Fund which in turn invests in physical gold.  But unlike a ETF the fund does not require a demat account and the stock market route for buying and selling the units.

Reliance Gold Savings Fund is a passively managed fund suitable for a long term investors, who can invest through SIP or lump sum. As a long term investment it gives an opportunity to invest in the GOLD commodity, in a convenient way, which is one of the fancied assets for any investor. (fancied asset)

Reliance Gold Savings Fund Review – Should you Invest? Click to Tweet

Features & Benefits of Reliance Gold Savings Fund

Reliance Gold Savings Fund opens a new avenue for investing in gold. This fund enables to reap returns closely to returns provided by Reliance Gold ETF.

  1. No need for having demat account: so no need to open a demat account and pay the annual maintenance charges.
  2. Systematic Investment Plan (SIP): Benefit your investment by investing through small amount over a period of time. Even Small Amount like Rs 100 or Rs 500
  3. Systematic Transfer Plan & Systematic Withdrawal Plan: A benefit of STP and SWP makes it a convenient mutual fund product.
  4. Easy to Invest & Liquidate: similar to investing in a mutual fund scheme.
  5. Purity & Safety: investment is in highest quality gold with no theft or warehousing problems.

Taxation on Reliance Gold Savings Fund

  • Long Term Capital Gain Tax(after 1 year) of 10 % or 20 % with indexation will be applicable
  • Short Term Capital Gains (before 1 Year) applicable as per tax slab for the investor

Reliance Gold Saving Fund Vs Gold ETF Fund

A Gold ETF is an ETF that has gold as the underlying security. So, the value of the ETF is derived from the value of underlying gold. Gold ETF would be a passive investment; so, when gold prices move up, the ETF appreciates and when gold prices move down, the ETF loses value.

In ETF incur charges like annual maintenance charges for demat account, delivery brokerages charges, transaction charges incurred for investing through the dematerialized mode. The investors will be bearing the recurring expenses of the scheme, in addition to the expenses of underlying Scheme.

Is Gold Saving Fund a unique idea

If we talk about launching of a fund – yes it is but if we talk about thinking no. Quantum Mutual Fund applied for Quantum Gold Saving Fund with SEBI in May 2010 but never launched it.

How to Invest in Reliance Gold Saving Fund

Read Next point before reading this

  • Call your mutual fund agent – put down your phone he will himself call you in 3-4 days.
  • You can also purchase it online.

Hidden points in Reliance Gold Savings Fund

Now comes the warning sign board which normally is hidden in the scheme related documents – so here it is…

“The investors of the Scheme will bear dual recurring expenses and possibly dual loads, viz, those of the Scheme and those of the underlying Schemes. Hence the investor under the Scheme may receive lower pre-tax returns than what they could have received if they had invested directly in the underlying Schemes in the same proportions.”

Now they are talking about 2 big points here

  1. Dual Loads: Reliance Gold ETF is having no Load but Reliance Gold Savings Fund is having a load of 2% for 1 year. So if you exit before 1 year you have to pay 2% load. I know you are long term investor & will save your loads but what about expenses.
  2. Dual Recurring Expenses: Their lies bigger problem – they say “Investors may please note that they will be bearing the expenses of the relevant fund of fund scheme in addition to the expenses of the underlying schemesin which the fund of fund scheme makes investment.” Oh! Dual expenses – let’s check how much:
    1. Reliance Gold ETF 1%
    2. Reliance Gold Savings Fund .5%

So there are total of 1.5% charges (and Reliance is free to change {read increase} these charges in future) that you have to pay to enter this product but even diversified mutual funds charge 2-2.25% charges. So read next 2-3 points twice or thrice – still not able to understand please ask:

  1. Reliance Gold Savings Fund & even Reliance Gold Exchange traded funds are passive funds so 1.5% charges are too high. In passive funds there is no role of fund manager – internationally ETF (including gold ETF) average yearly charges are less than .5%.
  2. Most important point of the whole article– Gold as an asset class has given returns close to inflation. So we are talking about 6-7% – OK assume 8% that it’s going to deliver in next 10 years. So now compare expenses ratios
    1. Reliance Gold Savings Fund – 1.5% on 8% this comes to 19% and if we get lower return this ratio will increase
    2. Diversified Equity Mutual Funds – 2% on 15% this comes to 13% and here there is active involvement of fund management team.

Why I quoted Quantum Mutual Fund in this article because they mentioned a great point in their offer document “These are the fees and expenses for operating of the Scheme. The annual recurring expenses of the Scheme shall be borne by the AMC. The AMC shall not charge any investment management fees.”

Should you buy Reliance Gold Savings Fund

Everyone is ready to convince you that gold price will only go higher but we just want to say – gold should be small part of asset allocation and the reason of buying gold should not be rise in price. I think I have already expressed my views on Gold Prices & also shown you expenses in this product. End of the day it’s your hard earned money.

Agents will come to you & show you 5 Year & 10 year return charts – ask them for 20 years & 30 years chart. You will find gold have even underperformed Fixed Deposits.

Have you ever wondered where were these guys 5 years back when gold was 1/3rd of its current price??

What do you think – should one buy Reliance Gold Savings Fund ?

Magic of Mutual Fund Systematic Investment Plan (SIP)

Hemant Beniwal
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423
Magic of Mutual Fund Systematic Investment Plan (SIP)

Systematic Investment Plan in Mutual Fund is commonly named SIP – is really getting popular in India. Systematic Investment Plan is such a beautiful tool, which if used properly can help you to achieve all your financial goals. Some time back we wrote “Do you really understand Systematic Investment Plan” which is one of the most popular article of TFL, but readers requested that they want to read more about basics of Mutual Fund SIP. So here it is..

This Article will cover
Magic of SIP
What is Systematic Investment Plan (SIP)
Advantage & Benefit of Systematic Investment Plan
Best Systematic Investment Plan in India
Systematic Investment Plan Presentation with Facts & Figures
SIP Presentation with Examples & Analogies (I like this one 🙂 )
Systematic Investment Plan (SIP) Calculator – Must Use

Magic of Mutual Fund Systematic Investment Plan (SIP)

What is Systematic Investment Plan?

We all have various financial obligations. Some of them like daily needs, school fees, etc involve the major outgo of your cash. Others like trip for your family or buying a fancy gizmo entails a one time payments for which money can be relatively easily collected. But for long term goals like retirement or purchasing a home require you to save and invest for many years. Yet irrespective of the amount involved and the time horizon, planning and investing money systematically and regularly enables you to sail through these obligations. A SIP could prove to be a simple and effective solution toward achieving these goals.

A SIP is a method of investing in mutual funds, by investing a fixed sum at a regular frequency, to buy units of a mutual fund schemes. It is quite similar to a recurring deposit of a bank or post office. For the convenience, an investor could start a SIP with as low as Rs 500; however this amount may differ from one fund house to other.

Magic of Mutual Fund Systematic Investment Plan (SIP) Click to Tweet

Benefits of Systematic Investment Plan

1. Light on the wallet: It is easier to build a long term innings with singles than hitting 4s and 6s everytime. It is convinient to save Rs.500 or Rs.1000 every month than trying to save a lac in one shot. SIP does not hurt and it gives that long term benefit as well.
2. Makes market timing irrelevant: If market lows give you the jitters and make you wish you had never invested in equity markets, then SIPs can help you blunt that depression. Most retail investors are not experts on stocks and are even more out-of-sorts with stock market oscillations. But that does not necessarily make stocks a loss-making investment proposition. Studies have repeatedly highlighted the ability of stocks to outperform other asset classes (debt, gold, property) over the long-term (at least 5 years) as also to effectively counter inflation. So if stocks are such a great thing, why are so many investors complaining? Its because they either got the stock wrong or the timing wrong. Both these problems can be solved through an SIP in a mutual fund with a steady track record.

3. Helps you build for the future: Most of us have needs that involve significant amounts of money, like child’s education, daughter’s marriage, buying a house or a car. If you had to save for these milestones overnight or even a couple of years in advance, you are unlikely to meet your objective (wedding, education, house, etc). But if you start saving a small amount every month/quarter through SIPs that is treated as sacred and that is set aside for some purpose, you have a far better chance of making that down payment on your house or getting your daughter married without drawing on your PF (provident fund).

4. Compounds returns: The early bird gets the worm is not just a part of the jungle folklore. Even the ‘early’ investor gets a lion’s share of the investment booty vis-à-vis the investor who comes in later. This is mainly due to a thumb rule of finance called ‘compounding’. According to a study by Principal Mutual Fund if Investor Early and Investor Late begin investing Rs 1,000 monthly in a balanced fund (50:50 – equity:debt) at 25 years and 30 years of age respectively, Investor Early will build a corpus of Rs 8 m (Rs 80 lakhs) at 60 years, which is twice the corpus of Rs 4 m that Investor Late will accumulate. A gap of 5 only years results in a doubling of the investment corpus! That is why SIPs should become an investment habit. SIPs run over a period of time (decided by you) and help you avail of compounding.

5. Lowers the average cost: SIPs work better as opposed to one-time investing. This is because of rupee-cost averaging. Under rupee-cost averaging an investor typically buys more of a mutual fund unit when prices are low. On the other hand, he will buy fewer mutual fund units when prices are high. This is a good discipline since it forces the investor to commit cash at market lows, when other investors around him are wary and exiting the market. Investors may even be pleased when prices fall because the fixed rupee investment would now fetch more units

6)      What is your equation to investments:

EARN->SPEND->SAVE OR EARN->SAVE->SPEND

The first is a wrong way of investing. You should be saving in a disciplined manner and SIP enables you to follow the second, which is the correct equation of investments.

7)      Easy, Flexibility and Liquidity: SIP is easy to start, manage and stop. It gives you flexibility to choose a desired scheme or to with draw in parts. And with conditions you have the money for contingency and emergency use.

8) You can also do SIP in ELSS (Equity Linked Saving Scheme) to save tax under section 80 C.

Best Systematic Investment Plans in India

Mutual Fund
 3 YearsInvestment 36000 5 YearsInvestment 60000 10 YearsInvestment 120000 12 YearsInvestment 144000
Scheme Name % Amount % Amount % Amount % Amount
Birla Sunlife Equity Fund 26 51990 17 92033 29 570925 27 847695
DSP BR Equity Fund 30 55142 22 103852 32 656368 28 890730
Franklin India Blue Chip Fund 28 54785 20 98935 29 549491 27 860441
HDFC Equity Fund 39 61979 26 112626 34 721916 32 1142897
HDFC Top 200 Fund 34 57909 24 109045 33 706670
ICICI Prudential Growth Fund 25 51186 16 90158 25 437115 22 616589
Reliance Growth Fund 29 54014 21 100716 38 901404 35 1407815
Reliance Vision Fund 25 51789 17 91941 33 677154 31 1078457
SBI Magnum Global Fund 29 54249 16 88337 31 607379 26 793162
Sundaram Growth Fund 24 50576 15 88069 25 458342 22 617858
Tata Pure Equity Fund 27 52625 19 95385 29 554004 25 727228

*Calculations are done on 1st day of 2011 – Monthly Investment of Rs 1000

I will again say Best comes after postmortem report – you should see them as Top Systematic Investment Plans in Last 10 Years or just Systematic Investment Plan Comparison.

Calculations are done on Rs 1000 per month investment to keep things simple. If you would like to calculate for Rs 5000 or Rs 10000 – you can multiply the amount by 5 or 10.

Systematic Investment Plan Presentation

If you like facts & figures check this SIP presentation by DSPBR Mutual Fund

If you like stories & analogies check this presentation by TATA Mutual Fund

Wasn’t that simple, and this is the reason we call SIP a SIMPLE INVESTMENT PLAN.

Systematic Investment Plan Calculator

Important Points:

  1. Figures are in Dollar($) but you can treat them in Rupees.
  2. In Compounding Keep it Annually
  3. Notice in last years how fast your assets grow.
  4. Try 2 things to check impact of Power of Compounding:
  • Take interest 5%(Insurance Endowment Plans), 8%(your debt investments) & 12-15%(Diversified Equity Mutual Funds)
  • Take 15 Years & 30 years

SIP Calculator

Simple Savings Calculator

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