Financial Advisor

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

Friday, November 21, 2014

Desire V/s Need and the role of financial planning

Desire V/s Need and the role of financial planning

I have been in financial planning since last 5 year and I have noticed one thing that the average investors are not able to differentiate desire and need. In this world, every human being have some needs and responsibilities. Everyone has to fulfill basic need like bread and butter, clothes and residence. After fulfilling these basic needs, there are some other responsibilities like take care of family members and social responsibilities towards relatives and society. Here from family members means include mother and father also. As many people in India are also adopting the western lifestyle and planning only their wife and kids.

In the above paragraph, I have discussed about only human needs. These needs may be different for person to person. I have seen many person who have immense wealth but not happy as they have not separated their need and desire. When the word “Desire” comes in picture, then the peace of mind and happiness go away from human life. As there are no limit of desire and for fulfill your all desire one human life is not enough. You have to take birth many many times to fulfill your desire but it does not complete and it is the main cause of sadness and the common person are not able to enjoy the life in today’s world. As long as desire increase in your life, the other very dangerous and new element comes in your life that is called “Greed”. Once greed enters in your life you cannot be live happy life and satisfied life.

Now you are realizing that the main cause of our sadness in life is greed factor and we should completely avoid it but it is not possible. Every human being is in within influence of some amount of greed. We cannot avoid it but we can control. How it should be control? The answer of this question will give you by your financial planner. In this article I will not discuss about how to make financial plan but tell you only why and how important is it for you.

By making financial plan you will be able to draw a line between your need and desire. You will set your future goal and priorities. To fulfill your future commitment where should you have to invest that will be take care by your financial planner. Financial plan is nothing but some pieces of paper where you have described your priorities and goals and it also have the strategies how to achieve your future goal successfully. By fulfilling your commitment and goals I think most of us can live peacefully and filled with joy life with control of greed and desire.

How to make plan and what other factor play important role in financial planning, we will discuss in our other blogs and articles.

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

Wednesday, October 15, 2014

When should be invest in the shares?

When should be invest in shares ?

The above written question is in the mind of various investors. Unfortunately, many of us are not able to find the difference between saver and investor. India is country of great savers but poor investors. Most of us enter in share market for short term gain but become investor forcibly when the rate of our shares drops below from the purchasing price.

Investing require three main things. First is investment period, second is well understanding of the asset in which you are going to invest and third is know about the risk. In this article I will pick the 2 example of stocks which had created extra ordinary wealth.

In 1993 Infosys came with IPO of Rs 95 per share. If you had bought 100 shares of Infosys for Rs 9,500 at 1993, the value of that Rs 9,500 has become today Rs 5.05 crore.

Year	Corporate Action	Shares
1994	1:1 Bonus	200
1997	1:1 Bonus	400
1999	1:1 Bonus	800
Nov-99	Split to Rs 5 Face Value	1600
2004	3:1 Bonus	6400
2006	1:1 Bonus	12800
2014	1:1 Bonus	25600

The value of 25,600 share of Infosys today is 5.05 crore without including dividend. Keep in mind dividend is tax free amount which company gives to its shareholder.

The other wealth creator is Wipro. The IPO had come in 1980 Rs 100 per share. If you had bought 10 share of Wipro at that time worth Rs 1000 then, the value of that Rs 1000 has become today worth Rs 56.05 crore.

Year	Corporate Action	Shares
1981	1:1 Bonus	20
1985	1:1 Bonus	40
1986	Split to Rs10 Face Value	400
1987	1:1 Bonus	800
1989	1:1 Bonus	1600
1992	1:1 Bonus	3200
1995	1:1 Bonus	6400
1997	2:1 Bonus	19200
1999	Split to Rs 2 Face Value	96000
2004	2:1 Bonus	288000
2005	1:1 Bonus	576000
2010	2:3 Bonus	960000

The worth of Rs 1000 which you had invested in 1980 is Rs 56.05 crore today without including tax free dividend.

The above mentioned two example indicate the one thing very strongly that you should invest in shares with the view of long term goal like retirement kitty, children’s education and marriage etc. If you have not enough time to study of stocks then you should invest in large cap equity mutual fund.

Please do not try to time the market. For long term investor market is always good. For example, since last one year market has given decent 60% return but many investor has missed this market rally because they want time the market.

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

Sunday, March 30, 2014

How to get benefit from interest rate cut?

How to get benefit from interest rate cut?

These types of questions commonly asked and discussed in the investors or fund managers forums. What should you do in current scenario when majority of analyst expect rate cut within a year as government’s fiscal deficit number and Indian rupee dollar exchange rate also improving. We have already seen rupee dollar exchange rate around 60 and expected even below from current 60.

As a gilt fund are most interest rate sensitive so to take advantage from interest rate cut investor should go with these types of fund. Although it is tough to predict when rate cut will happen so there may be some wild moment happen in NAV of these types of fund. But if you have time horizon around 2 year you should definitely go with long duration fund to take advantage of interest rate fall. There are chances of double digit return from the long duration fund.

For example, if fund’s yield to maturity (YTM) is 10% and modified duration is 3 year. In this case if interest rate cut by 100 bps point then the total return would be (YTM+Modified Duration) 13% and if interest rate go up by 100 bps then the return would be 7%. If the interest rate remain unchanged, in that case investor earn around 10%. The return is totally depend on interest rate movement.

Many fund house like Franklin Templeton, Birla Sunlife, IDFC, HDFC etc. offering very attractive debt funds. Investor should have the patience to wait for the rate cut. For those who do not have risk appetite and cannot wait for one and half or 2 year, those investor should invest in short term bond fund.

If you have more than one year time horizon and do not want take any risk in that case you should go with FMPs (Fixed Maturity Plan) as it give indexation benefit also.

For all our investors and readers Happy Navratri, Happy Nav Vikrami Samvat and Happy Gudi Padwa. I wish for all of you happy and prosperous life. 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, March 19, 2014

Equity : A broad view as asset class

Equity : A broad view as asset class

There are many investment avenues available in the market like equity investment, fix deposit, debt/ bonds, metal, arts etc. We can divide financial assets in 3 types. These asset types are equity, debt and gold. In this article we will discuss about equity investment.

We are often told that equity investments are subject to risk and in nature it is very volatile. In simple terms, equity means the ownership, investor who own equity in company participate in company’s growth like a promoter. If you hold equity in a particular company, it means you become beneficial owner of that company. As an equity shareholder, you also get the opportunity for the vote on important business decision.

Advantage in equity investment:

Profit making companies share their profit with shareholder as a dividend and it is totally tax free as per the current law. Over a long period you can make a capital gain through increase in share prices by investing in good companies. As per current law, in our country long term capital gain in equity is nil. It has outperformed in terms of return to other asset class over the long period. It has ability to beat inflation and generate super return. It is very crucial investment to achieve long term goal.

It has greater liquidity compare with other assets. The transaction of shares happened on exchanges and it is regulated by SEBI. Equity trading mechanism is very transparent and no room for wrongdoing. Equity investment play very important role in the economic growth of the country. It mobilize funds from public towards various sector which is very crucial for country’s development.

Disadvantage in equity investment:

Return of Investment in equity is not guaranteed. It depends on company’s performance. If company is doing better, you will get higher return but if it is not doing good, then you have risk to lost your capital also. In short run, it is very volatile so it is very risky investment in short term investment point of view. If you have invested in bad companies or enter when the prices are very high then you can lost substantial amount of money.

Equity investment for whom and how we can invest in it. We will discuss about this in next article. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Tuesday, March 18, 2014

Why Investment?

Investment : Why ?

We often all listen and read about investment. Many experts share their view and advice on investment through various media like TV, news letter, blog etc. A lthough a lot of information is available on internet and many other media but common investor still has no clear idea about investment. The investor awareness is very low about investment. I am trying to go from very basic like what is investment? What is asset class? What risk associated with each asset classes etc.?

Why need investment ?

We all have some future goals or responsibilities like children education, their marriage, retirement planning, abroad trip, purchasing big home and many more. To achieve those goals we need money at various stages in life. The value of money badly affected from inflation. By passing the time the purchasing power of money decreases. If we do not our money invest in anywhere and keep in our locker or keep idle in bank account, we cannot fulfill our future goal due to the non availability of appropriate money for the particular goal. Inflation eats our saving during the long period. There are difference between saving and investment. We Indians are great saver but poor investor. To fulfill our future goals successfully we need investment successfully.

“Investment is an act of deploying your money in an asset class with an expectation of return after paying taxes higher than inflation to preserve purchasing power of money.”

Assets are broadly classified in two categories:

Physical Assets
Financial Assets

Physical Assets: A physical asset is an asset which has value and can be touched, felt and used. A piece of land, home, gold coins etc are the example of physical assets. These assets carry storage cost and maintenance cost. A owner of these assets feel very safe and confident.

Financial Assets: These assts cannot be touched or felt and bought in the form of certificates. Equity shares, bonds, debentures, fix deposits, mutual funds, provident funds etc. are the example of financial assets.

In India, people have been more comfortable with physical assets, which have drawn a large portion of their wealth. As physical assets held by an investor do not benefit the economy, they are termed as unproductive assets. In order to help the economy grow and in turn benefit from the growth of the economy, people need to deploy a portion of their investments towards financial assets.

We will discuss more about financial assets in next articles. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

Friday, March 14, 2014

Public Provident Fund : A summarized view

Public provident fund (PPF) is one of the best tax saving investment option under section 80C in the point of view safety. However, it does not guarantee to build a great wealth but it offer a great sense of safety with capital appreciation. Many of investors often confused between EPF(Employee Provident Fund) and PPF. Today, we will understand about PPF investment. The main feature of PPF as given below:

· Only Indian citizen can open PPF account. No NRI and foreigners are allowed to open this account. If anyone get NRI status after opening the PPF account then he/she can be continue with it.

· It can be opened in the name of single name. Joint names are not allowed. Parent can open this account in the name of minor but the total tax exempt limit would be Rs 1 lakh only including parent’s investment.
· The minimum amount needed Rs 500 every year to maintain it. The investor can deposit maximum 12 times in a financial year.

· The return is flexible but sure and it decided by RBI every year. For 2013-14 the rate of return is 8.7% per annum. It is the safest investment backed by government of India. It cannot be attached under any court order for debt recovery.

· You get tax benefit under section 80C on invested amount subject to upper limit Rs 1 lakh. The return is also tax free.
· It has 15 year lock-in period. After completion of 15 year one can extend it by 5 year block period. It allowed partial withdrawal facility after completion of 5 year after opening the account. The loan facility is also available in PPF.

· The PPF account can be opened in post office, SBI branches. Now some private banks like ICICI bank are also offering such services. If you move your residence from one place to another, in that case you can easily shift it to nearest bank or post office.

It is great tool to accumulate wealth in long term with higher degree of safety. For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner