Do's And Don'ts of a Retirement Solutions

With the introduction of a society where joint family system is a thing of the past and unexpected rise in inflation, retirement planning is a must. Only 5% of the jobs provide pension. People with remaining 95 % have to work out a plan of their own. Just investing money in insurance, PPF and FDs may not help. There are lot of other things that you should be aware of. For a comfortable and debt free retirement you need to acquire a lot of wealth. There is a long list of Do's and Don'ts of retirement solutions. Here are the main points which should be considered and followed for a happy retirement.

ULIP Sold As A Mutual Fund

There seems to be a fight going on among the insurance agents to sell their products. Some of theses agents cross their limits and thus misguide the investors. This is because of large commission for the agents in insurance related schemes which results in mis-selling of the products. One such case that I have came across few years back was selling of a ULIP as a mutual fund. One of my friend's cousin wanted to invest in mutual funds. His name was Amit. He wanted to invest 4 lacs but he did not have good knowledge about mutual funds. So he called the bank where his account was and asked them to send someone to his house for investment. After an hour one agent from the bank came to his house with blank application forms of various fund houses. The agent soon noticed that Amit was new to the field of investment. So he took Amit into confidence. He asked Amit to keep 1 lac in his bank account to deal with any unexpected need of cash. Then he asked Amit to diversify his investment and advised him to invest 1 lac each in three different funds. He told that all the proposed funds had been giving returns of around 50 % per annum and also promised that in bad market conditions too the returns would not be less than 30 %. Amit was very happy with the agent and decided to do exactly the way he was advised. After completing the formalities the agent told him that one of the proposed funds would also give him insurance cover of 5 lacs. This investment was in a ULIP but Amit had no idea about it. Amit was satisfied and thanked the agent for his advice. After one year he found that one of his investments had returns in negative. So he went to the bank for the redemption of the non performing investment. Over there he was told that the non performing investment was in a ULIP and he cannot redeem it before 3 years. He was also told that he has to invest 1 lac for every year for at least two more years. He asked the bank about consequences of early redemption. He was told that if redeemed he would get around 40000 rupees only. Amit felt cheated and tried to contact the agent. The agent was no longer working in the same bank. When Amit called on his mobile number the agent showed no interest in the argument and disconnected the call.


What to do ?
1. Research about top mutual funds before signing the papers. All good performing funds can easily be found on the internet.
2. Chose funds as per your risk appetite.                       
3. Have a knowledge about the FREE LOOK PERIOD of ULIPs.
4. Take advice from your elders. If getting advice is not possible then talk to other agents regarding investments. Ask their opinion about the funds proposed by other agents. Listen to what they have to say. A good mutual fund will receive good reviews from most of the agents.

Bought A Policy But Never Got It

These days a new kind of scam is in news. Let's understand it with the help of an example - Manoj decided to buy an insurance policy from an agent. He called the agent to his house and properly verified the offer document before signing. He issued an account payee cheque in the name of insurance company. After two months he got worried as he did not receive the policy bond. So he decided to call the agent from whom he had bought the policy. He tried for two days but could not contact the agent because the agent's mobile number was no longer in use. Then he went to the company's office to find out the problem. There he was told that the company had no records about his policy. He showed a photocopy of the cheque issued by him and also contacted other senior officials of the company. In spite of all his efforts  he never received the policy bond or his money back.

What to do ?
1. How these agents get money from an account payee cheque is still unknown. So bottom line is do not trust an unknown insurance agent.
2. If you don't know a reliable insurance agent then it's better to go to a bank personally and complete the formalities over there. At a bank you should not be cheated in such a way.

Credit Card Fraud

Some banks hire private parties to find new takers for their credit cards. These private parties are given certain targets. Now in order to complete these targets the parties try their best and sometimes cross their limits. One such case has also happened with me. One day I received a call from a girl asking me to take a credit card of a very famous bank. She told me about lot of benefits but I told her that I was not interested. I was about to disconnect the call but suddenly she started crying. She told that she has a lot of pressure to complete the target and she was lacking far behind. She also told me that there was no fee involved if a new credit card was taken or cancelled. Once again I told her that I was not interested. Then she told me that I don't have to take any trouble for it and she would send an agent to my house to complete all the formalities. She also told me that after one week she would send an agent to cancel the credit card. This way her target would be achieved and I wouldn't have to go anywhere for it. Somehow I got rid of her but later on I felt very bad for the girl. Then one day I came to know that the girl was trying to fool me. What happens is that some people try to help these girls and they decide to take the credit card. After one week a guy comes to their house to cancel the card. He completes the paper work and takes away the card. Later on they find out that somebody has used his cancelled card and had done a lot of shopping. When they go to the bank to find out the matter they are told that bank does not send anybody to cancel a credit card. Unfortunately the owner of the credit card does not even have documents to prove that he had cancelled it. What actually happens is that a guy comes to you house without any information from the bank. He completes all the paper work, obtains all your information and takes away the card. The card is not taken to a bank for cancellation. All the papers are thrown in a dustbin and the card is used till it is blocked.

What to do ? 
1. Don't give your credit or debit card to a stranger who claims that bank had send him for cancellation. Confirm it from the bank.
2. If you want to cancel a credit card then personally go to the bank.  

Dividend Fraud

Shahid was a govt. employee who had invested 2 lacs in a Mutual Fund ( Dividend ). One day he received a phone call from a fund manager. The manager said that he manages funds of SBI and wants to know if Shahid had received dividends on his mutual fund investment. Shahid was surprised to know that how did the caller knew about his investments. The caller told Shahid not to worry and also said that the mutual fund company has been contacting all its investors regarding the same issue. Shahid replied that he had not received any dividends on his investment. The caller said that many of the agents have been cheating investors and were keeping the dividend which were issued to the investors. He also told that Shahid should have received a dividend of 20000 rupees. Shahid was shocked to know it and begged for help. The caller told him that he would be sending a person to his house to solve the matter. After two hours a man came his house. He asked Shahid to issue a cheque of just 2599 rupees rupees in the name of fund manager and give a photocopy of his pan card. He said that as per the company's procedure the cheque would be cancelled by the fund manager himself and then a new cheque of 20000 rupees would be issued to Shahid after one week. Considering the smaller amount Shahid did not feel that he was being cheated. The man took the cheque as well as a photocopy of his pan card and left his house. After about two weeks when Shahid did not receive any cheque he went to the Company's office. There he was told that no such call had ever been made by the company and there was no dividend issued. Shahid knew he had been cheated. He tried to call the same fund manager but his call could never connect.


What to do ? 
1. Do not issue a cheque to any stranger. 
2. Never believe in such calls. A fund manager will never call all its investors ( He is a very busy person ).  
3. If there is a doubt then its better to find out yourself. These days it is very easy to find dividend related information about any mutual fund though Internet.  

Common Formulas Used In Investment

Simple Interest        

S.I. = Simple Interest          

P = Principal amount or Sum of amount      

R =  the annual rate of interest in the form of decimal e.g. 3% means r = 0.03

T = Total number of years you deposit money                    

S.I. = P*R*T/100                        


Compound Interest                                          
          
P = the principal (the money you first deposit)

r = the annual rate of interest in the form of decimal e.g. 3% means r = 0.03

n = the number of years you deposit your money

A = how much money you have accumulated after n years. This also includes the interest gained during n years.                            
If the interest is compounded once in a year :  
                        
A = P(1 + r)ⁿ                            

If the interest is compounded q times in a year :                        
  
A = P(1 + r/q)^nq                                                   


Formula for the amount of an annuity                                

Annuity - An annuity is a fixed sum of money which is paid at regular intervals.                                          

P = Sum deposited each year (beginning one year from when the annuity starts)

r = The interest rate, in the form of decimal e.g. 3% means r = 0.03

n = Total number of years the annuity has run.                  

N = Total amount accumulated after the end of n years.                                              

N = (P/r) ( (1 + r)ⁿ - 1)                                                    

So if 20000 rupees is deposited yearly for 20 years at 6%,                                              

N = (20000/0.06) ( (1 + 0.06)²⁰ -1) = 735711.8233 rupees

Money Saving Tips

If you are one of those who always wanted to save money but somehow ended up spending it then please continue reading.

1. Don't buy what you can't afford : We buy things which we like. But most often we don't realize that we might be spending much more than what we can afford. A second thought and calculating monthly budget must be done before buying expensive things.
2. Don't go for everything that's on sale : Sale items may not include everything that you actually need. But just because it's cheeper you go for it. One good example which I noticed in a showroom is that I saw lot of crowd had gathered over a counter. At the counter 20 rupees could be saved upon purchase of two pair of slippers. What people don't ask themselves is why it is on sale and do they actually need the second one. They assume that these slippers will be needed sometime in the future and hence it's bought. Now in order to save 20 rupees they spend much more than what they intended to. You might be thinking that even if they've spend extra in this month its not a problem because one day they will be needing the second pair of slippers and in that month they will save. But remember it becomes a habit, this month it is slipper next month it may be a shirt and so on and so forth. Also note that people may not only go for slippers but they may do the same for other items on sale.
3. Don't buy everything on credit : If you buy these slippers with a credit card then again you are not saving. You are just buying an unwanted thing and if you exceed your budget in that month then you will end up paying interest on it. Don't you think it sounds foolish.
4. Don't pay only the minimum amount on you credit card balance : Due to it you have to pay higher interest every month plus your savings will be lesser as you will stay in debt for a longer time.
5. Don't gamble with your hard earned money : You may argue that there are many people who have earned huge amounts by gambling in casinos,horse racing etc. The answer to it is that these so called people are either very very lucky or they have a very good understanding of the game that they are playing. 99.9 % of these rich guys know a lot more about casino's and horse racing than other gamblers. 
6. Don't be ready to lend money to your friends/relatives : Lending money to your friend/relative because he is in great need can sometimes be a bad option. One of my friend once said ' I never show all my cards '. This means that although he may be asking money from you but he certainly has many other options of getting it. When you lend money the borrower acts like a holy cow but when you ask for it he becomes a wild tiger. Trust me in most cases you will not get a single penny back or you may get it after a lot of time and that too in parts. More than 90% of people all over world have lost money lending to a relative or a friend. Make sure that you are lending your money to someone who has good bank balance, asset to his name. So that later on your relative/friend cannot say that he has no way to return it. Always lend money after consulting your elders or well wishers. Listen to what they think about the borrower's intentions. If possible let the borrower know that some people have a knowledge that you have lend money to him. The best way to say a NO to your friend/relative is that you have invested all your savings in stock market, mutual fund or a business and presently you are at a huge loss.
7. Don't spend your money as soon as you get it : Many people develop a strong urge to spend money after receiving their salary. They rush to buy a latest gadget or an expensive watch or a dress etc. This happens especially to those people who are either young or who don't have someone depending upon them. Best way to control this habit is to invest some money every month in a lock-in sort of investment like FD, ULIP's etc. for long term. The lock-in facility will not allow you to use the invested amount. These investments will grow over a period of time and will also supress your desire to spend money as soon as you get it.
8. Bargain before purchasing expensive things : It is surprising to know that almost everyone bargains with an auto rickshaw driver, vegetable vendor or a local market shopkeeper for only 5, 10 or 20 rupees. But we find so many people not bargaining about their salary, when buying a house, car or a furniture. These are the places where bargaining will save more than just 20-50 rupees. Even if they bargain it is found that most   often people easily settle for something less. The reason is that bargaing too much in areas like car showroom or real estate agent's offices where other well off guys are present is considered a bit insulting. The person selling the item knows very well about this ( after all he deals with so many persons everyday). So he tries a trick and tells you that he has not met anybody who has asked for such a low price or he may laugh after you offer your price. Don't easily give up, be firm, fight for every hard earned rupee and always be ready to walk out from the place without any argument. Argument makes things personal but your politeness may make the dealer call you again. Also it should be noted that these well off customers who are around you in a car showroom or real estate agent's office may be in a similar situation like you and even if they are not then  99 % of them will forget your face after just 1 or 2 days. 
9. Save on your electricity bill : Switch off the lights and fans which are not required, use AC in sleep mode, use microwave only when it is required, use CFL instead of bulbs, use gas geysers instead of electric geysers. During winter season only one gas geyser is enough for a family of four. This way you will not only save money but also contribute towards welfare of our mother earth. 
10. Save on your telephone/mobile bill : Have a good knowledge about the various plans on offer. Don't develop a habit of talking for hours. Call only when you have to and talk only till it is required. If you have a habit of talking too much on the mobile then it is always better to top-up with small amounts like Rs 50. This will make you think twice or thrice before calling anyone. Also you will have a constant knowledge about the balance and will not talk for hours as there is always a need to keep some amount for an urgent call.
11. Spend less on a dinner/movie : Movie for a couple generally costs around 500 rupees ( movie tickets + snacks + petrol ). Same amount is required for a dinner at a decent restaurant. If you save 1000 rupees every month by skipping a movie and a dinner you will save 12000 rupees in a year. These 12000 rupees can be used to meet other needs like buying a washing machine. If you invest 1000 rupees per month in a mutual fund through SIP for 20 years then you may get around than 10 lacs after 20 years. It sounds great to earn 10 lac rupees just by skipping a movie and an expensive dinner a month. 


Read - How To Beat The Equity Related Threats


12. Don't use car where bike is sufficient : Don't use car where bike is sufficient and don't use bike where your legs are sufficient. This way you will save money on petrol, reduce road traffic and improve health.
13. Internet shopping : These days there are so many websites which offer branded products at discounted prices. Just think of a product and chances are that you will find it being sold on the net. We can really save lot of money if we do a bit of research before buying things. Just go to the nearby market / mall, find out the MRP of a product and search the same on the shopping websites. You will be surprised to see the discounts offered on some of the products. If you don't have a credit card then also you don't have to worry as most of these websites sell products on 'cash on delivery (COD)' basis.
14. Reduce ciggarette and liquor : Actually it should be avoided but if you cannot avoid then at least reduce. This way you will save money and improve health.
15. Use washing machine judiously : Using wasing machine for only few clothes means consuming more water, washing powder and electricity.
16. Go for large quantity : What is common between a large bottle of sauce, large packet of detergent powder, large bar of soap, large can of cooking oil etc ? The answer is that you save money when you buy these items in large quantity you save money. Just compare the ratio of price to quantity of these large items with the smaller ones you will understand what I mean. However, monthly budget must be considered before buying large quantities.
17. Chose a group tour : When choosing a holiday package a group tour allows you to visit more places for a lesser amount. However, the disadvantage is that it can become tiring due to over travelling. 

We Must Find Retirement Solutions....Now

Finding retirement solutions is something that most people consider at a later part of life. We are so busy in our lives that sometimes we don't observe how fast things are changing around us. Most of us don't think about consequences of these rapid changes. However, this situation is changing fast and few years from here retirement planning might become your first priority. If you don't act now then you may find yourself in lots of trouble at the later stages of life.
If there are any doubts in your mind then consider these points which may change your investment strategy.
1. Rising inflation : Costs are increasing at a rapid pace. Due to this even people with good monthly income are having problems with their budget. If you think that the rise in inflation rate is not constant and it may come down in future then you must rethink. Yes, inflation rate is not constant and prices may come down. But history tells us that there has always been an increasing uptrend in the prices. Few factors such as global warming, frequent floods, draught are causing the food prices to rise year after year. The overall population of the world is increasing like never before. Due to this there is a huge increase in demand of all commodities which includes oil, food and other things which we use in our daily lives. We also know that constant decrease in crude oil reserves are not going to help. It is almost impossible to imagine what the world will look like 30 years from now and what the prices will be when you reach your retirement age.
2. Decline of Joint Family System : Our social system is changing and its going the western way. More and more youngsters are willing to stay away from their parents and live separately. It is also because for higher education most of the youngsters have to go to cities other than their hometown. Thus they develop a habit of living a life of freedom. Some kids are forced to leave their parental home because they are offered jobs in cities other than their hometown. So when children shift away from home parents are left with not much support. 
3. Loneliness : You may not agree that money is sometimes required to reduce loneliness at an older age. But I am 100 % sure that once you grow old you will . When we are young we get a lot of importance from our parents as well as from our close relatives. Just look around and try to find people who give lot of respect/importance to their old age relatives ( who don't have any source of income ). You may find very few of them. But if you think of your other relatives who are old but still earning members of their family ( through business, some job, investment or pension ), you may find that still they are given respect/importance from others. It's sad but true. Though there are many people who treat elders with respect but still they may not be able to give enough time to their elders. It has been found that all this problem generally starts with an old age and never ends. Being lonely in life is a very uncomfortable situation which nobody wants. If you do not trust me then ask the old man in your house.
4. Medical costs :  Due to inflation even medical costs are increasing. Imagine what the costs will be after 30-35 years. You may consider that taking a health insurance will solve the problem. But then there is lot of thinking required for it. Most of the people buy health insurance of up to 2-3 lac rupees. But what we don't consider is the medical cost required at the time of retirement. Also money is required to pay the premium for health plan which might be difficult for someone without a pension. It is also important to note that a health plan does not necessarily include expense of medicines, injections, medical equipments etc. It is needless to mention that these things are required more often at an old age.
At an older age very few have the courage, stamina and options to start earning again. On top of that pension related jobs are also decreasing. So to avoid these problems retirement planning is a must. Nowadays retirement plans provide monthly income without any hassle. However if some other plan promises better returns then it can also be considered. So plan now and retire rich.

Why You Should Start Investing As Early As Possible

I have always asked youngsters to start investing as early as possible. I found that after getting a job most of the youngsters want to first enjoy their life and want to think about investments at a later stage. They want to have best of clothes, latest gadgets, speeding bikes and many more things. Actually there is nothing wrong in it. When someone starts earning he wants to have everything that once he dreamt of. Every youngsters goes through this phase but later on they realize their mistake. I don't recommend you to invest all your monthly income and kill your desires. But if you invest just 1000-2000 rupees per month then it would be a good start. Later on as your awareness increases further investments can done.

Read - How To Beat Equity The Related Threats


Here are some of the main reasons why it's important to start investing as early as possible.
 1. India's Growth Story : Presently we all know that India has a great growth story. But history tells us that a country's growth story has never been everlasting. Returns in the next 10 years may or may not be same after 20 years. So it is better to invest now and reap maximum benefits than investing at a time when everybody is uncertain about the returns. 
 2. Disciplined Savings : Monthly Investment of some amount of your income at a young age will help you in developing a good habit of saving money. 
 3. Lower insurance premium : If you buy an insurance plan now then your yearly premium will be much less than what you will have to pay if same insurance plan is bought after 5 years. So its better to invest in insurance as early as possible.  
 4. Deal with rise in inflation : Inflation rate has jumped much more than what anybody would have asked for. With the rise of human population, increase in global warming, reduction of oil reserves etc. inflation related concern is here to stay. Investing early means having a plan to deal with the rise in inflation. The returns from your investment will provide financial support if inflation causes any problem. 
 5. Better returns : All financial advisors will advise you to invest regularly for a long term. Now consider two persons Alok and Manoj. Alok is 25 year old and Manoj is 30 year old. If they both invest 5000 rupees per month then at the retirement age ( i.e. 60 ) duration and amount of Alok's investment will be much more than Manoj's investment. Needless to say, Alok will have better returns than Manoj. 
 6. Better Home : If you start investing early you may buy your dream home much earlier than you would have thought. Also your investments will give you a power of choosing the best option instead of compromising on anything. 
 7. Nice Car : If you have a house then surely you would like to have a car. Again your early investments will be useful. 
 8. Child's Education : Education fees is growing every year. Govt. colleges where students go for higher studies have also increased their fees considerably. Even for a man earning 50000 rupees per month it has become difficult to manage such large amounts at any point of time. Now imagine the situation after 15-20 years when your children decide to join an engineering or medical college.  
 9. Child Marriage : We all know that plenty of money is required for Indian marriages. These days there are various child plans available where you can invest for your child's marriage or higher education. You can also invest in stocks, mutual funds, gold, real estate etc. but the main idea is investing as early as possible.  10. Retirement Solutions : Nowadays retirement planning is a growing concern among investors. There are many reasons for this. But early investments can give you an option of early and happy retirement. 


Read - We Must Find Retirement Solutions....Now

Pure Risk Cover Term Policy Vs Endowment Policies

Pure Risk Cover Term Policy:                    
1. Premium is very low for a given sum assured.
2. There are no returns at all.
3. Policy cannot be pledged for taking loan.
4. Since the premium is low tax saving from it will also be low.
5. Sum assured shall cease after the policy term.

Endowment Policies:
1. Premium is higher for a given sum assured. 
2. Completely tax free returns on the premium. 
3. If premium is paid for at least three years then some policies can be pledged for taking a loan. The rate at which you get loan is lower than other personal loans. During this period the policy is also continued.
4. Tax savings up to 1 lac is possible.
5. Some policies offer sum assured even after all the maturity of policy. So you get the returns and don't have to pay any more premiums but risk cover would still remain.  


Now you must be thinking that if endowment policy has so many good features then why should we go for the other one. Well, the companies are not a fool to introduce pure protection policies. In a pure protection policy an amount is paid as a yearly premium for a given sum assured. This amount is also deducted from the premium paid in the endowment or money back policies. So the amount which gets invested in endowment or money back policies is what remains after deduction. Also the returns that we can get from endowment or money back policies is usually less than returns from PPF or from investment in mutual funds through SIP. So now that you have a fair idea about these policies I am sure you can take a good decision when buying a policy. 


What is Moneyback policy ? It is same like an endowment policy. The only difference is that here you get some money in the form of returns after every few years ( e.g. after every five years ) till the policy term. Returns are usually lesser than endowment policies.  

How To Beat The Equity Related Threats

Although equities are said offer higher returns than any other assets but still most of us are very cautious when it comes to investing in equities. There are lot of reasons for it. So let's quickly understand what are these reasons.
 1. When to invest ? No one can time the market. Everybody is unsure whether market will go down or rise up from present levels. So the first question that comes to mind is what if the market takes a downturn after you buy?
 2. Where to invest ? There are multiple options available which can be confusing at times. Some of these options are bluechip companies, A group companies, B group companies, largecap, midcap, smallcap, numerous different sectors etc.
 3. The volatilty associated with equities. People often sell at loss when market goes down, later on they find out that market has suddenly risen and now they don't want to invest at such high prices.
 4. It involves lot of risk. Equities have eaten up entire savings of many investors.
 5. Investing in stocks means being constantly in touch with the stock market and the news about the companies. This is not possible for most of the business and service class people. 
 6. Lot of research has to be done to find out the right stock. But it requires a lot of time. Even if you give lot of time for the research still there is a chance that your research may backfire. The reason is because most of us are not an expert.                                 
Now after knowing so many risks involved you may be thinking about dumping the idea of investing equities forever. But what if we have a solution for all these problems. I am sure you will then be very happy to invest in equities and earn handsome returns for a long period of time. Investing in mutual funds through SIP will solve all these problems.                            
What is a mutual fund ? A mutual fund is an institution which manages money (pooled in from investors) professionally by investing in securities (stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities such as precious metals).                             
What is SIP (systematic investment plan) ? The Systematic Investment Plan (SIP) is an option for investors to invest a fixed amount in a mutual fund regularly on a particular date of every month. The amount to be invested every month and the date on which this amount will be regularly invested is decided by the investor. Time period for the investment is also decided by the investor and there is also no lock-in period. Any number of units can be redeemed at any time and even added by the investor.

The advantages are:
1. Unknowingly you get into a habit of saving money every month.
2. Since your money is getting invested every month on a regular basis the market fluctuations are dealt with.
3. You don't have to research for the good stocks.
4. When you invest in SIP your money is invested in many stocks so there is no need to worry about a single company going bankrupt.
5. You don't have to be in constant touch with the stock market news.

Don't Mix Investment With Insurance or Insurance With Saving Tax

Yes we should save tax and yes we should invest money for a better financial future but not at the cost of insurance. Most of the people buy insurance not because they really want it but because they want to save tax. But these people don't understand the real importance of having sufficient insurance. Though there is no rule as to how much insurance one needs as it depends on many factors like income, expenditure, loan taken, persons in the family etc. but once I heard from an experienced CA that to find out how much insurance you need just multiply your annual income into 8. I cannot argue on this but I have followed his advise till now. First let's understand why insurance should not be clubbed with investment. We buy insurance because we want financial protection for our family. When we buy insurance related investment products (e.g. ULIPs) our prime motive is to invest and also get insurance. It sounds like an ad which says " Buy 1 get 1 free. " But is it free. Certainly not, the ULIPs do not promise large sum assured and if you go for large sum assured in these ULIPs then your return reduces. The reason is that a good amount of your premium is deducted in the form of charges. These charges are highest in the first five years. So you actually you do not get any thing for free. You pay for both the things. Now if you really want an insurance then go for a pure risk cover term policy. This will increase your sum assured and also let you invest remaining amount in property, commodity or stocks for better returns. However there are certain  ULIPs in the market which offer a better value for money.

Now let's find out why insurance should not be clubbed with saving taxes.
I have mentioned before also that we should be adequately insured. Consider a healthy 30 year old person earning Rs 50,000 per month working in a good company. His annual premium is 1 lac, invested in an endowment plan for a term of 25 years. He saves 1 lac every year in taxes and he is very happy with it. Generally he should have insurance of  50 lacs. But he would not get insurance of more than 25-30 lacs. So where did he go wrong ? Actually he should have bought a pure risk cover term policy along with other existing insurance policies. This way he might invest more than what is required to save taxes but finally will serve his main motive i.e. sufficient insurance. 

Do You Really Need Insurance / Health Insurance ?

When my cousin was 25 years old he had bought ULIP. His premium was 1 lac rupees per annum and his income was 75 thousand rupees per month at that time. The sum assured was 5 lacs. After 5 years he is now happily married and has a two year old child. One day he asked me to help him in his investments. I was surprised to know that his insurance was still the same ULIP and rest of his money was invested in Mutual funds, stocks, FD. He also had a 400 sq. yard plot. Although he was smart to diversify his portfolio but not smart enough to decide how much insurance he needs. Unknowingly he had brought his family into a very dangerous situation. Imagine what if unfortunately he meets an accident which results in his sudden death or makes him incapable to continue his job. Now because of his investments he would have no financial problems for 3-4 years. But after these 3-4 years what would he do, how would he earn money? These are the questions that should come to his mind now. Now that he has a very good investment already so instead of spending one lac for the ULIP he should have chosen to spend 88000 rupees for the ULIP and 70000 rupees for a pure risk cover term policy and 5000 rupees for a health insurance. This means that although he is not reducing his ULIP premium to a great amount still he is getting insurance cover of around 80-90 lacs and Health insurance up to 3 lacs. So what if he does not get any returns on those 12000 rupees which he will spend every year on the insurance, at least he is financially protecting his family with lot of money. This amount can be used by his family to start a business or buy a property which would earn them regular money in his absence. Don't forget this also means that his other investments can continue and multiply over years. If you are still not certain about getting insured then there are few more things that I want you to read. Consider your close cousin in place of my cousin and try to find answers to these questions.

 1. What if he had spend lavishly before marriage and had just started investing a year back ?
 2. What if he had invested only in stocks and his investments had reduced considerably due to crash in the stock market ?
 3. Cost of treatment is increasing at a rapid pace. But my cousin did not have Health insurance. What if all the savings had been used up in his treatment ? 
 4. What if he had retired parents to look after and a sister ready for marriage ?
 5. What if he had taken up a home or personal loan ? There are many what ifs but what is important is to realize that a small insurance / health insurance is also like having no insurance. There is an increasing number of casualties reported every year & the resources ( new diseases, frequent floods & earthquakes, terrorist attacks, naxalite attacks, train & airplane accidents, global warming etc. ) are increasing too . So please get insured. I helped my cousin you should help yours.  

Insurance Agent - Think Again Before Trusting

We all see many advertisements on the net & television about new insurance policies. Every insurance agent claims that their policies are the best. In the market it seems a fight going on among the agents to sell their products. The reason being lot of commision for the agents. These agents usually give false promises about the returns & advantages and sell you a policy which may not suit you at all. However not all the agents are same but you must educate youself about different tricks which they have up their sleeves and learn how to deal with them. Some of these tricks are :
 1. If you have ever come acros an LIC agent he would have definitely told you that his product is the best as there is a guarantee from the government because its not a private company. But don't get fooled by it. LIC only guarantees sum assured. This guarantee you will get from all the companies including the private ones. So why do they say it? Well the catch is that whatever the returns they are promising is not guaranteed. But just because its not a private company and the agent keeps on repeating this ' Guarantee ' word you may believe that returns are also guaranteed. Agent from a private company also cannot guarantee returns. But yes there are certain policies in the market including ULIPs in which the company guarantees minimum returns. Unless this thing is in black and white from the company itself you must not trust your agent.
 2. Even if an agent does not guarantee returns he might say that a particular policy has been giving around 15 % returns in the past. He will tell that he himself has invested in it along with his relatives because this one is best in the market. To proove he may also show you papers in which you can see 15 % annual returns in the previous years. So should you opt for it? The answer is not yet. Many agents will show you this kind of paper with excellent returns but the papers are not always from the company. These are beautifully made on a computer by the agents themselves. I myself have a personal experience of it. So always look for approved sales brochure from the company.
 3. Often people get calls from their agents to surrender the current ULIP and change over to the another. This happens mostly after their policies have run for five years. When anybody asks the reason behind it they are told that the current plan is not giving proper returns and as per a research this will continue for another one or two years. Your agent will suggest you another ULIP and will press you to act fast before its too late. The reason behind it is that during first five years of a ULIP the charges are highest. So the returns are lesser. An agent gets maximum commision during this time. So if you invest in a new policy he will again get maximum commision for five years. But on the other hand you will be on the losing side as again for 5 years you will have to pay higher charges for your new policy.
 4. If you are having children and someone asks you " is your child insured " what would be your reaction? Well if you are an emotional parent then you might feel that if you have insured yourself then why not for your child. But actually insurance must be bought for the earning members of a family as all other members are dependant on their income. If you are not financially dependant on your child then it is not recommended to insure him/her. It would be wise to invest the same amount somewhere else where you would get maximum returns in the long term. These returns can be used later on to secure your child's education or marriage etc.
 5. Many people who are not much aware of the basics of investment get fooled by agents who sell them either unheard policies or policies of unheard companies. Most of these companies are frauds and after some time not only the agent but the office will also vanish from its place. These people are first shown excellent returns of 20 to 50 %, higher sum assured and lower annual premiums but later on these turn out to be a false promises. Sometimes agents sell unheard policies on the name of a reputed companies which is not true. So its better to investigate yourself if you ever come across a unheard policy or company.

5 Reasons Why Most Of The People Lose Money

Everyone has a desire to be financially stable. Though there is nothing wrong in it but the in order to achieve our financial goals sometimes we try too hard and thus make some mistakes. These mistakes can cost us a lot, sometimes resulting in a financial situation where you would feel no way out . Its  important to note that not only a middle class man but also someone of a higher status can loose all his savings & assets due to a single financial mistake. Here are some important reasons which leads to loss of money :                            

1. Trusting your friend/relative: Many times you get advice from your friends & relatives. However you should be selective in choosing whom to trust. There are  various reasons for this : (i) Your friend/relative might have a personal reason behind the advice. Usually insurance, mutual fund,real estate agents etc. advice something which does not  suit you.They get a good commission for it. (ii) If your friend/relative does not have sufficient money to support his business or investment he might ask you to join his business and promise you great returns. He may never tell you the real reason behind asking you to join his business. On the other hand he might tell others that he is helping you by making you join his business.  (iii) Lending money to your friend/relative because he is in great need can sometimes be a bad option. One of my friend once said ' I never show all my cards '. This means that although he may be asking money from you but he certainly had many other options of getting it. When you lend money the borrower acts like a domestic cow but when you ask for it he becomes a wild tiger. Trust me in most cases you will not get a single penny back or you may get it after a lot of time and that too in parts. More than 90% of people all over world have lost money lending to a relative. (iv) Sometimes your best relative/friend can also lead you to make a financial mistake. This happens when your best relative/friend is a member of a fraud company. Although he may not have a bad intention but he recommends products of his company because he himself feels that its the best available in the market. By the time he realises that he was given a false information he already leads his relatives/friends into financial trouble. This mostly is the case with the fraud companies selling false financial products. (v) In some rare circumstances cheating brothers, sisters and even wife has led to a financial destruction of an individual.

2. Copying others idea: Copying others idea/formula is not always a good option. Others might be doing something which suit their habbit, knowledge and experience. But it may not be suitable to you. A share market research analyst may be earning millions of rupees by investing in stocks. But if a wealthy transport buisnessman who is absolutely new to stock market starts to invest in stocks he might loose few millions.

3. Loan: Before taking a loan for a business or investment its very important to ascertain, what if your plan goes wong. It should'nt happen that you have no means of paying the EMI if your new business fails. Such a situation can suck all your savings, assets and can make you bankrupt. Also you will end up featuring in list of defaulter's. So next time when you apply for loan from any financial institution you may find it very difficult to get it.  

4. Choosing a wrong financial adviser: Most persons are not good at managing money. So they look for a financial adviser for themselves. In most cases the person advising you is your relative, friend, from your bank, from a financial company. Sometimes these may not be the best for you as either they have nothing to loose ( in the case of friend/relative ) or they want you to invest more because its actually good for their pocket ( in the case of bank agents, financial company agents ).

5. Stress: Stress caused by society ( relatives, neighbours,work place etc. ), financial loss, loss of a close family member, career threatening accident or illness etc. can make even the smartest of person take wrong decision.                            

How To Avoid it ?                  
        
1. Do not let others know about how much money you are earning. Though actually you may not require money from others but always show that you need money for your new house, car, business, child's marriage or higher studies. 
2. Learn to say no to others. Be very selective when lending money. Make sure that you are lending your money to someone who has good bank balance, asset to his name. So that later on your relative/friend cannot say that he has no way to return it. Always lend money after consulting your elders or well wishers. Listen to what they think about the borrower's intentions. Lend money in the presence of others or you can tell the borrower that others also know that you have lend money to him. The best way to say a NO to your friend/relative is that you have invested all your savings in stock market, mutual fund or a business and presently you are at a huge loss.
3. Do not blindly copy others idea. 
4. Choose a financial adviser who has a good reputation among his clients. It might take some time to find such an adviser but the end result will be a satisfying one.
5. Whenever you are under stress do not take an important decision whether its financial or personal. Give yourself some time to settle. Take advise of your seniors and elders.