Month: October 2009

What to do with your Junk Insurance Policies?

Posted on by Jagoinvestor

Do you hold any Endowment or Money back plans sold to you by any of your relative, Neighbor or were it bought by your Father for you for your “Secure future”.

Junk insurance policies

Most of the people hold Junk Insurance Policies which are of no much use to them . Policies like Endowment or Money Back Policies hardly bear Inflation and have no ability to meet your long term goals like Child Education, Child Marriage or Retirement.

Note: All the points I have mentioned are generic and might be little different for different policies, but overall it would be similar. Also, points I am going to discuss are for people who are not happy with their policies and want to get rid of them. People who are very happy with their policies are advised to continue the policy.

I will discuss different scenarios and you can see which category you belong to. Before that lets understand some basic things which you might not know.

Top Reasons Why you hold some Endowment Policies

  • You were mis-sold that policy by an agent who promised moons and stars to you
  • You bought that incredible policy because you wanted to save tax in some particular year and you were in a hurry
  • Your Father bought it for you
  • You bought yourself without understanding what it is

what is meant by making a policy Paid up?

It means that you will stop your further premium payments, but your Insurance cover will come down by the same ratio. So if you policy tenure was 20 yrs and cover was 10 lacs , and you have paid your premiums for 4 yrs and then make it paid up , then your cover comes down to 2 lacs , because you have paid for just 20% of tenure.

When you make the policy paid up then you receive all your premiums paid and Bonus accrued till that time (only if your policy has run for more than 5 yrs) at maturity.

What is Surrender value?

Surrender Value is the amount which a policy will pay to policy holder if it’s terminated before the maturity period. Most of the Endowment and Money back plans don’t have any surrender value. Even after 3 yrs, the policy surrender value is very less, Generally it’s the “Net present value” of the amount you are supposed to receive at maturity.

Read why Endowment Policy should be avoided

I have paid Premiums for less than 3 yrs

In this case you don’t have much option, It’s great if you have paid for 1 yrs or less , You can/should just forget the money you have paid and start deploying your hard earned money in something better .

In case you ULIP;s you can continue paying because after 3 yrs the money you can get is equivalent to what is actual worth that time and you have much better control over how your money is invested . But anyways you have done a big mistake . See the list of top mutual funds you can invest in for long term .

It’s like cutting your infected finger and save your whole body to stink later

I have paid premiums for more than 3 yrs but Policy has more than half the tenure to run .

The best thing you can do is to make your policy paid up or take the surrender value and from now onwards put your money in something which you really understand and which can give you better inflation adjusted and post-tax returns .

I have paid premiums for more than 3 yrs but Policy is close to maturity now.

Now it’s too late and you can let it run its whole tenure , You also have the option of making it paid up .

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Important Points

Point 1 # Paying 3rd Premium

In case you have paid the premiums for 2 yrs and thinking of surrendering your policy after that, then it makes no sense, because the amount you pay for 3rd year and what you get back after surrendering will be almost same.

For example : If your yearly premium is 30k, and you have paid 60k in 2 yrs and now want to surrender the policy, but you are afraid that you will not get anything back if you close the policy before 3 yrs and thinking of making 3rd payment, then it makes no much sense.

Because even after paying 3rd premium and then surrendering it, the surrender value will be close to 30-35k only. (surrender value after 3 yrs is around 30-35% of total premiums paid).

Point 2# Getting Stuck

Most of the people just continue their policies because they think “It’s very safe return and let’s not take risk”. You are taking very big risk by continuing, its called risk of “losing all the purchasing power”, agreed that it’s damn safe !!

What you like to get 1 extra day in your old life, by sacrificing 1 hr every day for a year. See how much your policy scores on Gfactor analysis

Point 3# Abandon those “Friendly Uncle” agent

Throw out those emotions, save them for your spouse and parents. Get rid of those agents from whom you bought those policies just because he is your uncle or papa’s friend.

Comments please – Are you one of them who are stuck in those kinds of policies and what is your next step, any other recommendation from your side?

Review of UTI Mahila Unit Scheme Mutual Fund , Excellent Mutual Fund

Posted on by Jagoinvestor

Have you seen a Diamond or anything equivalent to that ? No ? I will show you one today . I am going to review a fund which has performed so well that It despite being a Debt oriented Mutual funds has given returns which we expect from Equity over long term . Yes !! ..

UTI mahila unit scheme mutual fund

This fund has no more than 30% allocation in Equity ever and despite that, it has given a long term return of 16.6% (at the time of writing) and has many more accolades to its credit . Lets have a deeper look .

UTI Mahila Unit Scheme-G [Link]

Most of us run around to find the best equity fund who will give us excellent returns . In long run , an average person requires 12-15% of annual returns on his investments , and this fund has given close to 16% return Since Inception . This kind of return what we should expect from equity in Long term .

This is a Fund which is open only for Women of India , Males who wish to invest in this Fund can ask their wives to Invest , Make sure you understand the Income tax Clubbing rules .

Highlights of this Fund

  • 8 yrs old Fund (Inception Apr 2001)
  • No Entry Load
  • Exit Load of .75% if sold before 1 yr (as on 21/10/09)
  • Return Since Inception : 16.6%
  • 5 yrs return : 18.28%
  • Best return in 1 yr time frame is +54%
  • Worst return in 1 yr time frame is -10% .
  • Consistently outperformed Its Benchmark ( Crisil H 75:25 ) and ‘Category Average” in all the time frames
  • Can not invest more than 30% in Equity .
  • Well Diversified Portfolio across Equity and Debt investment .

Comparison with Nifty

Below is the chart of Nifty and UTI Mahila Unit Scheme till Dec 08. You can see how its has given close returns like Nifty. Primarily this fund is a Debt Fund, 70% of this Fund is always in Debt + Cash, only maximum 30% funds are in Equity at any point of time, And still this fund is giving such an excellent Returns.


Who should Invest in This Fund ?

Mainly this fund is a very less risky fund with very high return , You can invest in this fund in Following Scenarios

  • If you have short term goals for 2-3 yrs, You can invest in this fund, You have to accept that event this fund has equity exposure and in really bad times, even this can disappoint you. Don’t expect it to return the above returns with surety, Its just expectation and you know how “expectations” are broken in Life 🙂 . Key to Happiness is Low expectations 🙂 .
  • People near their retirement life and who can take moderate amount of risk can park some part of their money in this fund (Dividend Option) .
  • People who are very conservative and adore Fixed Income Products like FD’s , Endowment Insurance , NSC etc and willing to taste “high returns” can put some money here.

Other Alternatives or Good Funds in Same Category

  1. UTI CRTS 81
  2. Unit Linked Insurance Plan ’71
  3. FT India Life Stage FoF 40s
  4. Birla Sun Life Asset Allocation Conservative

Disclaimer

I have suggested this fund to some of my Paid Clients as part of their Investment Planning , but final decision of Actually investing in this fund is their itself if they want to invest in this or not !! . I do not guarantee the returns (who does ? )

Comments

Please share your valuable comment and tell us about some other fund as an option . Also let us know if you found this Mutual funds good or not !! .

Note : Wrote this article while travelling from Varanasi to Delhi

What do Friendship and Marriage teach us about Investing?

Posted on by Jagoinvestor

Friendship and Marriage, are two important things in our life .. The principles of good Friendship and good Marriage also apply in Investing also.

Whether its Mutual funds OR Direct Equity. key is having Small group of good friends (Mutual funds) and giving enough time and trust to your Partner to have a long lasting and successful Marriage( Mutual Funds or Stock Investing).

friendship and marriage

Friendship

“One loyal friend is better than ten thousand family members.”

We should have some good quality friends who are there with us for long term . They are not 1 month or 2 month friends, they are friends who are there us for long term, like Years !!

There are some people who we need to make friends with but for short term, may be because they are there for us for small time or they are good with us for short term, once they show there true colors, better search for better ones, Its too difficult to change nature of a friend.

Mutual Funds are like Friends, Have less of them and have long term friendship, There are many people/Mutual Funds, which look very attractive in short term, they will be very nice to you, will give amazing returns to you in 3 month or 1 month, and this will attract you, make you feel that “he/she is a good one”, but give some time and they show you the true colors.

Just like you need to have 2-3 very good friends, they same way have just 4-5 very good Mutual funds, whom you have seen for long term, reviewed from some website (valueresearchonline), have done your own study and saw there long term performance (5+ yrs). You have to understanding long term performance of Equity.

If you have 5 friends, still there are thousands of other people who can become your good friend if you give time and spend some effort, but that does not mean that you will leave your old friends and start making new friends with others every year.

You have to understand that there will always be some people who are good, potential friends, but you have to skip them and not think about them. Just concentrate on your current friends and deepen your friendship with current one’s.

The same way, there are hundreds of mutual funds in market and you cant just choose the best of them, All are good and potential long term investments, all you can do is to choose some of them and develop a long term relationship with them, understand them, Trust them in bad times and be with them, Juggling between friends will leave you no where but with an impression that you are choosing the best.

Therefore, just have 2-3 Friends and 4-5 good Mutual funds (max 6-7) .

Tip : So if you have more than 6-7 mutual funds in total, Better say bye bye to some of them, not because they are bad, but because you cannot give proper attention to all of them. Have some of them and have them for long.

Marriage

“The secret of a successful marriage is always a Secret”

I have seen most of the Marriages/Relationship breaking or “on the rocks” f0r mainly one reason, “Not giving enough time to understand the other person”. This is my view.

Most of the people be in a Relationship/ Marriage and within months or maximum 1 year, Judge the person and loose patience. They do not give appropriate time to the other person to actually show their real face. Everyone in this world has many different faces/moods and you cant know a person in a short span of time, You have to give them time and trust them that they can be your dream spouse.

There are good and bad times in Marriage , You see both the times and have to trust your partner in bad times also, that there will be some time in future when you will see good days too, provided that you have chosen your partner carefully. There are times when you are there with wrong person and then you have to suffer all your life :).

I have seen many people do similar kind of mistake with there mutual funds and shares, If their mutual funds and shares have given good return, Great !! If they do down in some loss without giving them any returns in start, They are just “Bad mutual funds”.

What you have to understand is that you have to give enough time to your mutual funds to see their actual performance and what they have to offer. Good and bad times come and go, You have to trust your Mutual funds or shares. See list of Best Mutual funds for 2009

“Take time to choose your partner and after that, be with them, trust them, grow with them, Talk to them, try to understand them, and communicate, DON’T second guess and suspect there performance”

Tip : If your mutual funds have given bad returns or less than expected return, ask your self, if you have choosen them after lot of consideration and trust, If not, remove them, if Yes, then dont worry, give them time, they will come up with the returns you have expected from them, they just need some time to show what they are 🙂 .

Comments

Let me know what you think about this, Can you suggest something else which teaches us from real life about investing.

Note : I will be in Delhi for 4 days from 22nd – 25th and then back to Bangalore on 26th 🙂

3 stories that might change your perception about your own financial situation

Posted on by Jagoinvestor

Today I am telling you 3 short real-life stories. This is a random post, which I thought would be a good read for all the readers not because it gives you some knowledge or it teaches you some financial stuff.

But It might change your perception of your own situation and how lucky you are to have what you have.

change perception about financial situation

#Story 1 The Broken Person

A poor man from “Belha” village (District Sonebhadra, Uttar Pradesh) has 5 children. Some years back he had to sell his cattle and some household things to pay for hospital expenses for an accident. The Expenses were just Rs.3,000 After that incident their life got miserable day after day.

For years they are living a life which is unimaginable … They work in other fields and as a labourer’s whenever they get some work. They don’t get work for more than 50 days in a year. They have to travel to nearby “towns” which by my standard itself are poor villages.

They earn close to Rs.10-15 by working in Fields and around Rs.30 as labourers. But most of the time they get work in fields only. One of their children died last year because of malnutrition and all of them had nothing to eat for close to 4 days, not even a single meal.

Other children survived somehow. On an average this family eats once a day, sometimes full stomach if they are lucky. From last many years the only sweet thing they have eaten is some “sugar”.

Because of bad monsoon this year there was no work in fields, Last Month this person comes to my hometown to earn some money by pulling Rickshaw.

There are already hundreds of people like him in my hometown doing that work and one more person in that list will not worsen the situation of unemployment, So its fine I guess. He thought that he would be able to do the work because his legs are “strong” he thinks.

After working for 3-4 days and earning money which he thinks is excellent (Rs 100 in 3-4 days), Next day he fractured his legs because of a severe accident with a Car in the town. With no money with him, he can.t do any thing but to live with the situation. With his broken legs he was doing some “Wall painting work”.

His family is some how managing to survive in village and waiting for him to come and feed them for several days without any break .

This person is too weak to work now and accidentally fell on ground because of imbalance and broke his one hand too . Frustrated , Now this person cries for hours and finally decides that god has tested his patience for surviving his life and now he cant take it anymore . After that day this person is missing and there is no trace of him .

This is real life story of not just one person but most of the people in poor villages of this country . I had met this person long back some 4-5 yrs ago when he came to my home , He is close relative of a person i know personally .

#Story 2 The Old Lady

“Jeera” .. This may be a kitchen ingredient name for you , but this was a common name for females in poor villages . (Many people are named on vegetables, masalas and fruits in villages). This is a women who is in her 60’s, elder than my Father. She does not know where are her children from last many decades. They ran off from village with the bad companies they had.

She comes from her village 6-7 kms from my home town and washes utensils, cleans rice and wheat etc. or Washes clothes some times .. Any petty work at home “on demand”. She gets Rs.5 per day from each Family. Btw, she works for just 2-3 families anyways.

So on an average she earns Rs.10 per day , some times Rs.15 . Rs.10 is actually good enough to feed her two times, because she has no other expenses other than Food. Transportation is free (She walks up and down daily) and hopefully gets a Saree once in 3-4 years from some family on Diwali or Holi may be).

Her biggest Wish in life is to own a Mobile phone someday , but deep down she knows very well that its not possible in this life. I see her always cheerful and smiling, and some times her level of satisfaction and happiness in life seems to be much more than any average person in this country.

Story 3 #The Rickshaw Wala

When I was in School , I used to go by Rickshaw to school , and my rickshawala was a dark-long beard muslim person (don’t remember his name) who used to yell and shout on every boy and girl every day for whatever we did, even if were 1 min early , he yelled 🙂 .. if we were late by 2 min, he yelled.

I was really scared by this person all my life (my school life) and after I left my home 12 yrs back for further studies, Whenever I go home, I see him pulling rickshaw to same school, same rickshaw (in bad condition), No changes at all … Either he sees me accidentally or I see him accidentally and then This person comes to meet me at home, Our talk generally ends in 3-4 minutes with just a general “Haal-Chal” talk.

Every year he looks 2 yrs older than last year and more weak than earlier. One common sentence every year I hear is that “He is trying to make both ends meet somehow” and “he is not able to pull his Rishshaw these days , But some thing needs to be done to support his Family of 8” .

I was surprised to hear that he had 8 people in family and even more surprised when he told me that this is after his 4-5 sons ran away from Family because of being involved in “Gaanja-Sharaab” (opium-alcohol) activities.

This time, He came to meet me again, His pauses longer this time between the conversation. I realized that he expected some monitory help from me (He expected it every year, but I never understood, I thought he just came for “Haal-chal” talk).

I gave him Rs 100, and I could see tears in his eyes, because it was too much and beyond his expectations. I think he expected not more than Rs 10-20).

I think he will take a small vacation now (for 3-4 days) and rest at home, anyways no work because of Diwali.

———

Conclusion

Most of us earn per day more money than what these people make in a month . Early Investing is key to financial freedom , “Satisfaction and Being Content” is the real key 🙂 . See what you have rather than what is missing and you will be much more happier than ever.

I am telling you these stories so that we understand how good our situation is and we worst situation is literally 100 times much better than the best life these people can ever think of. I hope it hurts less next time your Mutual funds drop by 10%, or your Home Buying is delayed by 1 more year, or you are not able to go for vacations for a year or your “life is miserable”.

Donations

Incase you are too touched by these stories , I would be happy to accept donations and give to these people [mail to [email protected]], You can give donations of as minimum as Rs 50 or Rs 100 .. Even if you are ready to skip a movie or Dinner outing with Family, That much money can provide a months worth of food or some happiness to these families.

Time to do something really nice this Diwali 🙂 .

I am not sure If the first person will be available or not [Family is available], but other two will hopefully be there …

I know all these people personally and most of us living and working in big cities might just hear these kind of stories in news or in newspapers but its very common in small poor villages .

Comments are Welcome, Please share your views on these Real life stories and Let others know What are your ideas on making the situation better.

Mis selling by an LIC agent

Posted on by Jagoinvestor

Many people have been sold LIC policies without making them understand what is that policy and how is that structured for you.

I have recently been informed by one reader how an LIC agent sold her a policy claiming it to be “a great opportunity” and gave her wrong information about the policy and the actual thing was totally different, which she discovered from another LIC agent years after.

Now the situation is a total mess. [Written in Train, Posted from Home]

mis-seling

Mis-selling from an LIC agent

Hello manish..

I have been taken for a ride by a cheating “char so bees” LIC agent. Please help me. In 2006 I got married and moved in with my husband to a very remote mountainous region. Soon we had a Lic agent pestering my husband about taking a ” good” life insurance.

I had read in a Readers Digest issue about term insurance and asked the agent about the same. But that shameless fellow said that such a thing was not available in LIC.

Since he was the most “renowned” agent, I trusted him and took the next best thing he offered – a 22 year 16 lakh money back policy Jeevan Anurag in which I would have to pay Rs1.21 lakh per annum for 7 years after which we would start getting money back( Rs80,000 in the 7th, 8th, 9th, 11th, 12th, 13th, 15th, 16th, 17th, 19th, 20th, 21st year and 3, 4, 5, 9 lakhs in the 10th,14th,18th,22nd year).

He also said that our as our policy got older we would have to pay less premium. I did’nt quite understand when he gave us 4 policy papers and questioned him about it on two occassions. But he asked us to trust him and ” reap the benifts of this incredible policy”.

I had my doubts but I was naive and did not want any trouble. 2 months back we got transferred to a more” civilised” town and soon we had a new LIC agent knocking our door. As we talked about my previous policy this new agent said that he has never heard of such a policy and asked to see the papers.

I was dumbfounded when the agent told me that I dont have a 16 year policy but 4 different policies of 4 lakhs each for 10,14,18 and 22 years of which the premiums are Rs 46032, Rs31842,Rs 24355, Rs19357.

Jeevan Anurag provides the following assured benefit-“..an amount= 20% of of basic SA at the start of the year during the last 3 years before maturity shall be payable . At maturity balance 40% of basic SA+bonus…”.

That cunning man had arranged the policies in such a way that when one reached maturity the other just stared paying up. I feel so stupid for having been duped. I have already paid 4 premiums(4.9 lakhs)…

now I am in such a state of confusion that I dont know what to do next. Should I discontinue or should I continue ???

I see a lot of sense in what you say and I would really like to invest into some of your ideas but my money is stuck and I dont know where to go from here..Where I live the only financial advisor available is the LIC agent and I dont trust a word he says so please show me a way out.. I really need your help.

And is there a way I can get back at that sleazy agent? Help?? please..

Read the review of Jeevan Tarang Policy from LIC

Answer

oops .. that really hurts ..

I can see that you are mis-sold the policy , The returns which you mentioned to me also looks little cooked up , please check the numbers once again , if needed involve that new LIC agent to find out what is the exact money you are going to get back in different years .

If you have 4 lacs policy for 10, 14, 18 and 22 years, then that 80k figure is correct. but looks like the 3,4,5,9 lacs thing little cooked up . you should be actually getting 1.6 lacs + Sum assured in each 10th, 14th, 18th and 22nd year.

Looks like this has overestimated the sum assured part and made it 3,4,5 and 9 lacs, This might happen but the probability for that is close to 0. Ask the new LIC agent to estimate how much is it…

My estimate is not more than 2.5 lacs in each 10th, 14th, 18th and 22nd year. max 3 lacs… Apart from this the premium of 1.21 lacs is to be paid upto 7 yrs, that is true, but after that, only the first premium will stop, the other 3 will continue and then 2nd will stop in 10th yrs .. and so on.

As you can see from https://www.licindia.com/children_need_001_benefits.htm that the premium stops only at n-3th year of a policy . Please try to understand the policy yourself.

Truly speaking, I am more mad on you guys than that LIC agent

Regarding tracking down that LIC agent , you might have phone or address or some sort of contact . If not , Contact LIC and find out your LIC agent name and agent number or something . File a complaint with LIC on this matter and once its not taken care within 2 months, file a compaints with IRDA on this .

Take this matter to consumer court . I am giving all these suggestions but not sure if this will be of too much help , because you guys have signed the document which says “I hereby understand and agree with Policy Document and am responsible for all the invesment decision” , Hence I am raising my hand to help you but fingers are crossed .

Apologies if I my words sound little rude , but I am an emotional person .

Comments

What do you think about this issue, Do you know how to track that agent again, Anyone can help this person? Contact me…

Questions and Answers , Part 5

Posted on by Jagoinvestor

Here are a set of 5 questions and answers asked to me on “Ask a question section”. These questions are on the topics on ULIPs, General Investing and Achieving Financial Goals, Stocks. You can also look at other Questions and sections part here at Part 1, Part 2, Part 3 and Part 4

ask a question

Question 1# [Stocks] – by Ramesh Rao

sir, I bought rei agro ltd at Rs.48/- for short term of 1 week or 10 days.
I am observing it for the last week its not moving much higher than the price i bought. so what should I do, please guide me, shall I wait for a week.

Answer

I do not give recommendation about stocks as I mentioned in the form itself. Anyways its too late now for me to reply, but I will give you basic advice, I can see that you dont have a strategy in place for trading, thats very dangerous in long term.

Please understand one thing very clearly, Random trading will never make you money in long term, its just a blind gambling. So learn Technical analysis basic, Master the psychological issues involved in Trading. Once you make money in Paper trading for 3 months ,then move to real trading, there is study and experience both behind my advice.

Question 2# [ULIP] – by Vivek Kumar

I am looking to invest around 6 lacs in next 3 to 4 yrs period with a view to get a return of more than or equal to 15 lacs in next 10 years. Considering the recovery mode of market what should i go for, I have come across this plan called TATA AIG Invest Assure Apex, should i go for this ulip or something better u all cud recommend…! cons

Answer

Expecting 6 lacs to become 15 lacs in 10 yrs is very realistic and acheivable target, Here is the plan

– Invest 12,500 per month for 4 yrs (total 6,00,000) in Mutual funds through SIP. Take 3 different Mutual funds.
Assuming a return of 12% (1% per month) over 10 yrs, which is like very much possible, you will have 15.8 lacs in 10 yrs.

>>> (12500 * (1.01) * ((1.01) ** 48 – 1)/.01 ) * (1.01)**72
1582275.5728728396

You can mix up your investments like this

– totally in Equity diversified Mutual funds,
– Mix of Equtiy Diversified + Balanced Funds
– Mix of Equity funds + Some Debt funds
– what ever else you can make yourself (be creative)

I don’t like to take plans from companies because thats like giving away all the fun in other hands then, Dont hesitate to excute your investment plan as I suggested, Its too easy to execute and does take much time and you get to learn seomthing out of it.

Question 3# [Making Long-term corpus] – by Aakaash Nair

Your blogs are excellent coming from someone of your age. Kudos to you. I can save about 60K per month and would like to have that multiply to about 2 Crores in the shortest possible realistic time. What would be the best way to achieve this, apart from Gambling of course 🙂

Answer

Thanks for the appreciation, Regarding your Query .. The best way to find the answer of shortest possible time is to find out what is the realistic rate of return you can expect over some tenure. I would say that over a long term you can expect 12% and it can go upto 15-20%, but let’s be conservative and expect 12% only.

So if its 12%, then it’s pretty simple equation where we have to find the tenure which generates 2 crores from 60k per month

>>> (60000 * (1.01) * ((1.01) ** 156 – 1)/.01 )
22555868.687736

With simple maths, we can see that 156 months (13 yrs ) is a good time frame to achieve this. It might be achieved early also, but let’s be conservative in this as the amount invested per month is high and there can be changes of slumps in between which can affect psychologically.

I would recommend this

– Utilize PPF for this as it will take a small part of your investment. (70K per year)
– Put a small portion in DIrect Equity after doing some research on stocks and give them time to grow (monitor them every year)
– Start a SIP in 2 good Sectoral Funds (10% amount)
– Start a SIP in 5-6 different good Equity diversified Mutual funds.
– Rebalance your Portfolio every year as per your asset allocation (let’s have 80:20 or 75:25)

The above mix is quite good in Risk appetite. which I assume is fine.

Question 4# [Stock Trading] – by Shubhankar

Hi, I am very much thankful to whatever information u have provided. I trade in options and its intraday or 3 to 4 days positional. So can you please suggest what time frame I will select to get the right moves -for example today is 28th August.. .

Now what time frame I will choose fr Nifty/Stock PE for September series so that I can capture either side of nifty/stock movement.

Answer

You have asked very innocent question, The answer is, that right moves are in every time frame, its you who have to configure yourself for some condition and time frame and startegy, there are people who make money in every kind of time frame,

Decide what is your time frame as per your life style, level of involvement you want, kind of strategy you have. Read my ebook : https://manish.pucsd.googlepages.com/A_Small_Guide_For_Newcomers_In_Stock.pdf

Question 5# [Financial Planning] – by Manpreet

You have a great site. I must congratulate you first for your efforts!

Frankly, your articles have been eyeopeners for me, and I’m now in a fix, about what to do with my existing insurance/ulip policies.

I have the following policies:

1. Birla Sunlife Dream plan:

Premium = Rs. 50700 p.a.
Sum assured – Rs. 1908000
Coverage period = 20 years
Start date – 27/07/2009 (have paid 1 premium so far)

2. LIC Profit Plus (T.No. 14)

Premium = Rs. 20000 p.a.
Sum assured – Rs. 200000
Coverage period = 20 years (premium paying term is 5 years)
Start date – 18/12/2007 (have paid 2 premiums so far)

3. LIC Endowment Assurance Policy

Premium = Rs. 27540
Sum assured = Rs. 600000
Coverage period = 21 years
Start date = 28/09/2008 (have paid 2 premiums so far)

4. MNYL Life Maker Premium ULIP

Premium = Rs. 20000 every six months
Sum assured = Rs. 400000
Coverage period = 10 years (premium payment term is 5 years)
Start date = 07/09/2008 (have paid 2 premiums so far)

And, my wife has the following policies:

1. LIC’s Money Plus (T.No. 180)

Premium = Rs. 100000 (single premium)
Sum assured = Rs. 500000
Coverage period = 20 years
Start date = 06/02/2007

2. ICICI Prudential LifeStage RP

Premium = Rs. 100000 p.a.
Sum assured = Rs. 500000
Coverage period = 10 years
Start date: 08/02/2008 (have paid 2 premiums so far)

After going through your articles, I’ve realized that I’m wasting my money by investing in these policies. How can I exit out of these policies? When should I do it? And, where should I invest my money instead both from investment & tax-saving POVs?

My age is 27 yrs, and my wife’s age is 25. We both work in the IT sector. And, we would love to buy a house/apartment in 5-10 years frame. What can be the best financial plan for us?

Any kind of advise would be helpful. Thanks for your help.

Answer

OK , lets take it easy .. Manpreet , your Finances are not in great shape .

You people are paying 2.37 lacs per year as premium (excluding single premium) for your Investment Planning , please dont tell me you still think its a Insurance Policies 🙂 .

WIth this kind of Premium every year , you Insurance is still a tiny 41 lacs which seems to be a small coverage for you guys . I can smell around 1 crore Insurance requirement for you people (assuming no assets) .

Your Insurnace Requirement can be met with a small premium of 23-24k per annum for 30 yrs tenure . You will be left with 2 lacs every year in that case to invest somewhere else ..

Using PPF + SIP in Mutual funds and may be some Pension products , you can generate atleast 12% return which is totally possible , you can generate close to 3 crores in next 25 yrs .

Regarding getting out of your Policies now , I can see that you have paid 1 or 2 premiums in most of them .. this is a very critical situation , which can not be handled easily now .. I would recommend still pay for polices you have to and once they recieve surrender value after minimum lock in period, then take them out and make your Investments more easy and simple .. for now .. make sure you take Term Insurance for another 60 lacs .. for a penny amount of 13-14k per annum ..

The current situation is too messy and complicated , I would not day BAD , but messy . Its not simple .. too much clutter there . You need a simple Term Plan for you and your Wife , Two PPF accounts (you and your Wife) , a bunch of mutual funds linked to your Financial goals , A family Floater Plan and may be 1-2 FD’s .. thats it ..

Some ULIPS you have might be goodone and can be used for some investment , but still they wont be the best thing .. This the all advice i have with the given situation . You might want your Financial planning to be done professionally , because there might be small small issues and one time restructuring for long term is required I guess . take your call ..

And one more thing , I almost forgot .. How are you claiming for tax deduction with so much of premium? Tax planning is also not up to the mark .

Apologies if I scared you , but thats my 100% real reaction .. I cant lie 🙂

4 Charts which will change your perception about Equity

Posted on by Jagoinvestor

“Invest in Equity for Long term” You might have heard this sentence from me and others numerous number of times, but have you ever thought, why I say so? Or what is the logic behind that? What is the authenticity of what I say? Why should you believe me?

Hence, I came up with the most time consuming article of this blog till date. Lets explore the world of Equity today and I will show you some amazing numbers and graphs which will change your perception about Equity.

Equity

To make this article Crisp and short, I will show you 4 charts and explain each of them that will show you Power of Equity. Mainly the idea of this post is to show you the return potential of Equity in Different time frames and to find out what is the kind of return we should expect from equity in Long run like 15-20-25 yrs.

For the sake of calculations and source of reference, for almost all of the article I have used value of Sensex Index, but it should be almost similar for any Index Fund, ETF, or a Equity Diversified Mutual fund.

All the below study is based on historical 30 yrs of Sensex data from the year 1979.

1#Sensex Return Chart

Sensex has returns close to 18% CAGR in the long term till date for One time investment and SIP investment.


This chart shows you the CAGR (Compounded Annual Growth Rate) return of Equity after each passing Month. I have manually noted down the Index value for each month starting from Mar 1979 – Sept 2009 (total 350 months approx) and then did some number crunching (actually a lot) and came up with the CAGR returns the index has given for that time frame.

For example: for the month 36, the Index value was 218.82 and my starting Index value was 122.23 (Sensex actually started from 100, but I had a little late data). So the actual return was 23.16% for SIP investment and 20.78% return for one time investment.

So this chart shows that if you had Invested your money in the start and then hold it for a particular time frame then what will be your CAGR return till that point.

The chart shows the return for two kinds of Investment modes: SIP and One time investment. So Blue line shows the CAGR return if you did SIP investment and the RED one shows the CAGR return if you had invested in Start and sold after ‘n’ number of months.

View Data

Points to Note

  • In the Short term, returns have Wild Swings which is the basic nature of Equity
  • In the long run, returns were in the range to 18-23%, where it goes up and down because of Bull and Bear markets. See Nifty PE Analysis
  • SIP performed better than One time for starting 4-5 yrs and then SIP and One time investment were close enough.

2# Nifty Return Chart

Nifty has given returns close to 18% for SIP investment and close to 12% in 12 yrs from 1997-2009 .


This one is similar to the above chart just that it is for Nifty 12 yrs data. This chart shows you the CAGR return of Nifty after each passing Month. I noted down the Index value for each month starting from 1979 – 2009 (total 146 months approx) and came up with the CAGR return the index has returned up to that point.

For example: for month 120, the actual return was 23.33% for SIP investment and 13.17% return for One Time investment. So this chart shows that if you invested your money in the start and then hold it for that particular time frame then what will be your CAGR return till that point?

View Data

Points to Note

  • You can clearly see that the returns kept increasing with Tenure and there were less wild swings up and down with Returns.
  • SIP performed better than One time Investment in all the time frames. See that blue line was always higher than Red one for any given month.

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3# Absolute Average Return for Each month (Sensex Data)

This shows you how much of absolute average return in percentage terms would you get if you hold your investment for X months.

This is an interesting Chart. It shows how much of absolute return can you expect when you hold your Equity investments for 1 month, 5 months, 50 months or 200 months. I will tell you how each duration is calculated.

Let’s say duration is 12 months, so what I did was that I took all the 12 months time periods like Apr 1979-Apr-1980, Mar 1979-Mar-1980, June-1979-June-1980 and like this the last 12 months time duration Sept-2008-Sept-2009, total of 113 different values, then calculated the Returns for each time frame and calculated the average of those 113 time frames.

I finally got average returns of 12 months Investment horizon (total 113 values for 1-13, 2-14, 3-15 month Index value). So I got a single value of 25.60% for 12 month time frame. This is absolute Return and not CAGR return.

So, if I invest 100, I get 125.60 as return.

Please make sure that you understand that this 25.60% is the simple average of 113 values, there might be many values which may be negative, 0, or may be 100%. But we are more interested in what is the average of all such values.

In the same way the Absolute Average return for 120 months was 672.60%, which means that 100 invested would have become 772.60 in 5 yrs. Please understand that we are just trying to show this as the time frame increase the return potential of equity goes up and up.

Don’t interpret it as the return guarantee for any time frame. It’s Equity, Respect it else it will punish you badly for your Ignorance.

View Data

Points to Note

  • In the long run, the average return has increased
  • For close to 15 yrs, the returns on Equity kept increasing but at a lower speed.
  • from 15 yrs to 29 yrs, the Absolute return increased very fast
  • So the real power of equity comes with long term.
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4# Number of Times the return from investment was Positive for some time Frame (Sensex Data)

This graph shows that how many times an investment has returned positive for some particular time frame, for example for 4 yrs time frame (48 months). There would be many 48 months time frame like Mar-1979-Mar-1983 OR Jan-1994-Jan-1998 or any other date, out of all those 48 month time period, the investment gave positive returns for 87.36% times.

So this graph shows how the number of times went up and up as the time duration was more and more.

For a particular time frame like 50 months, I calculated returns for all possible 50 month window and then saw how many number to times it gave positive return and then divided it with total number of times to get the percentage of times, the return was positive.

So if there were total of 200, “50-month” period and 180 times the return was positive. The result would be 90%. I did this same thing for every time duration from 1-300 months and plotted the graph.

View Data

Points to Note

  • One an average the chart was rising, which kind of proves that Risk of losing in Equity decreases as time duration increases.
  • After 11 yrs, there was no instance when equity return was negative, which means that you invest any time in Sensex index and take your money out after 11 yrs, you will not lose. The return would be positive always.
  • For smallest time frame of 1 month, the percentage was around 55%, which shows that for smaller time frame the equity returns are random like coin toss which is 50%-50% possibility. But as time horizon increases its more of power of Equity, rather than randomness.

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Conclusion

Many people are afraid of Equity because it can give negative returns, which is 100% true and possible, but people do not understand that its not a short term wealth building asset class. Its some thing for long term.

When you invest in Equity for Long term, you are bound to get excellent returns given that you have faith on Statistics, Historical performance and the concept of Equity in general. You can also maximize your investment performance by active participation in your investment and honoring Asset-allocation and portfolio re balancing from time to time.

Time spend and tools used to this article

You might have spent 20-30 min to read this article, but I spend close to 25-30 hours on

  • Finding data
  • Doing calculations
  • Making Computer program in Python: See the Python Code written by me for this article
  • Making Charts in Excel, See Chandoo.org for excellent Tips
  • Actually Writing this article

Comments Please, I would like to hear your views on this article and your views on Power of Equity. Is there something to be added? And Did this article succeed in changing your views about Equity or not?

Note : I will be on vacation now and will keep posting some articles whenever I get time .=”

What is Dividend Investing and How to find Dividend Stocks?

Posted on by Jagoinvestor

How do we get a consistent income and good growth both at the same time from our investments? In this article, I have talked about, what is dividend Investing and what are the important things we have to consider for investing with the purpose to build consistent income from such investments.

We will see the concept of Dividend Investing and the risks involved and some examples of stock which are considered to be good Dividend Stocks.

Dividend-Investing

What is Dividend and Dividend Yield?

When a company earns the profit, it has two choices:

  1. Either invest that profit in back in the company advancements
  2. Payback profits to its shareholders so that they get some return from the investments they made

So, generally, companies declare some part of the total profit as Dividends to its shareholders. Suppose a Company earns the profit of Rs.200 crores and it wants to give 100 crores as Dividends back to shareholders and there are a total of 10 crore shares in the market.

It will come out to be a dividend of Rs 10 per share. Now, if the face value of each share is Rs.100 (10/100), then it will be called as 10% dividend declared by the company, but if the Market price of that same share is Rs.200, then the dividend yield would be just 5% (10/200).

So what matters is the Dividend Yield and not the percentage of Dividend that is declared.

Suppose, you have 200 shares of Infosys and its current market price is Rs.1000, whereas the fave value of Infosys was Rs 10 and Dividend per share is declared at Rs.50, then the dividend percentage will be 500% (50/10), but the yield would be just 5% (50/1000) and your Dividend income will come out to be just Rs 10,000, which is 5% of your shares current market value of Rs 2,00,000.

See the Video Below to understand a little more.

How to create a regular and consistent Income from Dividend Investing?

So, the basic idea here is to invest in those stocks which have an excellent history of paying Dividend. The important point is to note the dividend yield earned from these stocks. You might be interested in Stock Market Analysis using Nifty PE

The advantage of Dividend Investing:

Your Investment Growth: The stock price will have good growth over the long-term and the share prices will grow.

Consistent Income from Dividends: You can also get a good income from the dividends you receive from Stocks

Tax-Free Income: As per current income tax rules, the dividend received from Stocks are 100% tax-free, unlike Mutual funds dividend where there is Dividend Distribution Tax.

Note: So Even if your Stock grows at 7% per year over long term and has a Dividend payout of around 5% every year… your actual return from the stock would be 12% approx which is a very good return.

Example of Some good Dividend Paying Stocks

Also, see this chart with Top 20 Dividend Paying Stocks list by

Top 20 Dividend Paying Stocks

Where to find out the Dividend Information for a Stock in BSE and NSE?

Click Here For BSE

https://www.moneycontrol.com/stocks/marketstats/nsetopdiv/index.html

See this NTPC Analysis by TIP GUY, You can refer to his blog for all your Dividend Investing related queries, He is an expert on this Topic

See other articles on Dividend Investment Here

Conclusion

People who have a good amount of money to invest in the stock market and also want consistent returns per year can look for investing in good (researched) Dividend Stocks. This will give them good investment growth and regular income.