Financial Advisor

Friday, August 14, 2015

ULIP or Equity MF- Which one better?

ULIP or Equity MF – Which one better?

I have often seen very confused investor for which one is good for investment either ULIP or Equity MF. Both are long term investment product. Investors often lure with the ULIP for very catching word insurance. Whereas equity mutual fund do not offer any insurance but great return as the efficient wealth creator in long term.

Although, Unit-linked insurance plans (ULIP) offers many types of funds from equity to debt segment. If you compare its return over the five year period, it has performed very bad when we compare it with equity fund return.

Recently a very informative financial magazine has done a study about the return of ULIP and equity mutual fund schemes. The Top 10 ULIP funds has given an average anuualised return of 16.61% while mutual fund schemes has delivered an average return of 22.20%. If we compare top 25 ULIP funds and top 25 equity mutual funds, ULIP delivered an average return of 15.28% and MF schemes return has been 20.71% in the same period.

ULIPs published their NAV before adjusting fund management cost and other cost while equity mutual funds published NAV after adjusting all cost. It is the reason investors are not getting right comparison between ULIP and equity MF funds. Returns from ULIP would be more worst after deducting charges like premium allocation charge, mortality charge and other charges. These charges are different for ULIPs managed by various financial entities. Only fund management charge is adjusted in unit price of ULIPs funds. MF schemes unit prices are calculated after deducting all expenses. This makes equity mutual fund return more superior than ULIP funds.

The fund management charge, of around 1.35% may attract investor towards ULIP as it appears lower than expense ratio of equity mutual funds. But when we consider other costs of ULIP- in most cases- it goes up to above 3% in the initial years of investing in ULIP. In an analysis of 237 ULIP funds, more than 50% of ULIP funds underperformed the Sensex over a period of 5 year ended in Feb 2015.

IRDA has put some cap on various charges after 2010. But still the costs of ULIP are much higher than equity MF. If you are looking for good long term investment option with low cost, equity mutual funds are still good choice.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Tuesday, December 23, 2014

Sector Update: Insurance

Sector Update: Insurance

Government of India is trying the best to pass the insurance reform bill in Rajya Sabha but the govt have no majority in Rajya Sabha and important bills in this session has stuck.

Impact on insurance industry of new insurance bill:

In new insurance bill, IRDA has to decide on the commission of insurance agents. Health Insurance entry capital for new player will remain same at Rs 100 crore. According to this bill, IRDA will free to formulate acts and rules and allowed to fix penalties.

One more important and lesser known provision in this new insurance bill which can increase the no. of rejected claim. Under the current rule, an insurance policy cannot be called into question after 2 years of policy issued. Under the new amendment in this bill this period would be 3 years now. The discrepancy in the new bill is that it holds insured responsible for any fraud conduct by the insurance agent whereas according to insurance regulation, which deems agent to be representative of the company.

Life insurance council has recommended for reduction in service tax to the government. At present at the time of getting policy mature proceed service tax levied on PAN card holder is 2% and non PAN card holder is 20% of the maturity amount whereas other financial products like mutual funds and fixed deposit do not attract service tax on maturity.

Now onwards, group health insurance cover will become more expensive for companies where hospitalization claims from employees exceed the premium paid. The IRDA will penalize such insurance companies as due to these losses individual policy holder pay more premium. The regulator has also asked insurance companies to come up with saving-linked insurance plan so that individual buyers do not need to pay more as the age grows.

More group health insurance policies are now offering OPD (outpatient department) expenses. With the growing competition, most of insurance companies have begun to cover day-care procedures in hospitals instead of the mandatory overnight stays.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Wednesday, November 12, 2014

Review of LIC Jeevan Shagun Policy

Review of LIC Jeevan Shagun Policy

On 1st Sept, 2014 LIC has launced LIC Jeevan Shagun Policy for 90 days. Many of my friends and investors has inquired about this whether should they buy it or not. Today we will discuss about its features in detail for review. It is non linked, single premium, money back insurance plan with profit.

Features of LIC Jeevan Shagun Money Back Plan:

· The minimum entry age is 18 and the maximum entry age is 45 for this plan

· It is single premium policy. It means you have to pay premium only in starting. The policy tenure is 12 year.

· It offer sum assured 10 times of single premium which you pay in start. It will be paid only in the case of death. The minimum sum assured is Rs 60,000 in this plan and for maximum there is no limit.

· Loan facility also available in this plan. Loan amount is linked to surrender value. From 2^nd to 3^rd year of policy the eligible loan amount would be 50% of surrender value. From 4^th to 6^th year the loan amount would be 60% of surrender value. For 7^th to 9^th year it would be 70% of surrender value and from 10^th to 12^th year it would be 90% of the surrender value

Death Benefit:

In case death happen within 5 year from the beginning of policy your nominee will get paid basic sum assured means 10 time of your single premium and if it happen after 5 year then nominee will get basic sum assured with loyality addition.

Survival Benefit:

On survival of life insured, the insured will get 15% of the maturity sum assured at the end of 10th year, 20% of maturity sum assured at the end of 11^th policy year and 65% of maturity sum assured will get at the end of 12^th year of policy.

Surrender Value:

If you not satisfied with your policy, you have option to surrender it. If you surrender within 1 year from date of policy then you will get 75% of single premium and if you surrender policy after 1 year from the date of policy then you will get 90% of the single premium.

An example for understanding:

If a 40 year age person take Rs 1 lakh maturity sum assured, he/she need to pay Rs 59,500 ((1,00,000 / 1,000)*595) as single premium for 12 year policy cover. In case of death he/she will get 10 times of single premium, It means in this case 5.95 lakh.

In case of survival the payout he/she will get at the end of 10^th year is Rs15,000 (15% of maturity sum assured). At the end of 11^th year you will get Rs 20,000 (20% of maturity sum assured) and at the end of 12^th year Rs 65,000 (65% of maturity sum assured) and loyalty addition or bonus if any.

Should you go for this plan?

I have many times mentioned in my blog. Generally LIC policies provide returns between 5% to 7%. Low risk appetite investors who want to stay away from high risk and high return products stocks, mutual funds, etc. can opt for such policies. One should consider term insurance plans for risk coverage purpose and balance, invest in bank FD schemes or mutual funds and stocks according to their risk appetite which can provide better returns.

If you want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for seminar in your city just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Tuesday, May 20, 2014

LIC’s newly launched Online Term Plan

The largest life insurance market shareholder launched an online term plan last week. Although LIC has delayed to launch it as almost all private insurance players like Aviva, Ageon religare, HDFC, ICICI etc already launched it before many year. It is very popular product among young earning generation. The first online term plan were launched in 2009. It took 5 year to LIC come up with such type of plan.

The premium of LIC’s online term plan is costlier than its peer players. The brand value of LIC is much matter for people than premium. The PSU status of LIC do more score in policy holder’s mind and in our country people rely on LIC very much.

The premium of online term plan is very low due to there is no agent between insurer and insured. Therefore, agent’s commission directly passed to the insured and it is very cost effective for insurance companies also. However, premium calculator available on every insurer’s website but the premium is only indicative. You will know actual paying premium after submitting your information to the insurance company.

Every insurance company has risk assess department. It assess your profile based on information like your medical history, family health information, your habits like consuming tobacco, smoking and any adventure hobbies etc. I personally recommend all of you to provide true and accurate information to insurer to avoid claim rejection in future. At the time of claim if insurer find that you have hide any information with the insurer then your claim may be rejected.

There is misconception that private insurance company will not honour the claim but it is not true. All insurance companies do business under IRDA ambit. The claim settlement ratio of five private insurance companies HDFC Life, Kotak Life, ICICI Prudential life, SBI life and Max life are more than 90% according to IRDA annual report of 2012-13. Now the LIC has joined the race of selling online term plan. We can expect better service and rate to the insured by private companies and LIC.

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, March 28, 2014

Insurance Planning – Part 2

Insurance Planning – Part 2

In last article we had discussed why insurance is important for everyone and how to determine the right amount of sum insured. Today we are discussing about the type of life insurance product available in the market. Every insurance plan has some positive and negative aspects so before going with any insurance plan we should understand plan in very well.

Term Insurance Plan:

It is the basic form of insurance that pays a lump sum amount on the only unfortunate event of death of the insured person. If you survive the whole policy term it pays nothing. Due to the no return from this policy on survival of insured person, people often do not show interest to purchase this policy. In reality, it is very good plan for any earning individual. The premium of this policy is very low compare with other insurance plan. People can get adequate cover with very low paying premium. A 30 year old person can get Rs 50 lakh insurance cover to pay around Rs 7,000 in a year. The amount of premium would be constant during the whole policy term. The adequate money receivable under this plan helps you family members to meet their expenses and future need. Your life is precious so always take an appropriate insurance cover according to your life style.

Endowment Plan:

These plans are also known as traditional plan. It provides you insurance cover during whole term and if you survive whole term it returns a lump sum amount at the time of maturity. It attracts most of the people as it provides insurance cover and returns both. Although, the return of these policies are very low in the range of 4-6 percent which do not beat even inflation but still people go with this plan. The premium of these endowment plans is much higher than term insurance plan. If you satisfied with low return with safety then these plans for you.

Money-back plan / Child Plan:

It is another form of endowment plan and provides some part of sum assured at fix interval. The all other features are same as endowment plan. The premium are very high on these plans and rate of return same as traditional plan. These plans are made to fulfill your intermediate goals which are far like 5 year, 0 year etc.

The above mentioned plans are related with life insurance. We will discuss about non life insurance products in the next article.

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

Warm regards,

Arvind Trivedi

Certified Financial Planner

Saturday, February 22, 2014

Is Insurance plan is the best for tax saving and investment ..?

Insurance Policy is the best tax saving or investment option…?

In these days, we are discussing more about tax saving as the financial year 2013-14 approaching towards end. The whole insurance agents are doing hard work to push their life insurance products and want to increase their income on the expense of investor’s premium.

I agree that the life insurance is the vital part of any financial planning for face any unwanted events in the life. There are many pure or term insurance plans available in the market which need very less premium compare with other famous insurance plan. The investor also purchase these costly policies in the hurry on the name of tax saving and investment. The two type of policies are very famous among the investors and agents. One is endowment plan and other is money back plan. We will analyze here these type of plans today.

Endowment Plan: It is life insurance plan which deduct one part of the premium which you pay for insurance cover and the other part invest in different available financial products according to the particular policy plan. Investor get the amount at the time of maturity and pay the premium either till maturity or according to the mentioned year on policy.

Money Back Plan: This plan is very popular among the investors. In this plan, policy holders get some part of money like 20% to 25% of the sum assured as survival benefit in regular interval. This regular interval varies according to the plan 3 year, 5 year etc. The premium of these plans high compare with endowment plan. Except receiving money in regular interval all other features same as endowment plan.

Let us take one example for better understanding. A 30 year old person decide for insurance plan, risk cover 20 year and sum assured 10 lakh. The approximate premium for endowment plan would be Rs 48,000 and on the approximate maturity amount would be 19 lakh. The premium for money back plan would be approximate Rs 64,000 and he will receive Rs 2 lakh in every 5 years. The maturity value would be approximate Rs 12.3 lakh. Investor feel very happy when would receive amount 2 lakh in every year but ignore the high premium.

For above mentioned example, the term insurance premium would be approx Rs 3000 annual which is much lower compare with other plan’s premium.

If we calculate the internal rate of return of the above mentioned plan, the return of endowment plan would be 6% and 5 % for money back plan. You can easily understand the difference now. Would you still like to go with such types of plans which provide you with 5% - 6% during 20 year investment? In fact the return do not beat to inflation even which is at present in 8% to 9% range. We are not showing entire calculation here due to space and it would be too lengthy for 20 year calculation. If you want to see the entire calculation we can provide you.

Many people consider LIC product due to safety. If safety is your most priority there is one product which is more safer called PPF which also give return 8-9% and lock in period 15 years. It also qualify for tax saving under section 80C as equal insurance premium. For insurance cover you can consider term insurance plan which have more cheaper premium.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Sunday, February 16, 2014

Are your investment agent cheating you?

Yesterday, I was my in area’s neighbor shop for my hair cut. He had narrated one incident with happened with his relative who is not educated and never went school. His relative’s main profession is agriculture. One agent had come to him before 5 year’s back and promised him 2 times return whatever amount he deposit. He had trusted him and deposited Rs 45,000 with the hope that after 5 year he would get Rs 90,000. After completing 5 years when he had contacted his agent, the agent was not available. After contacting to the concern office when he had knew the value of his investment. It was shocking experience for him. Can you guess the value of his Rs 45,000 invested after 5 years? The value was only Rs 17000 !!! only. Such huge wealth destruction he had never imagined. His agent has cheated him by making false promise and hot informed about the investment product.

Till now many of you may guessed, yes it was ULIP product. A product designed by mixing insurance and investment called ULIP.

I am sure that you also here such type of cheating incidents regarding investments. I always write in my blog and during the meeting with investors that never mix your investment with insurance need in one product. Avoid such products.

I think insurance product sold by more in emotional sense and less in real need sense. The agent finish conversation in very hurry and their large focus on sign the document quick. They only tell you what you want to hear like “promise” and “guarantee” type words. They often do not talk about product in detail never tell you about the risk of that financial product. My friends keep in one thing in your mind that there is not a single financial investment product designed in the world without risk. Every investment product comes with a type of risk. Now the question how to avoid yourself being mis-sold. I suggest you some point here.

· Do read carefully before sign any form or documents.
· Understand about the product which offered by your agent.
· Contact the company’s call centre and cross check your agent.
· Never give and bank cheque or sign the form in first meeting.
· Collect all detail about agent like his office address, contact, employee ID, job tenure, some little background about him and cross check by calling his office
· Use internet to know more about the offered product
· Focus on real return after cut taxes and expenses.

There are many more points worth discuss which we will discuss again sometime.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Wednesday, February 12, 2014

Banks Role in Insurance Distribution Business

Banks role in Insurance Distribution Business

As the financial year 2013-14 is approaching towards its end. People are rushing for tax saving investment options and for tax saving insurance product is very popular among the investors. However, in my personal opinion it becomes very toxic product if you mix your insurance need and investment. Insurance mainly sell by individual agents, brokers, direct selling and banks.

Banks are the main contributor in the sells figures of private insurance companies products. In India, people have immense faith on banks. They still prefer bank FD even the net inflation adjusted post tax return is very poor. Due to this blind faith on banks, common investors become a victim of mis-selling of these products. I met a lot of cases almost in every investor meet of mis-selling by the banks. The complaints of mis-selling by banks are increasing. Due to this mis-selling complaints, bank regulator RBI has proposed the new guidelines for selling of insurance products. The main RBI proposal as given below:

· A bank’s NPA should be less than 3%
· It should have made profits for last 3 consecutive years
· A bank’s net worth should be at least Rs 500 crore

The government is also planning to mandate multi insurance companies sales for bank. At present banks are selling only one company’s products. The insurance regulator IRDA has also capped a bank’s sale of joint venture partner’s products at 25% of the overall.

In fact the aim of insurance sales by bank is to increase the reach among the maximum people as banks have wider branch network across the country. The above mentioned proposal by RBI, IRDA and govt are not fully implement. We hope that after implementing these guidelines mis-selling would be stop to some extent. However, insurer would not allow implement these guidelines in very smooth manner.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

Friday, December 13, 2013

Are you considering guaranteed plan...? Think again!!!

After ULIP out of season, equity market’s return flat the insurer and mutual fund using “Guranteed” word to attract business. I am sure that most of you very often interested with these schemes for shake of your protecting your capital. After sometime you realize that your choice was wrong. I always recommend to all investors that please read whole offer document, search on sites or take advice from any good financial planner before any investment. No matter what is the investment amount. After all it is your hard earned money so be prudent at the time of investment.

Guarantee is a very powerful world in any sales drive. Insurance companies offer guaranteed payout and insurance cover both to push the sales and get the benefit of investor’s mindset as these products are easily marketable with less effort. Before caught in the sales pitch you should enquire about the return of investment.

It has been very clear now after review of many these types of guaranteed insurance plan often fail to deliver the return even equal to bank fix deposit in the long run. I am not mentioning here the particular name of these types of plan as I don’t want to create any misconception or controversy but you will also believe after the decoding these plans carefully.

Guaranteed income plans are non- participating traditional plan and never disclose the investment costs and return. For example one plan says in the fine print that “ 8 % of the sum assured as payback guaranteed”. Most of the time investor think that he will get return of 8 % on the investment whereas the fine print means that there is guaranteed 8% payout of the sum assured. After many such plan’s analysis the actual net rate of return is 4%.

4% return is not great return in the 10-15 years. If you still happy with these types of return choice is yours.

The cost of guarantee is so huge and opaque that it is very difficult to arrive a net return on the investment. You are not getting only lower return you are also eroding your capital against inflation. According to me, you should concentrate on generating value from investment in the long run.

If you are conservative investor, Public Provident Fund (PPF) is good option for high tax bracket. Lower tax bracket investor may go with bank fix deposit also.

If you have some risk taking capacity you can make good capital appreciation with tax saving. ELSS mutual fund is the best option for long term investment as it offer capital appreciation with tax saving.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

Wednesday, December 4, 2013

Financial Planning : Is it for you ?

Financial Planning : Is it relevant for you..?

Whenever I conduct workshop on financial planning or meet the client. It is very common doubt inside the client’s mind whether the financial planning is so important for them or not. In our country, we plan everything but not our finance. We are the largest saver country in the world. In fact we have great saver mindset but most of us don’t understand or underestimate the need of financial planning. A common myth exist among the investor that it is only useful for only rich and elite class person. Today we will try to find out for whom the financial planning is important.

If you don’t know where is your income going every month and always wonder about your expenses then you definitely need to make a budget for your income and expenditure. It is very basic and vital setp towards making a financial plan. Impulsive buying and lack of budget planning may be proved very costly for your long term future goal.

If you are in the trap of debt and your liability is increasing due to loan interest amount you pay then seriously you should make a proper plan to get out from various liabilities. For the blind race to lead much comfort life style, you often use the facility of credit card, personal loan and bank overdraft facility. These all loans lead you towards a serious financial mess. A financial plan will help you to come out from financial mess.

If your investments are scattered and you are not sure that whether it is right investment or wrong then financial planning for you. Many times we do investment on the recommendations from agents, relatives and friends without knowing the product’s risk and return ratio. Keep in mind each investments have always some degree of risk. A financial plan provides you consolidated investment statement and you can analyze it time to time in very easy manner.

If you have a multiple life insurance policies and you are paying a hefty premium for those policies without knowing the expected return and sum assured then you must need of financial plan. Most of the people are underinsured in our country and people must know the about adequate insurance amount what they need. It is very important to know that how much life and medical cover you need. A financial planner help you to determine all these need based on your provided information. Insurance also is the vital part of any financial plan.

If your major investment in the particular asset class and you are not sure whether it can help you to achieve your particular goal then you need a financial planner who help you to achieve your future financial goal through diversified investment portfolio with proper asset allocation. Asset allocation may be differ for person to person and you need to know which type of asset allocation you required to achieve your financial goal.

If you don’t have habit to regular investing then you must need a financial plan. In every success goal achieving story discipline and determination is the key element. By create a financial plan with the help of expert and follow that plan religiously is very crucial to achieve your long, medium and short term goals.

Now after reading the above mentioned pointes it has become clear that financial plan is like a road map to achieve your dreams and desires to lead a happy and prosperous life. However, many of you have not any idea how to invest and where to invest or you may not have sufficient time to make financial plan and track your investment portfolio then you should must hire a expert planner lead to stress free life.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner