Financial Advisor

Wednesday, April 23, 2014

Term Plan Vs Endowment Plan

Term Insurance Vs Endowment Plan

We often come across these two terminologies when we talk about insurance and investment. As my earlier articles and blogs here I would like to mention here again that never mix your insurance need and investment need. These both shod taken separate after analyze the need. If you have no time to analyze or do not have knowledge then in that case you should contact qualified financial planner.

In term insurance and endowment insurance which one is good? Before going to get answer let us first understand these product properly.

Term Insurance:

It is pure insurance and the premium for insurance cover is very low. It means you will get higher insurance cover by paying less premium. A 30 year old healthy person will pay Rs 8,000 for Rs 50 lakh insurance cover. In case of any unfortunate event during policy term, insured’s family will get full sum insured. If nothing happen then insured will not get anything at the end of the term.

Endowment Policy:

In endowment policy, in case of any unfortunate event happen during the policy term, the insured’s family will get sum assured and if insured survive the whole policy term then at the end of the policy term insured will get sum assured along with declared bonus. Keep in mind bonus is not guaranteed. A 30 year old person will pay around Rs 50,000 premium for Rs 50 lakh cover.

Which one you should choose?

Many of us think that if there should be some payout at the end of the term if insured person survive the term. If you get trap with this thought then you will pay high premium for the same insurance cover and will get lower return around 5%.

In my point of view, you should choose term cover. You will get high coverage with lowest premium compare with other insurance. You can invest rest of the premium after paying term cover premium amount in the other available investment option.

Even PPF and bank fix deposit will give you higher return than endowment policy. It is worst option available for investor with low return. Only agent will get benefit of the hefty commission from the endowment policy and at the end of the term investor loose the better opportunity and get poor return.

In general, you pay the insurance premium around 20 year and get the return 5%-6% after 20 year paying premium. If you invest the same amount for same period in good equity mutual fund then you may get the return of around 14%. Now it is on you which one you will prefer.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Friday, April 18, 2014

SHRIRAM CITI UNION FINANCE LIMITED: NCD Offer

SHRIRAM CITI UNION FINANCE LIMITED: NCD Offer

If you willing earn more than bank fix deposit then this NCD for you. Obviously you would have to take more risk for that. Shriram Citi Union Finance Ltd is an NBFC and part of the reputed Shriram group of companies. It offers loan to the small enterprise, provides loan against gold, financing for two wheeler and other commercial goods segment. It is the market leader of small loan segment in financial year 2013 with the estimated market share of 41.6%.

The company has come with public offer secured NCD of face value of Rs 1,000 each. The total size of issue is Rs 20,000 lakh. The 40% of issue is reserve for retail investor category. The retail category investment limit is up to Rs 5 lakh. The minimum application size is Rs 10,000 (10 NCD). The NCD would be listed on BSE. It would be available in both mode physical and demat form.

If you have invested Rs 10,000 in this NCD, you will get the below mentioned amount at the end of the term.

24 Month	36 Month	60 Month
Rs 12,321	Rs 13,862	Rs 17,427.60

It means the effective yield per annum would be 11% for 24 months, 11.50% for 36 months and 11.75% for 60 months.

Taxation:

A listed debenture is treated as a long term capital asset if you hold it more than 1 year from the date of allotment. The long term capital gain would be 10% if calculate without indexation and would be 20% if use indexation method.

Rating agency CARE has given it AA rating. Investor may choose this to allocate some part of their investment portfolio.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Monday, April 14, 2014

Impact of general election on equity market

Impact of general election on our market

We are one of the largest democratic country in the world. The general election is the important event of our country. The financial market is keenly waiting the outcome of the election result. Our share market has also performed and made a new high as per positive outcome from this election. Any unexpected or below from the expectation would impact badly on the market in short term. The election result would be come out on 16 May, 2014.

In my view, the outcome of election event is only important for short term. In last few trading days the volatility index has gone up significantly. Let see the market’s 2 days return after the election result:

Election Year	2 days return after election result
1999	6.05%
2004	-16.56%
2009	17.34%
2014	???

If we analyze the election result from 1991 to 2004, the sensex has given 20% return after 1 year. Although it is very difficult to predict the outcome of result but we can easily understand that business cycles will continue irrespective of any government. The long term fundamental is intact for our economy. The last few months has given a good hint for economy like CAD has come down, inflation has also cooled down, the future interest rate till October look stable and afterwards it should also soften which is good sign for our economy.

No doubt, election play important role in driving fundamental and push to the economy. I hope after election the elected government push the investment in system and growth would be on track. The delayed project will get green signal and some important decision would be take in speedy manner.

If anyone who has not invested in the equity market still, it is the right time to reap the benefit of the economy and start investing in the time horizon of 3-5 year. In the next 3-5 year, I expect the good return from the equity market. For retail investor it is the good time to enter the market for 5 year time horizon.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Thursday, April 10, 2014

Do you know Reverse Mortgage Loan or RML?

Do you know Reverse Mortgage Loan or RML?

In the short and simple understanding, reverse mortgage is a financial arrangement to provide regular income to senior citizen. In our country the pension scheme has transferred to defined contribution from defined benefit. Under defined contribution pension schemes, the monthly or quarterly pension will depend on your contribution during your working period and fund value at the time of retirement.

In reverse mortgage senior citizens will get cash at specified time interval income against their home and they also allowed to live in their houses until death or sale of the house property. They do not need pay back until specified time.

In normal home mortgage the borrower paid back borrowed money with interest in the form of EMI (Equated Monthly Instalments) to lender. In the reverse mortgage, the lender make payment to the borrower and the loan amount gets accumulated.

It was introduced in India at 2007. Some public sector banks like SBI, Central Bank of India has introduced such product from 1st April 2008 under the guideline issued by National Housing Bank (NHB). Some features are given below:

Under RML the person above age 60 can avail payments in the predetermined period from a lender against their house as a mortgage and at the same time they can reside in their mortgaged home also.
Senior citizen need not to pay back during their life time. As per current guideline the maximum period of the payments is 20 year and the payment will not exceed Rs 50,000 per month.
Once the payment period is over, the payout will be stopped but the borrower and the spouse would be allowed to live in their mortgaged house. Upon their death, the first offer of sale of the house will be made to legal heirs. In case they are unable to repay the loan, the house would be sold by the lender. The lender would recovers due payment and pays to the balance amount to the legal heirs.
Valuation of the residential property would be conducted in at least once in 5 years by the reverse mortgage lender.
Foreclosure of the loan also possible but it attracts penalty also.

In these days, at the time of retirement it is new tool available to the senior citizen get cash income stream and they can also stayed in their mortgaged home. It is ideal for those persons who is house rich and cash poor.

It is very vast subject and not very popular in our country. The country’s largest life insurance company LIC is also entering in the RML market. Now we can hope it will reach to the maximum needy people.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Sunday, April 6, 2014

What should do in this market?

What should do in this market?

In these days, our major market indexes are performing very well (Sensex and Nifty). Market indexes are at their highest points, equity mutual funds also improving performances, investor’s portfolio’s health improving in these days. Now the major questions are why equity market performing are in India and what should an investor or trader do at this point. First we are discussing about the factors which are responsible for market’s current performance.

The reason behind the market rally:

Some people are expecting the stable and growth oriented government after the election.
FII (Foreign Institutional Investors) investments in our markets are improving from last few months.
Indian rupee is appreciating against dollar and it is also the major factor behind this according to me.

What should the investor do?

If you have already equity portfolio then you must hedge your position. After market any major negative swing wipe out your portfolio valuation so hedging your portfolio are necessary to avoid any loss.
No doubt, markets will perform good in the next 2-3 year but shot term trader should cautious and do the trade with strict stop loss as near term upside seem not much, Nifty level should not cross the 7200-7300 after even election result.
If you are investing in equity mutual fund by monthly SIP (Systematic Investment Plan) to achieve your future long term goal then you should stay invested and before two year you should transfer your equity portfolio into debt portfolio.
Before investing in particular company’s stock, check the company’s fundamental and valuation whether it is overprice or trading at below from fair value at present. There are still many good companies available at good price in spite of market at its life time high.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Friday, April 4, 2014

Do you realize the power of Compounding?

Do you realize the power of Compounding?

In our school days, all of us learnt about compound interest in mathematics. After leaving colleges we have got busy in different professions. Many of us know and understand the power of compounding. But unfortunately many of us have forgotten or do not realize the power of compounding.

The great scientist Albert Einstein had said that the most powerful thing in the universe is power of compounding. Compound interest is the eighth wonder of the world.

Compound interest is same as simple interest, the only difference in it that the interest will be added to the principal amount at a certain amount. The formula of compound interest is

A=P*(1+r/100)^n

Where A = Earned amount including interest, P= Principal Amount, r = rate of interest, n= time in years

Here I will take one example to understand the power of compounding.

If you have two below mentioned option:

(A) You will receive Rs 1,00,00,000 (One Crore) every day till one month (30 days)

(B) You will receive first day Rs 1 and the second day the just double than the previous day Rs 2 and the third day Rs 4 just double of second day. It means you will receive every day double money than previous day till one month. 1,2,4,8,16,32,64,128………..till one month (30 days).

Now tell me honestly without scroll below which option will you choose from the above mentioned options……?

If you choose option A you will get total Rs 30 crore after one month or 30 days. Seem cool deal…..But if you choose second option then you will get total Rs 1,07,37,41,823 at the end of one month or 30 days. I know you won’t believe this figure. How can a person earn so much money if you start getting only Rs 1 from the day one. In fact you had not thought about this figure. For your believing I would like to mention here the whole calculation.

Day	Amount
1	1
2	2
3	4
4	8
5	16
6	32
7	64
8	128
9	256
10	512
11	1024
12	2048
13	4096
14	8192
15	16384
16	32768
17	65536
18	131072
19	262144
20	524288
21	1048576
22	2097152
23	4194304
24	8388608
25	16777216
26	33554432
27	67108864
28	134217728
29	268435456
30	536870912
Total Amount	1,07,37,41,823

After viewing the above calculation I am now sure now that all of our reader realize the power of compounding. It is the very basic thing before start investing. In fact most of us never realize the power of compounding in the long term.

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner