Top 6 Undeniable Reasons People Hate Financial Planning

Hemant Beniwal
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6

Budget, emergency fund, insurance, tax – these are words that we would rather stay away from.  We like making money but find financial planning quite exhaustive.

We try to postpone it or find some shortcuts to do it. Why?

Top 6 Undeniable Reasons People Hate Financial Planning

Read – Where is Your Retirement Plan?

Reasons People Hate Financial Planning

1) Financial Planning is Boring:

Let’s face it, financial planning is not exciting. You have to understand a whole lot of concepts. We have to think through many things. We have to be diligent and disciplined about it. Most of us would rather read a favorite book, see a movie, or time pass on mobile.

6 Undeniable Reasons People Hate Financial Planning Click to Tweet

BUT

Financial planning has to be pursued to manage our money efficiently and make our money work for us.

2) Distrust in Financial Planners:

Financial planners are professionals to manage our finances. (Ya, I have a financial planner & I am also a planner of many advisors & CAs) But many of us do not prefer to work with them for many reasons. We dislike sharing financial information with “outsiders”. We think they charge high fees and are doubtful if they have our best interests while planning our finances.

BUT

Competent financial planners will provide you valuable services –

  • Develop an effective financial plan to achieve your money goals
  • Get your finances in order
  • Guide you on best money management practices

Read – Importance of Financial Planning.

3) Overwhelmed by the thought of setting financial goals:

  • I want to become an entrepreneur
  • I want to have a work-life balance
  • I want to retire early.

These are some of the goals people have. But if you delve deeper, you have to think more in terms of timeline, financial comfort, etc. People are overwhelmed when they have to make their goals measurable and time-bound. It is not easy considering that there are so many scenarios, different thoughts, and conflicting goals.

Rather than working on the goals systematically, people put off the whole process of financial planning.

BUT

Setting up financial goals will ensure that we work towards achieving them. The process also helps us understand ourselves more and what we truly want from life.

4) It is Complicated:

Financial planning is not easy. It requires knowledge, some amount of experience, time, and regular effort. We are quite busy with so many other tasks and chores that we hate the thought of adding more complex tasks to our to-do list. This results in haphazard investments or last-minute decisions at the time of filing tax returns resulting in inefficient financial planning.

BUT

The right financial plan can help us achieve overall financial success. It is therefore wise to take small but regular steps towards achieving financial independence.

Read – It is simpler to succeed with Financial Planning  

5) Time-consuming:

Anaya understands that she has to manage her money better. She decided to act upon the following steps –

  • Record assets and liabilities and create a net worth statement
  • Create and maintain a budget
  • Manage insurance and taxes
  • Set short-term and long-term goals.
  • Calculate the money required to achieve the goals
  • Manage savings and investments
  • Manage Income and expenses

But she is busy with work, family, and friends. At the same time, financial planning is not similar to a boss expecting deliverables or a child demanding attention. It is therefore easy to put in the back-burner.

BUT

It is important to have a  true picture of your personal finances and make the right decisions to avoid financial ruin.

6 Undeniable Reasons People Hate Financial Planning

Check – The Biggest Problem with YOUR Financial Planning

6) Lack of knowledge:

  • I do not know where to start.
  • I do not want to lose money by investing in the wrong instruments
  • I am young now. I will think of retirement later

These statements are commonly heard. People dislike financial planning as they feel they do not understand concepts and are unable to visualize different scenarios and variables.

BUT

But being prepared with a financial plan will support us to achieve our goals, Build your wealth, and provide financial comfort during emergencies.

Financial planning may not be everyone’s cup of tea or coffee. But it is unavoidable as a financial plan will help you understand your cash flow, manage debts, make sound investments, and nudge you towards securing your financial life. It is therefore in your best interest to give a ? to financial planning.

If you are looking for a Comprehensive, Competent & Complied (SEBI Registered) Financial Planner – you can check this

If you have any questions regarding financial planning – add them in the comment section.

6 Cliches About Mutual Funds You Should Avoid

Hemant Beniwal
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1
6 Cliches About Mutual Funds You Should Avoid

I clearly remember that when I started this blog 10 years back (2009) – regular questions were “what is Mutual Funds or SIP”.

But a lot has changed in this decade – most investors know basic stuff. Credit can be given to media & even bloggers like us. (I still hate calling myself a blogger – I am a Financial Planner)

Last week I was talking to an NRI from the middle east, who is planning to retire in India. His view was he will invest 100% of his savings in Mutual Funds (80% Debt & 20% Equity) – I haven’t asked him why he thinks so.

He is right or wrong is debatable but one thing is clear Mutual Fund is now a much-accepted product in India.

6 Cliches About Mutual Funds You Should Avoid

   Check – How Healthy Is Your Mutual Fund Portfolio?

Mutual Fund Cliches

The popularity of any investment product doesn’t mean that investors understand everything – that’s happening with Mutual Funds right now.. let’s check few misconceptions:

1. Good past performance means good future performance

We usually look at the returns of the past to decide on investments in mutual funds. While past performance can be one of the good indicators but it does not guarantee future performance. It should not be the only factor to consider. You have to consider other factors such as a portfolio of the mutual fund, expenses, and your investment horizon to select the most suitable funds for investment.

My friend Ashish shared this few days back – I think you will be able to identify the mistakes that investors are making.

Mutual Fund Performance Mis-conception

I wrote a sarcastic article in 2017 Low-Risk High Return – is it possible? to express investors’ emotions at that time. The first point that I mentioned was about past performance – remember ‘kitna deti hai’ ad.

6 Cliches About Mutual Funds You Should Avoid Click to Tweet

2. Mutual Funds are only for long-term investment

Mutual funds are quite flexible when it comes to time horizon of investment. You can invest in mutual funds for short-term, medium-term and long-term financial goals.

For example, if you are going to need money in the next 3-4 months for paying fees for a course, you can park the money in liquid funds. If you are going to buy a house 5 years down the line, you can invest in a long-term equity fund or long-term balanced fund. So mutual funds are a vehicle for long term investment but can be used as short-term investments as well.

Must Read – Mutual Funds Vs Stocks

3. Schemes with higher ratings are better investments

Mutual fund schemes are rated by different agencies. These ratings are supposed to represent objective analyses and independent assessments of mutual fund schemes.  Moneycontrol, Valueresearch, Morningstar etc. rate MF schemes.

Research Agency rates open-ended schemes based on various parameters such as portfolio concentration, mean return, volatility, quality of assets, etc.

But if you think that these ratings are crystal balls to gaze future – you are completely wrong. There’s no relationship between these ratings & future returns. Most of the investors who buy funds based on high ratings are finally disappointed & most of them underperform their own investments in the long term.

4. It is more profitable to invest in funds with low NAVs

I am still not sure why investors still prefer penny stocks (price lower than Rs 10-15) or even Mutual Fund schemes with lower NAVs…

If a “friendly” bank relationship manager or MF representative encourages you to invest in a mutual fund scheme because it has a low NAV, be sure to tell them that NAV is not a performance indicator. To look at it in a simplistic way, NAV is the value derived by dividing the total net assets by the total number of units issued to investors.

Let us look at an example –

Mutual Funds MF Scheme 1 MF Scheme 2
NAV as on Jan 01, 2018 ₹15 ₹100
NAV as on Dec 01, 2019 ₹30 ₹120
Change in NAV (%) 50% 20%

As you can see, MF Scheme 1 has performed better in this scenario as compared to MF Scheme 2 as the change in NAV is higher. The change in the NAV between two dates is a measure of performance rather than the NAV value as of a particular date.

Mutual Fund performance

5. Invest in the theme of the moment

Sometimes schemes are launched on the basis of some theme. For example, when the real estate or capital goods stock prices are going up, infrastructure funds are considered hot. It is tempting to invest in these schemes to make some quick money.

The perfect recipe of portfolio disaster:

  • When gold is performing invest in gold funds/ETFs,
  • When international funds are performing invest in international funds,
  • When gilt funds are performing invest in gilt funds…

But investment and wealth creation is a long-term game. You have to invest regularly for a long time in the right funds to achieve your goals.

6. SIPs are always better than lump-sum investment

Systematic Investment plans are good for investments but it’s not a Brahmastra. 🙂 They ensure you invest regularly & bring discipline in your financial life. They average out the effect of volatility in your investments. But you need not stay away from lump-sum investment. If you have got a bonus or extra cash in hand and your financial advisor feels it is a good idea to increase investment in some MF schemes, you can go ahead and invest a bigger amount. In a rising market, you will make more returns or you can also consider a Systematic Transfer Plan.

Mutual funds are a good investment choice for regular investors to build wealth. But mutual funds are not risk-free. Choose the right schemes to invest in based on their performance/consistency, investment portfolio, investment churn, expenses and your investment needs to maximize returns and growth

We have launched a new service that includes Mutual Fund Review

Check WiseWealth

Forbes list of billionaires has 60% turnover per decade. Can you guess what’s the turnover rate of 5-star Mutual Funds per year??

Will Equity Ever Rule In India?

Hemant Beniwal
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10
Will Equity Ever Rule In India?

This topic may not look relevant right now but that’s the reason I am touching this. Bw these days I am reading “Shiva Trilogy” by Amish Tripathy so I picked the word ‘Rule’ 🙂

As per a SEBI survey conducted between 2015-2018, more than 95% of investors prefer FDs compared to mutual funds and stocks for investment.

As per AMFI’s data in 2018, less than 1.5% of Indians invest in mutual funds.

A part of these investors would be investing in Equity mutual funds. Of course, the awareness campaigns and investor education programs by MFs have increased the number of MF investors but the number is relatively small.

So why do investors shy away from the equity markets when equity is supposed to give the best returns? (Hmmm best returns)

Will Equity Ever Rule In India?

Must check – 6 Myths About IPO

Few Reasons Equity is Still Avoided

There may be many reasons but I am just touching 4 right now & leaving the comment section open for you to add a few more…

Investors are scared

Investors are scared of investing in equity as there are no guaranteed returns. They do not want to lose their hard-earned money. There have been many instances where retail investors have lost money due to volatility, stock market crashes (including covid-19) and scams like Harshad Mehtastill haunt.

Many stories of people losing money in the stock market go around which paints a negative picture of stock investments.

Will Equity Ever Rule In India? Click to Tweet

Knowledge Vs Herd

Many investors lose money because they do not make informed purchase and sell, decisions. Many investors follow the herd and when they see the markets rising, they buy stocks. When there is a fall in the Sensex or NIFTY, people panic and sell-off their stocks/Mutual Funds.

They enter and exit the market at the wrong times, which is fundamentally wrong. Even if when one doesn’t understand the valuation of the company, company prospects, market conditions and have a target selling price before investing in any stock – at least don’t follow the herd.

This may not help in increasing one’s chances of getting better returns but at least you will not be underperforming markets.

Check – How Herd Mentality Harms You

Lack of information and over-relying on tips and analysts 

The larger institutional investors sometimes may have access to accurate & raw information. They get news earlier as well, and they use it to benefit from the stock market. Retail investors are not privy to such information and end up losing opportunities or make the wrong decisions.

Apart from this, they invest based on tips from friends and neighbors which can lead to losing money. The market analysts on TV and websites are not always right. They can be wrong or sometimes even biased & many of the times misleading intentionally. Retail investors who follow these experts blindly can lose money.

Impatience 

Yes, we do hear about people making lakhs of rupees in one day. But that is rare. Moreover, there are many people losing a lot of money due to their impatience. Most retail investors do not have the skills to invest at the right time or sell at the right time. (even if something like this exists) It is important to be patient to make money. Check – Effect of Holding Period on Returns & Risk

Will Equity Ever Rule

As you can see, there are many factors that contribute to low retail investor participation in stock markets. But investing in stocks either directly or through mutual funds does give good returns in the long run, if done correctly. (don’t show me recent underperformance this is not much relevant in any investors life as his horizon is 10, 20, 30 even 50 years + bear markets are long term investors real friend)

Will Equity Ever Rule

Check – 3 Principles for Superior Returns

There are many steps being taken to make investing in stocks and related instruments more attractive –

  • AMFI introduced the ‘Mutual Fund Sahi Hai’ campaign to make investors aware of the advantages of investing in MFs.
  • MF Industry players are working towards reaching out to investors beyond the top 30 cities through marketing efforts and investor awareness programs. Investors can take advantage of the SIP and STP plans so that they need not deal with large amounts of money. This has resulted in the increase of investors in Mutual funds. Last year’s total collections from SIP were Rs 1 Lakh crore – which is phenomenal.
  • The higher education level of people now have access to information and the easy availability of multiple investment tools have contributed to more investments in MFs.
  • SEBI has an investor protection program and regularly conducts investor awareness programs on investing, derivatives, stock markets, etc.
  • Technology has made it easy for investors to buy and sell. Demat accounts have ensured less paperwork and transparency and immediacy of transactions.
  • NPS has forced (or motivated) many investors to participate in Indian equities.

So there are more people who invest in MFs and the stock market. As per a report in Economic Times, the MF industry added around 9,35,000 SIP accounts each month during the financial year 2019-20 which is a good sign as some chunk of this would be invested in equity-based Mutual Funds.

As per the NSE, the number of individual investors registering with it has been increasing at a 10-year CAGR of 11% which is a sign that more people understand the importance of investing in the stock market. But the number of participants in the derivatives market is low. (that is actually good)

There is an increasing trend in the number of investors in MFs and stock markets which means Indians are bullish on the economy and can participate in the country’s economic growth to reap benefits. It will take time for equity to rule as an investment instrument as there are many factors such as knowledge, information, transparency, and regulations that need to improve.

We have launched a new service to help more people in current situation

Check WiseWealth

Please share your views – why investors still have a hitch to invest in equity or Mutual Funds. When do you think equity investing will rule India? 

What Should My Covid19 Action Plan Be?

Hemant Beniwal
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0
What Should My Covid19 Action Plan Be?

The coronavirus outbreak, unfortunately, continues to wreak havoc. It is a full-blown crisis now and the lockdown has been extended to stem the rising number of cases.

We cannot predict a crisis in the future but we can learn to be prepared for it. We are affected by the crisis in our different roles of an individual, investor, employee, employer, consumer, and tax-payer.

Let us take this crisis as an opportunity to learn how to manage finances in these different roles. We can build a pandemic action plan for each of the roles –

  What Should My Covid19 Action Plan Be?

Investor

Many of your investments might have lost value. Do not panic!

April 2020 is likely to be one of the worst months for the economy in history; however, it was a blockbuster month for stocks.

So, why are stocks so disconnected from the economic data?

Fundamentally, a stock’s price is an attempt to put a value on the underlying company’s earnings now and in the future. Complicating the calculation are factors like fear, greed, uncertainty, and movements in the overall market.
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While economic data looks back at what’s already happened (or is happening now), the stock market looks forward to the trajectory of the business environment. Framed that way, the rally isn’t so unusual since investors are expecting things to get better, not worse.
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Will the rally continue? Hard to say. Volatility is very likely to be the name of the game for months to come.
Video – Investment Lesson From COVID Prevention
Let your long-term investments be as-it-is because risks and cyclical movements can affect the value of investments. If you have made some impulse investments which are mistakes, you can exit when there is a recovery to cut your losses. Look for opportunities to increase allocation in equity-based investments if your investment portfolio is underweight on equity. It might be a good idea to increase the allocation of money in those investments which have the potential to tide over the crisis.
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Usually, the value of gold has a negative correlation with equities. In times such as these, it acts as a hedge against losses in other investments. Similarly, Gilt funds (Govt Securities long term debt funds) perform better in the case of a recession or economic slowdown. Personally I don’t suggest investing just because an asset class is outperforming in the recent period – it’s time to keep your head cool & stick with your long term asset allocation.

Make Sure you have 6-12 months of Emergency Fund

Pandemic Action Plan

Employee

If you are an employee, you might not be working now or might be working from home. If you are getting your entire salary, be prudent with it but don’t be a total miser. We do not know how long the situation will continue. The economy is taking a toll and companies are going through tough times. Your salary might be deferred or cut. There will be layoffs. You can ask for updates from the company so that you are not in for a rude surprise.

There might be freelance opportunities with the retail industry, pharmacy companies or jobs in industries not directly affected by the pandemic event. You can apply for jobs there. You can volunteer with organizations that are helping out in combating the effects of the virus.

If you are laid off, use the opportunity to up-skill yourself or learn new skills. You can enroll yourself in online certifications.

Consumer

You cannot go out which means your options to spend are limited. Most online shops also have restrictions. You should be happy that you are saving money. At the same time, do not hoard on groceries and other essential items. It will increase supply pressures and prices.

You will be tempted to consume a lot of online content. It is important to switch off your gadgets intermittently during the day for a healthy mind and body.

Check – Smartphones are making us Dumb

Many companies are offering measures to help their consumers tide over these times. For example, life insurance companies have given an additional 30 days grace period for premium payments. Banks such as SBI and Indian Bank are offering special loans. Vehicle makers have offered to extend warranties and reschedule free services beyond May 31. Utilize these measures if you are finances are in trouble.

Individual

Check the extent of life insurance cover and health insurance for you and your family’ – it’s actually foundation of any financial life. If you do not have a health cover and fall ill at times such as this, you might be forced to dip into your emergency funds or even sell off investments for medical bills.

A financial crisis is the worst time to liquidate investments. So ensure you have adequate life insurance and health insurance. Buy adequate health insurance cover for your family too.

A crisis such as this brings your routine to a halt. There is uncertainty and you will have a sense of a feeling of loss of control. It is important to be resilient. Nature has given you time to take care of your mental health and physical health.

Some ways in which you can utilize this time well and also take care of your well-being –

  • Spend time with your loved ones.
  • Utilize the time to bring some work-life balance in your life.
  • Do not get bogged down by the negativity in the news and avoid checking for updates constantly.
  • Eat healthily and exercise regularly
  • Use the time for some reflection. Understand your emotions, thoughts, strengths, weaknesses, and goals. You will gain as it will help you in self-development, productivity and a better understanding of the world around you.

Check – Is Covid19 a Black Swan?

Employer

A long-term and far-reaching crisis has many financial implications on companies, private firms, and professionals. Build on and work on your business continuity plan. Show empathy towards your employees. Build an emergency fund to provide financial support to sick employees. Provide regular updates to employees on the status of business and steps the company is taking to handle the crisis.

If you or your executive management has decided that layoffs are necessary, make a plan which handles different perspectives like HR, finance, and management. Break the news to the employee with empathy and treat each of them respectfully.

If you can offer help, do so.

Tax-payer

The government can take measures to respond to crises using the tax collected. So do pay your taxes regularly. There are some tax relief measures as well, that you can take advantage of –

  • Income tax return deadline for the financial year 2018-2019 has been postponed to 30 June 2020 from 31 March 2020.
  • Deadlines for filing of goods and services tax (GST) returns and related payments of GSTA have been extended.
  • The interest rate on delayed payment of advanced taxes, tax deducted at source, tax collected at source and equalization levy have been lowered if the payments are made until June 30.
  • Taxpayers can complete their tax-saving actions for FY2019-20 until June 30, 2020, compared to the usual deadline of March 31

The best way to handle a crisis to prepare yourself financially in advance. You can ask your financial advisor to factor in a crisis in the financial plan so that you will not have money worries and can deal with other circumstances in life in a better way.

We have launched a new service to help more people in current situation

Check WiseWealth

If you have any questions or observations – add in the comment section.

Is COVID-19 A Black Swan?

Hemant Beniwal
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0
Is COVID-19 A Black Swan?

A black swan is an unpredictable event. An event that is beyond any expectation of how a situation would play out, leading to severe consequences.

Nassim Nicholas Taleb, a finance professor, writer, and former Wall Street trader conceptualized the black swan theory. He wrote about it in the book – ‘The Black Swan: The Impact of the Highly Improbable ‘.

Is COVID-19 A Black Swan?

For an event to be considered as a black swan event, it has to

  • Be extremely rare and not really predictable
  • Have catastrophic consequences
  • Be explainable in obvious terms in hindsight

Must Read – 15 Types of Risk

Black Swan Or Just a Normal Bubble

Let us look at the two events that happened in the past to get a better idea of the concept

Is COVID-19 A Black Swan? Click to Tweet

Black Swan – 2008 Financial Crisis in the US

The 2007–2008 credit crisis is a classic black swan case.  Home prices had been rising rapidly for years. Based on the spike in prices in real estate, mortgage brokers and lenders offered loans on easy terms. Products depending on mortgages were invented and traded. Speculators bought and sold houses.

The housing bubble burst but due a black swan. (no one was expecting good quality home loans can default) People panicked and this affected the stock markets as well. This led to a major credit crunch and a severe liquidity crisis.

Normal Bubble – Dot Com (IT) Bubble of 2001

Towards the end of the 90s, technology companies were ruling the roost. There was a rapid rise in U.S. technology stock equity valuations. This was due to venture funding of Internet-based companies, speculation and fad investing.

Most of the dot-com companies did not generate revenue or profits but spent mammoth sums on marketing and brand identity. When stocks reached very high levels, leading tech companies placed huge sell orders. This led to panic and there was a massive sell-out of technology company stocks. This led to a huge decline in the value of publicly traded dot-com companies and near discontinuation of funding of Internet companies. This resulted in many companies shutting down and a massive erosion in investment capital value.

Do note that black swans need not be in the financial world alone. For example, the assassination of Archduke Franz Ferdinand of Austria by Serbian nationalists led to a butterfly effect and culminated into the First World War.

Time to recheck – What is Equity?

Taleb’s Take on Black Swan

Taleb explains in the book that it may not be possible to predict these events and therefore people are oblivious to them and do not consider them in the normal scheme of things. These events are unknown and we do not know that we are unaware of them.

Standard tools and formulae cannot be used for prediction of such events or to find out the probability of a black swan as past events do not play any part in determining the future and there are many variables involved and we do not know them.

He says that financial institutions do not look beyond their financial models which are defective and so cannot predict black swans and therefore are vulnerable to losses and crises.

COVID-19 – A Black Swan

The coronavirus outbreak is leading to multiple economic problems worldwide. Stock markets are on a free fall and commercial sector has come to a grinding halt. It will have its effects on GDP, unemployment levels and other economic indicators. A global recession seems to be around the corner.

The COVID-19 outbreak can be classified as a black swan as it is rare for a medical issue to have such a global impact. It has already led to severe consequences. In hindsight, we may be able to explain how and why the impact was so severe and what we could have done to avoid it. Moreover, there are many unknowns –

  • The virus’s properties are still not understood. There is no cure or vaccine or custom treatment yet.
  • There is not much information to accurately predict the rate of increasing infection or subsiding cases.
  • The number of cases is increasing all over the world and we are not sure of how many people will get affected, how many will recover or how many deaths will happen due to the virus.
  • We cannot predict the impact of social distancing and other social and policy measures.

Read – Portfolio Management System (PMS)

But we should have exited market?

Everyone can see clearly in the rear-view mirror – actually this is hindsight bias. If someone thinks that this was predictable – he is wrong. Initially, it looked similar to any other virus that attached us in the last 20 years or maybe china’s problem. Japan was not able to decide about the Olympics 2020 or the US about lockdown.

If long term investors start reacting to every event, they will actually become a trader.

Volatality is the price of long term returns – since market returns are good, the “price” is very high.

virus & markets

Must Read – Hindsight Bias – Did you know it already?

How To Manage Finances During a Black Swan

In Taleb’s opinion, if a system is allowed to fail, it will be strengthened against future black swan events. For example, in the US, policy changes were made to increase regulatory provisions and transparency after the 2008 credit crisis. The author says that even if it is not possible to predict a black swan, we should plan our strategies with provisions for black swan events.

In the light of the black swan we are facing, businesses should be prudent with cash. They should be ready to face a tough financial year ahead. Organizations might also plan their future course and also include strategies to handle the unknown.

If you are employed, you might be working from home or have lesser working hours. When business gets back to usual, companies may take tough decisions such as no increments or layoffs. Be prepared for such situations both from a mental and financial perspective. You can use this time to think of your career path and decide on steps to take towards your ambitions. You can learn new skills via e-learning courses.

When it comes to financial planning and investments, do not make any hasty decisions. It is important to sail through market volatility which can cause erosion of the value of our investments. If you have a financial planner, discuss the best course of action on how to preserve your wealth.

Check – Importance of Financial Planning

Taleb in his book suggests two approaches but I don’t think these things are possible for a normal investor –

  1. Hyperconservative and Hyperaggressive approach – Invest a majority of your money in very conservative instruments and a small minority in high-risk investments such as venture capital or stock options. Your exposure risk to negative black swans is limited
  2. Speculative Insured portfolio – Invest in very highly speculative instruments but insure them in ways such as using stop-loss or buying put options for stocks purchased, etc. The other way is to buy multiple stocks so that your risk is diversified. Here your risk is taken care of and you might be able to take advantage of positive black swans.

These options are to be researched and analyzed thoroughly and implemented only if it suits your financial situation, risk capacity and risk tolerance levels are vetted by professional guidance.

If you are looking for a Comprehensive, Competent & Complied Financial Planner –

you can check this

If you have any questions or obervations – add in the comment section.

Why It’s Simpler to Succeed With Financial Planning Than You Might Think

Hemant Beniwal
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4
Why It’s Simpler to Succeed With Financial Planning Than You Might Think

A financial plan is a roadmap towards financial freedom for you and your loved ones. Though people desire financial freedom, they are afraid of financial planning. Most people think it is complicated and difficult to understand or implement.

Why It's Simpler to Succeed With Financial Planning Than You Might Think

Check – The biggest problem with Financial Planning – how to fix

But it is really about the way you go about it. If you adopt the right approach to financial planning, you will achieve your financial goals.

Here are some ways to succeed with financial planning:

Look at financial planning from a different perspective

You cannot predict what will happen five years down the line or the number of years you need to consider post-retirement. Financial planning is not about accurate predictions but more about taking the right steps so that you set realistic goals and you know your goals. It helps you understand your money habits and you have a fair idea about funds needed for retirement and other goals.

Financial Planning is simple though not easy

We do not say it is a cakewalk. At the same time, it is all about simple steps –

  • Spend less and Save more
  • Take less debt
  • Invest regularly
Why It's Simpler to Succeed With Financial Planning Than You Might Think Click to Tweet

The steps are simple, but it is not very easy to stick to the steps over a long period of time. You can succeed in financial planning by taking care of simple steps. You need not start off by investing in complex products or getting to understand complicated financial ratio.

Must Read –What is Financial Planning?

It requires time and effort rather than the investment of a lot of money or complicated planning

You should invest time and effort when you kickstart your financial plan. You need to get information about your net worth, savings, and expenditure. You have to think about insurance, investment, and taxes. You have to draft your will. Once your plan is in place, you have to take out some time to review and tweak the plan if necessary.

All this requires time and effort on your part. It also requires a little money for setting up various things in place and if you choose to utilize the services of a financial advisor. If you take small steps regularly, you will accomplish your financial goals without any need for complicated planning.

Must Check – 9 Little Ways to Save Money in India

Financial planning is about discipline and awareness rather than complex concepts and strategies

Terms like Beta co-efficient, correlation, etc. are always in the financial news. You do not need to know all the concepts and strategies to formulate your personal financial plan. You ought to understand your money situation and how you can save and invest to reach your financial goals. You need to be aware of products that you are going to invest in and concepts such as term insurance and investment diversification. Moreover, you have to be disciplined while planning your finances. You secure a higher chance of success when you are mindful of your savings and spendings and conform to the plan created.

It is better to be prepared to manage bad news regarding our finances than ignore the bad news

Some people avoid financial planning as they do not want to face the reality of their financial situation. They are afraid that they might be going over their budget on a regular basis, or they are not earning enough to fund their dreams. This is not smart thinking.

Knowledge is power. If you know your real financial situation, you will take steps to improve upon it. You will definitely succeed if you adopt a realistic plan, make sound but practical choices and adapt your dreams to your financial condition.

You will succeed with financial planning if –

  • Your financial plan is comprehensive which means it takes care of savings, expenditure, budgeting, investments, debt, emergency fund, retirement, and financial goals.
  • Your financial plan provides a strategy to manage your money.
  • Your financial plan is cost-effective and manages taxes efficiently.
  • Your financial plan contains realistic and measurable goals and an action plan to achieve the goals.

Should you hire a Financial Planner? You decide for yourself.

's Simpler to Succeed With Financial Planning Than You Might Think

If you are looking for a Comprehensive, Competent & Complied (SEBI Registered) Financial Planner – you can check this.

If you have any questions regarding financial planning – add in the comment section.

9 Positives of Budget 2020

Hemant Beniwal
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8
9 Positives of Budget 2020

Now that the noise around the budget has died down, let us analyze the budget in detail and find out how it has affected the individual.

Here are some of the positive announcements made by the Finance Minister in the budget speech and their effects on individuals like you and me –

9 Positives of Budget 2020

Positives of Budget 2020

It was hard to find but still, we are trying 🙂

9 Positives of Budget 2020 Click to Tweet

Bank deposits are now insured upto Rs 5 Lakh

Earlier your money which is parked in a savings account or fixed deposit was insured upto Rs 1 Lakh. But it’s a big relief that now this limit is increased by 5 times.

Dividend Distribution Tax by the company has been abolished.

What It Means – Dividend taxed will be in the hands of the shareholders. Taxpayers in the lower-income slabs will greatly benefit from this move as the effective rate of tax will become lower. For example, mutual fund companies paid 25% tax on Debt oriented funds and a 10% tax on Equity-oriented funds. If you are a taxpayer who does not fall in any income tax slab, your income from the dividend will not get taxed. If you fall in the 10% income tax slab and have invested in a debt fund. Your returns will be taxed at 10% and not at 25% like before. (but if you are in higher tax bracket – you should shift to growth funds)

This will also promote foreign investments as foreign investors can accrue credit for the tax paid in their home countries.

This change will also impact Portfolio Management Services & Your investment in direct stocks

Changes in tax slabs for individuals

There are changes in the tax slabs for individuals. There are two options available to individuals and HUFs. They can choose to follow any option that is advantageous to them. Here is a comparison of the options with the tax slabs and income tax rates applicable from the next assessment year –

OPTION 1 OPTION 2
Taxable Income (After considering deductions and exemptions) Tax Rate Taxable Income (Ignoring  deductions and exemptions) Tax Rate
₹0 – ₹ 2,50,000 0% ₹0 – ₹ 2,50,000 0%
₹2,50,000 – ₹5,00,000 5% ₹2,50,000 – ₹5,00,000 5%
₹5,00,000 – ₹7,50,000 20% ₹5,00,000 – ₹7,50,000 10%
₹7,50,000 – ₹10,00,000 20% ₹7,50,000 – ₹10,00,000 15%
₹10,00,000 – ₹12,50,000 30% ₹10,00,000 – ₹12,50,000 20%
₹12,50,0000 – ₹15,00,000 30% ₹12,50,0000 – ₹15,00,000 25%
> ₹15,00,000 30% > ₹15,00,000 30%

What It Means –The changed income tax rates and slabs will be applicable for those who are ready to forego exemptions and deductions such as Standard deduction, allowances under Section 80C and Section 80D,  LTA exemption, HRA exemptions, interest on housing loan on the self-occupied property and a few other factors. The tax rate for those earning income between ₹5,00,000 and ₹15,00,000 is lower than earlier if they opt for Option 2. People can compute their tax in both scenarios and select the one that is most optimum for them.

Defer tax payment for ESOPs

Employees of startups who own Employee Stock Option Plans (ESOPs) can defer paying taxes up to five years from the time of exercise, till the time they leave the startup, or until they sell their shares, whichever is earlier.

What It Means –This provides some amount of relief for employees as earlier they had to pay when they signed up for ESOPs and when they earned capital gains. This affected the liquidity position of the employees. Now they can defer payment when they have enough liquidity.

Tax Reliefs for Startups

The budget proposes to increase the turnover limit from existing Rs25 crore to Rs100 crore for startups that are allowed a deduction of 100% of profits for three consecutive assessment years out of seven years.

What It Means – Startups will be able to carry forward losses and also have more cash to run their business.

Increase in Custom Duty

Custom duty on products such as tableware,  kitchenware, electrical appliances, footwear, furniture, stationery, and toys will be levied.

What It Means – This gives an advantage to domestic companies as they can manufacture and sell at competitive rates. It gives a boost to the ‘Make in India’ scheme.

The decrease in Custom Duty

Customs duty exemption on raw sugar, agro-animal based products, Tuna bait, skimmed milk, certain alcoholic beverages, soya fiber, soya protein withdrew.

What It Means –Products using these items as a raw material can be produced at a more competitive cost and the benefits can be passed on to end consumers resulting in lower prices.

Home Loan Interest Deduction

The benefit under section 80EEA to avail an additional Rs 1.5 lakh interest deduction on home loans for first-time homebuyers is proposed to be extended till March 31, 2021.

What It Means – First-time homeowners can avail of additional deduction while calculating tax. Since many first time home buyers fall in the lower and mid-income segments, this will be advantageous to many and it may also propel the demand for housing.

Budget Allocation To Transport

Rs 1.7 lakh crore has been provided for transport infrastructure in 2020-21. 1,150 trains are expected to run under the public-private partnership (PPP).

What It Means – Many Indian cities face a lot of commute issues. The thrust towards infrastructure will provide us a smoother commute. At the same, there will be better connectivity between different states and cities.

Affordable Housing

Companies working on affordable housing projects can claim a 100% tax deduction on profits from March 2021 under section 80IBA.

What It Means – This extension in the timeline will increase the motivation among real estate developers to work on projects in affordable housing.

Bw budget made lot of things very complex so importance of Financial Planning is further increased.

This post is written by Vidya

If you have any questions related to the budget 2020 – you can add in the comment section.

5 Best Mobile Apps for Budgeting in India

Hemant Beniwal
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12
5 Best Mobile Apps for Budgeting in India

One of the most basic tenets of financial planning is Budgeting – tracking your expenses and savings on a regular basis. Check best mobile apps for budgeting in India.

Budgeting does involve work but pays off with many benefits –

  • You will be aware of money coming in and money going out. This will lead to better spending habits and better management of debts and investments.
  • You will plan for expected and unexpected costs. Budgeting will influence you to set aside money for emergencies.
  • You will be more focused on your financial status and be mindful of saving and spending. This will take you closer to achieving your financial goals and life goals.
  • You will have more control over your finances. This will enable you to make better financial decisions.

Best Mobile Apps for Budgeting in India

Must Read – Budgeting – The first step to Financial Planning

Different Budgeting Apps In India 

Budgeting takes some time and effort. Here is where smartphones come into play. There are numerous mobile apps available for managing daily finances and I have listed a few of the better ones available –

1) Walnut

Walnut is a money management tool that is compatible with Android and iOS (Do note that the Android version has more features as compared to the iOS version).

Key Features

  • Track your spending across various categories. Charts are available for easy visualization. Expenses are tracked via SMS.
  • Set reminders for bill payments.
  • Check your bank balance.
  • Transfer money to friends and relatives without account details or IFSC codes. You can transfer using a debit card number.
  • Split money and settle accounts with friends.
  • Pay VISA credit card bills via the app.
5 Best Mobile Apps for Budgeting in India Click to Tweet

It does have some issues related to updates based on SMS notifications and ATM location accuracy. Moreover, it does not have all features in the iOS version.

Conclusion
An effective money management tool to manage your budget and pay your bills for free.

Check – 6 Steps to escape race of overconsumption

2) FinArt

FinArt is an expense management tool that focuses on digital transactions along with managing cash transactions.

Key Features

  • Automatically records all digital payments made and you can record cash transactions manually.
  • Sets up reminders for bill payments.
  • No registration information required
  • Allows for categorization of expenses
  • Presents intuitive visualizations of financial data
  • It has a private mode wherein no data is sent to FinArt servers.

The app is free for a 5-day trial. Post the trial period, users have to pay a subscription fee of ₹ 499 per year. The app depends on reading SMS for recording of financial transactions. There are some issues related to it missing certain SMS information and credit card transactions.

Conclusion
It is the only app that offers a private mode and works without user registration. But it is a paid app and you should install it if only if you will be committed towards budget management using the app.best budgeting apps

3) GoodBudget

It is a money manager and expense tracker. GoodBudget is available both on Android and iOS.

Key Features

  • Divide income into envelopes for different expenditure categories.
  • Transfer money between envelopes.
  • Track payees and split transactions.
  • Insightful reports on cashflow and comparison of income and spends.

It is a simplistic app mainly for expense management. It does not have features such as bank account sync or features related to advice on saving or investment. There are free and paid versions of the app.

Conclusion
It is a simple app for users who like to categorize expenses and are not looking for more advanced features. It has some advanced features in the paid version.

Check This: Budget for Saving not Spending

4) Expense Manager

Expense Manager is a free money management app available both on iOS and Android.

Key Features

  • Set up and track weekly, monthly and annual budgets.
  • Set up expense categories and limits on expenditure.
  • Generate reports in different formats like .xls and .pdf.
  • You can backup data in SD Card, Google Drive or Dropbox.
  • It has tools like currency converter and basic calculator.

You get a paid version of the app too. The paid version is ad free. There are some issues related to missing data and UI issues.

Conclusion
It is a reliable money management tool.

Read – Coupon & Deals are bad for Finance

5) Monefy

Monefy is an effective tool for expense management with a good visual interface.

Key Features

  • It is easy to use. It has a journal style data entry feature wherein you can add a line item each time you spend money.
  • Provides visualizations on spending distribution
  • Data can be synced across devices
  • Data can be stored in Google Drive and Dropbox.
  • It has security features like Face ID and Touch ID.

The app is free and easy to set up but requires a Dropbox account to sync data across devices.

Also Read this: The 50 30 20 Rule

Conclusion
It is an easy-to-use and visually appealing expense management tool. There are many budgeting apps available in the market. I have tried to list the apps that are suited to Indian customers. There are many more financial management apps that take care of expenses, savings, bills, investments, etc. This post focuses only on budgeting.

Bonus: Vertex

If you are an excel lover Vertex provides the best range of budgeting sheet – check this link

Do remember to check for these pointers before downloading an app –

  • Get an app that is developed by a reliable company so that your data is safe and you can expect regular feature updates and security patches.
  • Check out the reviews of an app before installing it. You will know the positive and negative aspects of the app which will help you decide if the app is suitable for your requirements.
  • Evaluate the security and privacy features of the app. Personal data on your phone should not be accessed by the app. The app should not share your information with third parties. It should have two-factor security authentication. If you are not sure about this information, you might want to ignore the app.
  • Even the most hi-tech and comprehensive budgeting app will not help you improving your financial life if you do not use it. Choose an app that has basic budget management features and is easy-to-use so that you will be encouraged to use it and reap benefits out of it.

This post is written by Vidya.

If you are not able to increase your savings or chaneling your savings in right invesments – talk to us…

Financial Planning Service

In case if you are already using an app for budgeting- please share here with your review.

HDFC Funds are doing bad & I am Happy about that

Hemant Beniwal
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66
HDFC Funds are doing bad & I am Happy about that

Don’t take me otherwise I don’t have anything against HDFC mutual fund or their star fund manager Prashant Jain.

Plus, most of our clients have exposure to HDFC funds.

HDFC Funds are doing bad & I am Happy about that

So why I am happy with underperformance?

In the last 16 years of my investment career, I have seen Prashant Jain keeping his head cool in all kinds of scenarios.

We also have to understand when you are investing in active funds – the fund manager or AMC has the right to make decisions in our best interest.

Plus we also have to check risk when we are talking about returns. This post can explain – How should you view investment risk.

Disclosure: I worked with HDFC Mutual Fund before starting my financial planning practice in 2009 but this article has no relationship with that.

Note: In this post when you read HDFC (replace that with any mutual fund) or when you read Prashant Jain (replace that with the name of any good fund manager).

But underperformance of funds is impacting my portfolio returns

Recently I got an email from one of our clients that HDFC Top 100 fund that we suggested is not performing and my answer was I’m really happy about that.

HDFC Funds are doing bad & I am Happy about that Click to Tweet

He was as confused as you are right now.

Let me ask “why you have given your money to an active Fund Manager?” Let me guess because you want to outperform markets over a long period of time.

But what is a long period of time, 3 months or 6 months or 5-10 years? If your answer is in months you are in the wrong place.

Really Hemant?

You expressed your disagreement in the humblest manner as possible in this situation “Hemant don’t try to be smart; I have seen fund returns on a 5-year basis and they are underperforming their peers.

For your convenience, I am sharing that here.”

HDFC fund underperforming

(Oops I forgot this is information age)

You’re right but even a one-year performance can make a huge difference in 3 or 5 years performance.

Let me give you an example:

This below fund underperformed its peers till 2018 but just because of a one-year phenomenal performance – long term track record looks much better.

active mutual fund

2007 Vs 2008 Vs 2009

I clearly remember at the end of 2007 HDFC funds were underperforming their peers by decent margin & fund advisors and clients were all up in arms against them.

Funds also saw huge redemption pressure because why investors should sit in the train when flight tickets are available at the same price. So, they exited & entered the best (performing) funds of that time.

Then came tsunami of 2008 & markets were down by 50% in less than a year. HDFC Funds fell lesser than its peers & they saved people’s money.

In 2009 when markets went up they outperformed their peers by a huge margin.

HDFC fund performance

Media or many finance professionals do not talk about the importance of “downside protection”.

Must Read: Low Risk – High Return investment

Prashant Jain is managing funds for more than 2 decades and unarguably may be one of the best equity fund managers that we have seen in our lifetime. Let me make a bold statement “not every fund manager has the nerve to avoid peer pressure and pressure from investors – Prashant Jain is a rare breed.”

when you should sell your mutual funds

Bubble in Quality

Recently one of the ex mutual fund managers shared a report & argued that so-called quality stocks are in bubble territory. As I love to research, I checked which AMCs or funds have exposure to those stocks so to my surprise HDFC has one of the least exposure in those companies.

They have zero exposure in 90% of those companies mentioned in the list.

Prashant Jain in one of the interviews “I do not believe in contra investing but I do believe in value investing. And if value investing at a point of time means that you think differently from others then so be it. I have always tried to buy reasonably quality businesses, not always high quality because sometimes they are very expensive and I have always focussed on what you pay for them.

It is quite logical that when a good business is passing through a challenging time or when some other businesses are doing extremely well on the stock markets and since most people in life and in stock markets as well are very short term focussed, they want to avoid short term pain and get short term gains. When almost everyone wants to buy certain stocks in the markets, it is obvious that the rest of the spaces tend to become more valuable and if you are seeking value, then you become a contra investor. So contra is an outcome of seeking value but seeking value is the key.”

The Biggest Problem With Your Financial Planning, And How You Can Fix It

GAP: Investment Returns Vs Investor Returns

This is what I have written on the back cover of my latest book “Modifying Investor Behaviour”. We have got very good feedback – you can check on Amazon.

There are many reasons for this GAP. One of the main reasons is that when funds are generating good returns (hot funds/ best funds/top funds based on recent performance) investors flock in them and when the same fund is not performing for few quarters or 1-2 years they will prefer to exit.

Peter Lynch one of the top fund managers of Fidelity managed a fund from 1977 to 1990 & generated more than 29% returns (this is better performance than Warren Buffett) but you will be shocked investors did not get even 15%. I hope now you know WHY.

What should you do?

Talk to a good financial planner 😉

I always believe that if someone makes a relationship because of your beauty or money he/she will leave when you lose that. Or your employees joining you ONLY for getting a higher salary from their earlier company they will leave you for the same reason in the future.

Similarly, if you have selected your funds only on the basis of performance you will exit those because of short term underperformance. Performance is important but it can’t be the only criteria.

I am not at all claiming that this fund or any other fund will outperform in the future or how history will remember Prashant Jain or any other fund manager. I have no idea how the market will perform in the next few years & which investment strategy will do better.

That’s the reason Asset Allocation & Diversification is important – you should have exposure to 5-6 fund houses. Allow those active fund managers to try their investment styles to generate better returns for you.

It’s time to stop making haphazard decisions about your INVESTMENTS

and instead talk to us about your GOALS.

Financial Planning Service

Just add any question, observation, suggestion or advice in the comment section.

Accidental Insurance – better safe than sorry

Hemant Beniwal
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85
Accidental Insurance – better safe than sorry

Accidental insurance is one of the most ignored insurance categories in India.

As we all know the majority of people buy insurance either for tax planning or investment purpose but unfortunately both these benefits are not available in Accidental Policy. But does that mean you should not buy accidental Insurance? Think.

This article will cover:

  • What is personal accident insurance & its features
  • Benefits of accidental insurance
  • Comparison of accident insurance policy
  • How premiums are decided in an accident insurance policy
  • How much accidental insurance you should take

Accidental Insurance

Must Read: Term Plan – the right way to take Life Insurance

Accidents are not uncommon

Accidents can happen anytime when you are riding a bike, taking a shower, or cooking. They cause physical pain, mental trauma, and financial damage.

As per the Ministry of Statistics and Program Implementation, in 2013, more than 20,000 people died due to fire. As per TOI, there are about 400 deaths due to accidents in India daily!

Accidental Insurance - better safe than sorry Click to Tweet

I do not want to paint a bleak picture but accidents are common. They are not events that can happen only to other people. It is better, therefore, to protect oneself and one’s family from a financial perspective against accidents.

  • Term insurance does pay on the death of the insured but the sum assured and premium depends on the person’s age, profession, and other conditions.
  • Health Insurance is a yearly plan in which also there could be different terms and higher premiums for people of higher age or who are diagnosed with any medical issue.
  • Accidental Insurance provides financial protection against accidents.

Why Insurance? 

Insurance is the foundation of any financial life – a person who is having dependents must first completely insure himself & then only should start thinking about investments. We should know that the term plan is not for us but for our family and medical insurance is for us. So one should buy a term plan when he is having dependents but medical insurance is a must for everyone. If we talk about accidental insurance it is equally important for us & family.

What is Accidental Insurance?

When I bought my first vehicle; my mom advised drive safe these days accidents are increasing – hope you would have received similar advice from your parents or given to your kids. The impact from the accident can be as small as a scratch to as big as death – the impact can be temporary or sometimes even permanent. The accidental insurance policy covers this risk but first check the definition of accident.

Accident or Accidental means a sudden, unforeseen and unexpected event caused by external, violent, and visible means (but does not include any illness or disease) which results in physical bodily injury (but does not include mental, nervous, or emotional disorders, depression or anxiety).

Accidental Insurance also excludes suicides, self-injury, armed force operations, war, etc.

In case of death term plan will help the family to cope up with financial hardship but what about an accident where one loses body parts & that impacts his earning abilities. In such a situation, Accidental Insurance can be very helpful.

Features of Accidental Insurance

Yearly Contract: Similar to term plan & medical insurance – accidental insurance is also a yearly contract that you can renew every year.

Maximum Insurance: It depends on your income – some insurance companies give 60-100 times of your monthly income others give 8 to 10 times of your yearly income.

For Non-Earning Members: Few insurance companies provide accidental insurance to dependents but have limitations in sum assured. 25% to 50% of the proposer’s sum insured with maximum limits in rupee terms.

Benefits of Accidental Insurance Policy

Comprehensive Accidental Insurance policy provides benefits in 4 cases:

Accidental Death

If an insured died due to an accident his nominees will get 100% sum insured. So it’s very important to have the right nominee in any kind of insurance policy whether accidental or life.

Permanent Total Disablement

Sometimes a person met with an accident & loses his body parts – may not be able to work in future. In the case of Permanent total disability 100% sum insured is given to the insured person. It covers:

  • Loss of both hands or both feet or one hand and one foot
  • Loss of a Limb (hand/foot) and an eye
  • Complete and irrecoverable loss of sight of both eyes
  • Complete and irrecoverable loss of speech & hearing of both ears

Permanent Partial Disablement

As the name suggests this benefit is given if someone losses one hand or one leg or even small body parts like a finger/toe. For this, every insurance company has their own tables – what they will cover & how much they will pay depends upon the age limit of the person as per policy documents.

Temporary Total Disablement

Sometimes it can happen that anyone met with some serious accident but there is no permanent loss. But the doctor suggested a complete bed rest of 5 weeks or a complete checkup of any part of the body. This will impact an earning for a small period so in such case accidental insurance can compensate for this income loss. The weekly benefit is normally 1% of your sum assured for a maximum of 100 weeks. There is also a maximum limit according to your income.

Other small benefits

There are few other benefits that one can get from the insurance company – a few are priced in the premium & for others, you need to pay additional premiums. These can be emergency ambulance charges, education funds for kids, medical expenses, family transportation, imported medicines, etc.

benefits of accidental insurance

How much accidental insurance do you need?

Accident insurance covers death due to accident, disablement due to accident.

How do you determine how much accident insurance you need to have? Here are some parameters that one should keep in mind before buying a personal accident insurance policy-

1) Coverage of the insurance policy – Accident policy cover death due to accident and total disability due to the accident. Some of them cover partial disability or temporary full disability. Check the features and decide how much coverage you want.

2) Our Profession – Insurers classify people into different categories depending on their profession. If you fall into the category of high-risk professions like a factory worker or miner, you should definitely buy an accident cover. The premium is usually higher for professions that involve high-risk activities.

3) Current financial profile – The sum assured depends on many factors such as the number of dependents, financial goals, the extent of loan repayment, etc.

Disablement or death due to an accident can derail the financial situation of the family. An accident cover ensures that financial goals such as child education and debts such as home loans are repaid. The family can continue with a similar lifestyle ahead. It is said that the accident cover should be 100 times your current monthly income. So if you are earning Rs. 50,000 per month, the accident cover should be Rs. 50,00,000.  But if you do not have dependents or loans, you can go for a lower sum assured amount such that it compensates for the loss of earnings and you are able to take care of your expenses.     

Check This: How much Health Insurance do I need?

Here is a comparison of a few accident insurance policies available –

Insurer Sum Assured Premium Key Features
Apollo Munich Individual Personal Accident Premium Plan Min – Rs. 5,00,000

Max – Rs. 15,00,000

 A cover of Rs. 10,00,000 for an IT Employee has a premium of Rs. 1,882. Mainly Covers Accidental death, permanent total disablement, permanent partial disablement, and Temporary total disablement.

Read herefor more details
HDFC Personal Accident Insurance Min – Rs. 5,00,000

Max – Rs. 15,00,000

 A cover of Rs. 10,00,000 for a 35-year-old person has a premium of Rs. 2,286. Mainly covers Accidental death, permanent total disablement.

Read here for more details
Star Health Accident Care Min – Rs. 5,00,000

Max – Rs. 15,00,000

 A cover of Rs. 10,00,000 has a premium of Rs. 700 Mainly provides cover for Accident Death, Permanent Disability, and temporary Disablement.

Read here for more details.

It is good to buy a personal accident insurance policy as it covers a major aspect of your life. It will provide financial support to the policyholder if there is disablement and also provides cover for major and minor mishaps. It also provides financial protection to family members in case of death or disablement.

The below table will give you more idea about accidental policy but this table is not updated from last few years.

Accidental insurance Comparison (Premium & Features)

TATA AIG Accident Guard

National Insurance Personal Accident Policy(Normal Risk)

Star Health Accident Care (Risk Level 1)

Future Generali Accident Suraksha

Bajaj Allianz Premium Personal Guard

Reliance Personal Accident Policy(Risk Level 1)
Premium (Rs.)

4,748.00

3,000.00

2,500.00

1,256.00

3,171.00

3,000.00
i-save Rating  N/A  N/A  5 Star  5 Star  4 Star  No Star
Maximum age of entry

65 years

N/A

70 years

65 Years

65 Years

70 years
Temporary total disablement

N/A

1% of CSI not exceeding Rs. 5000 per week.

1% of the capital sum insured subject to a maximumof Rs. 5000 per week

N/A

Up to Rs.10,000 per week to a maximum of 100 weeks.

1% of CSI per week as per policy conditions not exceeding Rs. 5000 per week
Minimum sum assured

5,00,000

N/A

1,00,000

N/A

Rs.10,00,000

N/A
Permanent total disablement

An amount up to a maximum of Rs. 1,00,000 will be reimbursed .

100% of the sum insured

    

200% of the sum insured.

100% of sum insured.
Accident medical expenses

N/A

10% of C.S.I. or 40% of the admissible claim whichever is lower .

Covered on additional premium payment

Rs.1200 for each completed day of hospitalization for a maximum period of 30 days.

  

Up to 40% of the compensation paid or 20% of the CSI, under the policy whichever is lower. This benefit is available on payment of an extra premium of 20%.
Minimum age of entry

18 years

N/A

18 years

18 Years

18 Years

5 years
Cumulative bonus

5% to 25%

5% to 50%

5% to 50%

N/A

5% per claim free year to a maximum of 50%.(reduced by 10% if a claim is lodged).

5% to 50%
Last rites

Up to Rs. 5000

2% of C.S.I. subject to maximum Rs.1000/- shall be reimbursed

Covered (Rs.3000)

N/A

N/A

A lump sum of 2% up to Rs. 2500
Broken bones

N/A

N/A

N/A

N/A

  

N/A
Family transportation

AD sum insured up to Rs.50000

N/A

  

Maximum amount payable is 10% of the sum insured (under death cover)subject to maximum Rs.50,000.

N/A

N/A
Family discount

N/A

    

10% if cover is opted for family members.

N/A

N/A
Children’s education cover

10% of the sum insured

10% of C.S.I. per dependent child subject to Rs.5000/- per child up to maximum two dependent children.

1 child: Rs.50000; 2 child: Rs.10000

N/A

Rs.5,000 for a child or Rs.10,000 maximum for 2 children below the age of 19.

10% of the sum insured to a maximum of Rs. 5000 per child.
Maximum sum assured

1,00,000,00

N/A

5,00,000

Up to 25 Lacs.

Rs.25,00,000

N/A
Permanent partial disablement

N/A

% of CSI as Detailed in the Policy

    

5% to 70% of sum insured.

1% to 75% depending on policy conditions.
Accidental death benefits

100% of sum insured.

100% of the sum insured

100% of the sum insured

  

100 % of the Accidental death su insured.

100% of sum insured.

 Source: i-save (CSI – Capital Sum Assured Rs 20 Lakh)

How accidental policy premiums are decided

Accidental policy premiums do not depend on the age of the insured but on his work profile & working conditions. Occupational classification divides people in 3 levels (I have also added premiums from Apollo Munich for each category – Sum Assured Rs 25 Lakh)

Level 1 (normal risk) – this includes people who are in administration functions and work in offices like accountants, bankers, doctors, etc. Premium Rs 2600

Level 2 (medium risk) – people who are working as labor in the field. Premium Rs 3600

Level 3 (high risk) – people who work in mines, circus, etc will come in the higher risk category. Premium Rs 5450

You can see as the category changes premium substantially increases – this premium doesn’t include service tax.

Premiums can be down if you are applying as a family or group.

Other ways to buy Accidental Insurance

We Indians love the thali system & the concept of free – but let me remind you again that there is no free lunch. From the thali system, I mean that people try to add accidental insurance as a rider with life insurance but my suggestion is you should keep both these insurance separate.  This will give you proper comprehensive insurance at a lesser price.

Sometimes you can also get accidental insurance with some credit card or even from a few of the mutual fund companies. Here my suggestion is one should not count this insurance because this will give you an illusion that your insured. But actually, you never know when you are discontinuing your mutual fund or surrendering your credit card.

Insurance is an important component of financial planning and you should analyze your and your family’s requirements before deciding the appropriate cover to buy.

If you need help with your Financial Planning – you should check this

Hope this article gave you a broad idea about accidental insurance. Do you have accidental insurance or are planning to buy now??

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