Financial Advisor

Friday, April 10, 2015

Sector Update: Insurance

Sector Update: Insurance

After 7 years wait, Indian parliament has approved long pending insurance bill. According to insurance bill, now FDI has been raised to 49% from 26% with Indian ownership control. Penalty for non compliance raised to 25 crore. It is Modi govt’s first major reform sign. Industry expert hopes that this insurance bill help bring in over Rs 50,000 crore in fresh capital which will stimulate the insurance sector.

From 1st April 2015, the premium rates for third party motor insurance cover has been raised after issuing new draft by IRDA. IRDA is also planning new investment norms for general insurance companies. According to new norms, investment limit in securities other than those approved would be now 10% earlier it was 25% of total premium collected in a fiscal. It may reduce the earning of general insurance companies.

The Bombay High Court has asked to IRDA to ensure that insurance companies should not involve TPA in the claim settlement. As per ruling of health insurance, allowing or rejecting claim should decide by insurance companies not by the TPA.

According to British Medical Journal, India’s private healthcare sector treating patients as revenue generators. Doctors get Rs 30,000 to 40,000 to refer patients for angioplasty. Unnecessary tests are being carried out and fabricated reports were generated. Large sums were paid for the same only to fill the pockets of referring doctors and pathologists. There is serious need for stringent, transparent and mandatory regulation.

IRDA said that insurance companies can appoint individual agents on their own from 1st April 2015. As per current practice, IRDA grants license to a person to become an agent of insurance company. After the new norms, whole licensing systems will go.

To bring more transparency, IRDA is planning to treat health insurance as a stand alone segment. As per current rule health insurance come under non life insurance category. Now, separate regulation will be made by IRDA for medical insurance.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Friday, February 20, 2015

Have you done your tax planning?

I am sure most of you have done your investment to save the taxes but still some people will wait for the last moment and will make fatal decision in hurry as the result of last rush. Many insurance advisors are very active in these days to trap the investors in the name of insurance with the false promise of sky rocketing return. Poor investors also do not care of investment as they want only trust not return. I wonder sometime when I meet such investors who are very happy to invest in endowment, money back or ULIP and still don’t know about their insurance cover and expected return.

They easily ignore the biggest threat of their investment. Do you know what is the biggest threat return your investment? It is Inflation. Due to this inflation most of time your real return become negative also. Please before any investment be very clear about the inflation concept. You should ask some question to yourself. How inflation and taxes eats your return? What will be real rate of return after adjust inflation and taxes?

Section 80C is very popular section among investors and for the financial year 2014-15 the investment limit has also increased till 1.5 lakh under section 80C. First calculate your other investment under section 80C like PF, PPF, home loan repayment, insurance premium etc. After consider all other available provision under this section determine your shortfall to complete 1.5 lakh limit.

During January to March there are many companies come with attractive and catchy advertisement. They show the high possible numerical figure in the name of save tax. In most of cases, these companies assume that investor is in 30% tax bracket and will investment full available amount 1.5 lakh available under section 80C. Due to this confusing advertisement people who are in 10% or 20% or nil tax bracket get misguided and make the wrong decision.

According to me if your investment horizon more than 8 year then ELSS is the best option to create wealth and beat the inflation. If you do not have time to plan your finances then you should contact certified financial planner.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Friday, January 30, 2015

Insurance is not good product for investment

“Insurance is not good option for investment”

The headline of this article is very clear and I have mentioned it many times in my past blogs. Now you will question that why I am writing this simple line so many times that insurance is not good option for investment. In spite of writing many times on this subject, I still get the call from investors and friends and they all ask the same question which insurance policy is good for investment.

Increasing competition within insurance companies leads the high advertising and marketing budget. The no. of people is increasing to invest in insurance product inspired by glitzy aid and marketing. The people have been bombarded by the tricky insurance and return pitches at a rate that is much higher than earlier time. Internet, social networking sites are the main weapon to attract the young generation to invest in insurance. The whole focus of most insurance advertisement is on return not on the risk cover.

In today’s uncertain world, to insure yourself is most important thing and it should be done on priority basis. First, find out the right amount of insurance which will fulfill the need of your family in case anything wrong happen with you and go for any term insurance cover. A 35 year old person can get Rs 25 lakh insurance cover by paying only mere approx. Rs 4500 per year.

Actually, there is something deeply wrong in marketing and advised by insurance agent. The agent never suggest about the term insurance to the client as they get less commission on it as premium amount is less in case of client go with term insurance. In fact, term insurance is the best option for risk cover for client. The problem become more deep in that case when you ask about term insurance and they respond that you will get nothing back in term insurance and it has no benefit. After listening this statement from the agent that the term insurance has no benefit, you ask for other product with benefit and from here the miss-selling start.

The agent suggest you product which has more benefit for agent and insurance companies and poor people get trapped in the sweet talk of agent. The reasons why I am saying that insurance product is not good for investment purpose are it is illiquid investment. It means that whenever you need money you should get your money in your hand bit in this case insurance come with 10-20 years plan and your money get stuck for so long times.

Insurance products have lack of transparency in investment compare with mutual fund products. It has also more cost and agent commission when you compare it with mutual fund agents. In general, the agent get commission 15% of the annual premium in the first year and after that the commission get reduce from 7.5% to 5% per year of the annual premium. Anyone can understand easily, in any investment product if an agent gets such huge commissions so how can such product will deliver the good return for investors. In fact, in 10-20 years poor investor get return on investment below than the bank fix deposit return in majority cases from invest in insurance product. I will again say please do not mix your investment with insurance products.

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

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

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

Thursday, March 27, 2014

Insurance Planning - Part 1

Insurance Planning – Part 1

When you prepare your financial plan, insurance is a very vital of it. It is a very effective risk management tool for any living human being. By effective insurance planning, client always achieve a lot of peace of mind.

Why Insurance planning ?

Any individual who earn money and doing well in their career and fulfill all financial goal in their life and at a certain age get retirement. If this assumption would be same for each individual across the world then we need not life insurance. Unfortunately every human being have a certain type of life risk during their entire life. These risks may be premature death, permanent or temporary disability due to accident or poor health. These mentioned risks affect your future earning or may be totally stop the future earning. It also affects badly on your personal and financial life.

Life insurance cover your life’s uncertainties and helps your surviving family members in case of any unfortunate event. It provide a certain amount of money to the nominee for the survival of your family member. So now it is clear that it is very vital and important financial product and every earning individual must consider it.

How to determine the sum assured?

In our country, most of insured person are under insured. It means they have not covered by sufficient amount. That amount is known as sum assured. To determine the sum assured there are many methods. Few are given below:

1) Human Life Value

2) Multiple of Earning

3) Appropriate size premium

4) Need based Approach

If you feel difficulties to determine the appropriate sum assured then you can take services of an expert financial planner. You can also adopt a simple approach like sum insured should be equal to 5 times of your annual income. The most famous methods across the life insurance industry are human life value and need based approach.

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

Warm regards,

Arvind Trivedi

Certified Financial Planner

Monday, February 24, 2014

Beware of your bank representative

Beware of your bank representatives..!!!

It is seen, we Indian have very much trust with our banks. Fixed deposit in bank gives us peace of mind and a sense of greater safety. We give much importance to safety of our capital than real return. As we enter in bank branch, we totally surrender ourselves to the bank representative. A bank representative with skilled communication push to the other financial products like insurance, ULIP, endowment, money back policy and many more other products for complete their monthly target.

I tell you here, a true event which happened today inside the bank branch which is very famous brand in banking industry. Although it is very common in our country but I still want to share it with you. I was in Axis Bank branch in the morning to make a demand draft. I have submitted the request for the same and waiting for collecting my DD. The process to make DD takes 10 - 15 minutes usually. A 25-26 year approximate age girl in the banking counter was explaining a fix deposit plan to a client. She was promising 24% fix return from a mutual fund scheme if he deposit money for 3 years and repeated it thrice with very confidant and smiling face. The surprising thing was that customer had got convinced from that girl who was representing the bank for invest in that scheme within 30 seconds. I was shocked that the customer had not asked any question about the risk associated with that scheme. When customer asked about the tax benefit in that scheme, she had smiled with moving her head and said “No, Mutual Funds me koi tax benefit nahi milta hai” (There are no tax benefit in mutual fund at all).

I was very shocked and surprised for that the witty communication by that bank representative. It was a clear example of mis-selling by that bank employee. In realty, a bank customer was cheated by that bank employee. A thousands and millions bank customer was cheated by such representatives of the banks. I am not against any bank or and bank representative but yea I am against their faulty communication with the bank customer. Anyway, I am giving you below some points which every investor should always keep in mind when they make an investment decision.

In mutual fund, there is no assured and fixed return. The return is totally depends on many factors like market movement, interest rate, inflation rate GDP growth and many more.

The promise of 24% is unrealistic return in such current economic condition when govt bond offer around 8%. I am not saying it is impossible but you cannot commit it to anyone.

There are tax benefit exist in mutual funds scheme which I have written in my past articles. When you promise such a high return, you should also talk about risk associated with such schemes whether mutual fund or any other asset class.

As an investor, it is also your responsibility before making any investment decision understand the risk and return properly.

Do not believe on any agents, bank representative do your own research from many other sources. The agents are not your friends. They also have some sales target. So next time, beware from such agents and representatives.

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

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

Thursday, September 26, 2013

To stop waste your money is equally important

We often talk about to save money, invest money and earn money. Have we thought about ever to stop the wasting money whatever we have earned or saved? Many of us most of the time ignored the importance of to stop waste money. Today we will just discuss about how to prevent the waste of money. I am sure that it is beneficial to all of our blog reader.

Knowingly or unknowningly, almost everyone has some holes in their budget and the money from those holes keep leak. Few of those holes we are discussing here.

Credit card balance: We often use credit card frequently to purchase gadgets and unwanted things but we should try to pay all balance amount within the prescribed limit. As we don’t take serious it but it cost much more as annual interest rate around 50%. It also affect your credit score so be sure do not leave any balance. Pay of your outstanding balance each month before prescribed time limit.

Too much branded thing purchase: It does not mean you should compromise on the quality of product. Many times we fall in only brand name and ignore the less known brand name. For the brand name we pay a heavy premium unnecessary whereas better quality product available on reasonable price. By choosing an off brand over fancy label, you can save your money.

Delay payment of all utility bills : Make sure that your all bill should paid on time otherwise we pay high penal and delay charges. We don't realize but in electricity bill, house tax, landline / mobile bill, cable TV bill etc. We can save our money to pay all bill on time. Many organisation offer discount if you pay before last date.

Purchasing insurance you don’t need: Life insurance need arise when someone such a child, wife or parent dependent on you. Most single individual, senior citizen or kids don’t need a life insurance policy but we often purchase it due to the name of tax saving and agent’s misleading sells practice.

Share the resources: Increasing fuel prices like diesel, petrol and gas are becoming costly day by day. It affects everyone. It would be better if start pooling of resources. The best example of this is to share taxi or car with your office co-workers for travelling to office. By this way we can reduce transport bill effectively.

Rush for tax saving at the last moment: Avoid rush the last time tax planning. We often take wrong decision due to last minute tax saving rush. Due to this we often don’t claim eligible tax deduction and purchase bad financial product.

Leaving your money in a low interest bank account: Only on the name of safety if you keep your money in bank saving account or fix deposit which even not cover inflation, you are loosing your hard earned money. Always think that Is your money working as hard for you as you are working hard for money

For avoiding these types of waste of money take advice from certified financial planner and be wise with your money.

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

Regards,

Arvind Trivedi

Certified Financial Planner