Questions and Answers , Part 5

POSTED BY manish ON October 7, 2009 COMMENTS (19)

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 🙂

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19 replies on this article “Questions and Answers , Part 5”

  1. SUKHDEV GUPTA says:

    Shri Manish Ji

    I hv 2 doubts seeking yr valuable guidance:
    1. I transferred some money more than 2 lakhs in my wife’s SB account, from the retirement benefits in FY 2011-12. My wife further invested in FDs. But due to oversight I could not clubbed the interest accrued on FDs, in my income for AY 2011-12,2012-13 & 2013-2014. However my wife regularly file income tax return declaring interest accrued on FDs. Now can I club the interest accrued in wife account from 2014-15 AY 2015-16.
    2. My wife opened a RD account in Post Office in March 2010, which is going to mature in March 2015. Pl let me know whether interest accrued on RD is to be taken in wife’s income for income tax purposes.

    Waiting for yr valuable suggestions.
    2.

    1. 1. If tax is paid on that income, then there is no issues.

      2. Yes

  2. Dayananda P K says:

    Dear sir,

    I am having graduation in Economics and PGDPM ( post graduate diploma in personnel management ) from NIPM . Now I want to become financial adviser . which are the courses , books which gives value addition to my profession and do justice to my clients. thnx in advance.

    1. Dayananda

      You can do CFP or CPFA , both are certifications for financial advisory , but CFP is top ranked and has more value .

      Manish

  3. T.S.ASHOK says:

    Dear Manish,

    I found that i has wasted most of my money with TATA AIG Maha life policy. It is a 12 years policy. Upto 12 Years we need to pay Rs.21065 and from 13th year onwards I will get Rs.15000+Non Gurarenteed returns(May be around Rs.2000). Very low return..
    I already paid for 5 years. Now I tried to sureender. You know what i was told.. First year premium will not be paid and only 30% of next year prmiums will be paid back to me..Huge loss. But definitely i will not pay the rest premium and i am going to surrender with 50% loss.Because if i continoue this, again i will be a fool.

    Dear friends, please do not fall in the brainwash of the agent.. this is my wish..

    Regards,
    Ashok, coimbatore..

    1. Ashok

      Sorry to hear your bad experience , you didnt enquire much about the charges involved in this plan .

      Manish

  4. Sumit says:

    Hi Manish,

    First of all I am really thankful to you for your great and eye opening articles. I wanted some suggestions from you regarding my investments. Currently I have started investing in MF’s. Here are the details of this.

    Here are my MF details which I started from June 2010 –
    DSP-BR Equity Fund – RP (G) – SIP of 2000/- P.M.
    DSP-BR Small & Mid Cap -RP (G) – SIP of 2000/- P.M.
    DSP-BR Tax Saver Fund (G) – SIP of 2000/- P.M.
    Fidelity Tax Advantage (G) – SIP of 2000/- P.M.
    HDFC Tax Saver (G) – SIP of 2000/- P.M.
    HDFC Top 200 Fund (G) – SIP of 2000/- P.M.
    IDFC Premier Equity (G) – SIP of 2000/- P.M.

    I also have one ULIP plan as –
    ICICI Pru Life Time Super Flexi Growth – SIP of 3000/- P.M from June 2007

    I am planning to open a PPF account by tomorrow after reading your articles and I also have some low premium insurance policies. I just wanted to know where I stand with my current investments and what will be your suggestions for me. I am planning to continue with my investments in MF for next 12-13 years and in ULIP for next 7 years (as I already paid the heavy entrance fees in ULIP so now just want to continue). Please suggest me if my MF selection is correct and what to do with my ULIP plan?

    Thanks
    Sumit

    1. Sumit

      I can see something like

      – High duplication of funds, same thing can be achieved by 1 good ELSS (HDFC Tax saver) , DSPBR Equity and HDFC TOP 200 . thats all you need . Also you have 3 tax saving funds , why so many ?
      – No proper Life cover

      You have to reduce your funds , make sure its suitable for you , you should be comfortable with the risk they expose you to . Learn about ULIP switching and start understanding market movement if you want to continue them , else it will be just like a MF for you .

      Manish

  5. Jignesh says:

    Also can you please elaborate your formula for finding this tenure ?
    With 25K per month within how many years i can build wealth arround 1 Cr.
    Suppose i have 25k for next 5 years and 50k then after upto next 5 years. what is max saving potential withing this 10 years? and how i should plan those with MFs/ Sip/PPF?

    Regards

    Jignesh

  6. Jignesh says:

    Excellent Blog and Real Advices which i like most.
    I have same question like 60K per month that guy had to invest. The difference in my case is i have 25 to 30K for investment including protection.
    One more thing which i came to know with reading some stuff that NRIs are not eligible for Term Plan .
    How we can keep simple our Insurance need?

    Please Advice.

    I like and respect your blogs and sure going to put share this link in my signature.

    Regards

    Jignesh

    1. Jignesh

      Thanks 🙂 . Keep coming 🙂

      Manish

      1. Jig says:

        Hello Manish,
        I didnt get reply of NRI query. Is Religare allowing NRI to buy pure term plan?
        Hope you have came across such query before and thats y i am expecting a reply from your side.

        Regards

        Jig

        1. Jig

          You can take it if you can provide the address proof for the city which they have listed . check with customer care .

          Manish

  7. Srikanth says:

    This site is indeed a good one especially for early learners…..

  8. manish says:

    @Satya

    Its a regular ULIP , apart from some different numbers it has nothing unique which makes me happy about it . So the question now is back to “Should you invest in ULIP” ? .. For the same reasons i have mentioned on this blog . Better go for simple combination of Term Insurance + PPF + SIP in (Mutual funds or Index Funds or ETF)

    Manish

    1. Satya says:

      Hi Manish… thank you for your reply and advice. You are the best!

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