Prevention is better than Cure even in Personal Finance

POSTED BY manish ON February 12, 2010 COMMENTS (112)

“An ounce of prevention is worth a pound of cure” I see that most of the people these days have bought wrong products like ULIPs, ULPPs, Endowment Policies and unsuitable Mutual funds (which they are not aware of most of the times) and then when they do come to know about it, they don’t have much choice left.

They either have to live with it or they have to lose a lot of money to correct the situation.

In this article we will see some thoughts on why we should focus more on “Prevention” and not “Solutions” for a bad situation from Financial planning perspective.

personal finance

A Small Story

There once was a little boy who had a bad temper. His Father gave him a bag of nails and told him that every time he lost his temper, he must hammer a nail into the back of the fence. The first day the boy had driven 37 nails into the fence.

Over the next few weeks, as he learned to control his anger, the number of nails hammered daily gradually dwindled. He discovered it was easier to hold his temper than to drive those nails into the fence. Finally! The day came when the boy didn’t lose his temper at all.

He told his father about it and the father suggested to the boy that he should now pull out one nail for each day that he was able to hold his temper. The days passed and the boy was finally able to tell his father that all the nails were gone.

The father took his son by the hand and led him to the fence and said, “You have done well, my son, but look at the holes in the fence. The fence will never be the same. When you say things in anger, they leave a scar just like this one. You can put a knife in a man and draw it out.

It won’t matter how many times you say “I’m sorry”, the wound is still there. A verbal wound is as bad as a physical one. Friends are very rare jewels, indeed. They make you smile and encourage you to succeed.

They lend an ear, they share words of praise and they always want to open their hearts to us.”

The Story is encouraging and gives an important message. We all make decisions in life. Some of these decisions can prove very unhealthy. We make mistakes and then when we come to know about it, we try to figure out ways to fix the problem.

Making mistakes is not a wrong thing, we all do it at some point in life and taking measures to cure it is another great thing. But it will some times have drastic impact on you and your money.

Some of the mistakes we make are

Watch this video of 4 biggest financial mistakes related to personal finance that every investor should avoid :

ULIPS

A lot of readers of this blog were sold ULIPs (they didn’t bought it, it was sold to them) without telling them the costs involved and sometimes promised with wrong returns (it was just an illustration and dependent on market condition, agents just said it was guaranteed).

Now when they come to know about it, they stop the premium payment and get out of it at right time, this getting cure for the problem but the damage has happened. You might not realise it, but the damage is big, some people have lost close to 80,000 – 1,00,000 in premiums or in costs.

One of the person I know has paid 4-5 lacs in premium and 60% was the cost in first year. Now he stopped the policy, that’s a loss of 2.5 lacs. If that same money is invested in some good Mutual funds for next 20 yrs and if we expect a return of 12%, it’s 24 lacs at the end.

This is opportunity cost. RS.2.5 lacs might look like a small or “chalta hai” kind of amount, think again, it’s opportunity you have lost. The amount can differ for different people but the lesson remains same.

Insurance

Another case can be of Insurance, most of us are still under-insured, even now!! Even after we know that Term Insurance is what we should take, still we are underinsured, that’s the risk. Once the disaster happens, it will be too late, you will never get the chance to cure it.

In fact you will not be there in this world to cure it and the outcome will be very horrible which you might not want to imagine.

Endowment Plans

Same with Endowment Policies, Investors who have taken Endowment Policies and are paying 50,000 per year for next 25 yrs. They do not realise what they are missing. You get 5-6% returns, that’s all! forget what agents promised or what was told to you. Endowment and money back plans are world-famous for “not able to beat the inflation” kind of returns.

So you are missing long-term equity returns of 12% at the least. So you are loosing 6% worth of returns. That’s loss of 45 lacs for the example I just gave you in long-term, what is the reason you lost that much, just simple laziness of not taking the action of “change” and restricting your mentality of “Equity is Risky”, that’s incorrect at least for long-term.

Late Investing

No matter what you always have some money to invest when you start. If you don’t want to invest, there will always be enough reasons to not have savings. Almost 99% of the people can live with their 90% of salary, whether they believe or not. Earning less is not a crime, it’s part of life, save what ever you can save, even Rs 100 is ok, but do something.

Some people can save more than 30-40% of their salary, but they are not doing anything about this! Don’t underestimate the power of early investing, Early investing is so powerful that it can compensate for big mistakes in investing later in life. If you are a 25 yr old person who needs 2 crores at retirement at age 60.

Assuming 12% return, you just need to invest  Rs.6,000 per month to reach your retirement target. Imagine what happens if you feel that you can do a little late, how does it matter and all and actually start 5 yrs late, with the same saving of 6,000 per month, you will have just half of your retirement target, that’s 2 crores.

Imagine the cost of saving late by 5 yrs, You have to but down each of your retirement thing by 50%. That can be a big hit!!

What is the Solution

Taking measures to fix your messy situation is worth appreciation and we all should do it if we get into it. But on the first hand why to get in a messy situation. You don’t need to do fancy things to be in healthy financial condition.

A simple 5 things can save you from disaster

Just practice these 5 Mantra’s and almost all of mistakes you make will go away.

Comments, what do you think about this? Please share your views.

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112 replies on this article “Prevention is better than Cure even in Personal Finance”

  1. Rakesh Goyal says:

    uneed to be smart for finance planner and keep on churning ur portfolio.
    i kept the money for long in fixed and then realized equity..put in MFs earned 50% annual gain…but all was eroded in 08-09 crash…now the money is back to debt fund …giving less than the inflation rate…so if i invest in equity i have to wait for nxt 5-10 yrs for good return…and i am sure it has a term correction in it….so the capital will go again when i will need it …

    1. Rakesh Goyal

      I think the problem was not equity , it was over exposure to equity and then relying on it for so long, if you would have made sure you dont cross your asset allocation and have done proper portfolio rebalancing , things would have been better .

      Manish

  2. rashmi says:

    Dear Manish,

    have recently strated following your posts and they are indeed very informative. congratulations for that.

    Can u help me with a doubt I have. I have been seeing this Birla sunlife dream retirement plan suggested by my agent, intend to invest for 20 yrs, annual premium ~87500 with basic sum assured of Rs. 24 lacs (which is also the death benefit), Fund value of ~40 L in 20 yrs on an assumed 10% return.

    My agent says that from a long term prespective, and if u r not a disclipined investor, it makes sense to invest in ULIP than MFs. Also, according to him, the death benefit of 24 lacs is an add on in this plan, not provided by other retirement plans. I feel the fund charges are high , ranging at ~25000 – 35000 on an average per year but am not sure if inveseting in term plan + MF will give me a better return. Do u think that with a 20 yr horizon, this ULIP should be considered. whats your take on this retirement plan. Please do advise.

    Thanks
    Rashmi

    1. Rashmi

      thanks .. Its wrong info that insurance is just “add-on” and free .. there is always mortality charges for Insurance .

      24 lacs of insurance will cost not more than 6k per annum . Rest 81500 if invested through SIP per month for 20 yes , ie 6800 per month for 240 months and we can assume 12% return (1% per month) . this would translate close to 68 lacs .

      Dont get in ULIP .

      Manish

      1. rashmi says:

        thanks a lot manish for ur prompt response.. solves my query.. please keep up the good work..
        btw, this was suggested by my financial planner only.. I have second thoughts on taking his advices blindly now..

        rashmi

        1. rashmi

          Is your financial planner an CFP or a big time trust worthy Fplanner ? its just an agent , i would say ignore him/her .

          Manish

  3. Vivek says:

    Dear Manish,

    Thanks for your reply!
    I don’t know anything about this SBI plan and tell me how I can calculate return of SBI and term+MF. My age is 30. I can take maximum risk.

    Please suggest your option which way I need to choose
    1. loose 25K of SBI policy and go for term+MF
    2. Continue with SBI with 50K every year

    You are the best guy who can suggest me which is the best for me.
    Next premium is due I need to choose one option before that.
    Please suggest which way you will go.

    Thanks & Regards,
    Vivek

  4. Vivek says:

    Dear Manish,

    Before coming to this site, One agent sold me sbi policy “SBI Life Horizon II Pension” Option 1: Pure Pension Plan
    Plan: Dynamic
    Half yearly:25000
    Duration:30 years

    I have given initial amount of 25000 for this policy. Now next primium is due on 28 March.
    Please suggest wheter I need to continue this policy or not because In this policy I need to pay 50K every year.

    I have read your one artical in which you have proved that It’s always better to come out from wrong policy.

    Please suggest.

    Thanks & Regards,
    Vivek

    1. Vivek

      There are only 2-3 reasons why you should continue any product (not just ULIP)

      1) If you understand it well and how it works and what are the effects of external factors like (market movement , interest rates movement etc)
      2) If it fits your risk appetite
      3) If returns you get out of that product is best for you , there is no other combination which can be better , in your case , see if term + MF is better or not ?

      Manish

  5. GEO THOMAS says:

    Hi manish, congraulation on a good artical, i have been in this field for the last 6 years, this six years i have been doing what you have mentioned in the artical, but i should confess our poor investors still remain the same, the lic advisor who sell endowment policies are better than me, in 2008 when the market fell, lic advisor made full use of it, and the poor investor again fell in the trap of such advisors, it is a big task in advising the investor as they feel there is something wrong when we say 12 % as his advisor has said 18 to 33%. i have requested my clients to arrange small meet where i give them advice on investment and the mistake they are commiting, i wish lot of people read your article, and become a wise investor.

    1. Geo

      Thanks for the comment ,nice to meet someone in the same field and I am glad to know about how you advice your clients wihout any bias 🙂 .The problem you have mentioned can be linked with greed . its simple greed that people are not satisfied with 12% . They dont understand that anything beyond FD returns would have great amount of risk . once they understand this basic thing , they will be enlightened .

      manish

  6. Madhu says:

    I have already bought one ULIP without much knowledge at the time of buying (2006 jan). I paid the premium 50K for that for 3 years … but i could not pay after that as i can’t afford. i am still feeling the pinch as the value is below the amount of premium i paid. whats your suggesting in correcting this damage.

    Similar thing goes for a ULIP policy that my parent bought. It is way below (~55%) the amount that we have paid out so far for 3 years each 12k (actually it remained lapsed for 2 yrs before 3rd premium). Please suggest on this too.

    1. Madhu

      the best thing I can think of is get out of it and take some more pain if it requires .. in life sometimes its better to just get out of things which is creating problem rather than be with it and try to fix it even though you are not capable are ..

      So just get out of those and start a new investment life which you understand and suits you 🙂

      manish

      1. Madhu says:

        Yes. I also think that getting out of it is probably the best. From the Budget Y2010, I see that DTC is going to affect in a new manner and I read that (sorry i don’t remember where) ULIP is probably something better to stick to instead of selling. Is that really the case?

          1. Srinivas says:

            I am not able to access, it says I need to subscribe…Can you copy paste the content here.

            1. Srinivas

              Really .. Even I am subscribed , but I was able to read it 🙂

              Manish

        1. Madhu

          I do not agree with them , what ever they have said is correct from taxation point of view , but we at Jagoinvestor do not believe in taxation being the primary reason to invest . ULIP will still be ULIP , even after the DTC . So from operability point of view , you cant handle them even after DTC .

          So dont surrender them only if you can handle them by todays standard .

          manish

  7. raju says:

    1. Nice Article
    2. Story Not Matching with Article, otherwise a nice story
    3. Article on New Pension Scheme is definitely required for all the readers. Once you come up with NPS, we will have lot of discussion on the same. It’s important topic

    1. Raju

      Thanks man .. Story given in article conveys the same message which I intended to that make sure you prevent making mistakes rather than finding the cure.

      Article on NPS : https://www.jagoinvestor.com/2009/05/nps-new-pension-scheme-detailed.html

  8. shivk says:

    Hi Manish,

    I have read most of your blogs and really appreciate your insight into personal financing. I agree the so called LIC and other policies doesnt earn enough corpus over a period of time except for risk cover, these are some of the instruments that offer guarantee (may be just 6%) returns while you really need say, after 20yrs.

    Investing in MFs is the option for better returns however some turns of investment cycles like that in 1992-94, 2000-2003 if happen in future will definitely erase investments we make. Just imagine if some one invested for 10-15 years and want to redeem for meeting his needs, but faces the terrible market crashes, he cannot reach his retirement corpus goal…

    My thought is to stay invested in 30% of guarantee returns followed by MFs and other high return investments… whats your take on tha?

    1. Shivk

      Your concern is really nice and a valid one . So the main thing is that we have to handle the immidiate crash situation . What we can do is systematically withdraw money monthly from MF from 3 yrs of goal reach . with SWP (just like SIP) one can make sure that the last time volatality does not impact .

      Manish

      1. Rahul says:

        shivk

        wen u intend to move out of the equity market, u ve to start transferring ur money to some debt instrument like ppf, liquid MFs, FD etc. approx 3 years before u want to completely exit the market.

        1. Thanks for the follow up Rahul 🙂

          Manish

  9. Mukul says:

    Hi Manish,

    I have got 3 SIP for magnum contra (d), BSL frontline equity (G),hdfc top 200 (g) for 2k,1k and 1.5k respectively. how do you find this composition for my equity exposure? and i am planning one more for bsl tax relief 95.

    1. Mukul

      All these funds are good ones , you can try Sundaram or HDFC tax saver instead of BSL .

      Manish

      1. Srinivas says:

        Mukul,
        I have written an article on TOP 3 mutual funds for 2010-11.
        Take a look http://money360.wordpress.com/2010/02/22/top-3-elss-mutual-funds-for-2010-11/

  10. UMESH says:

    Hi Manish,

    I am sound reader of your site. It is a very terrific site for learning to the investor.
    I have some concernes regarding investment for regarding redemption in mutul fund
    Suppose I had invested for 30 years and while at the time of redemption the mutual fund house told me that your signature is not matching so your request is cancelled then what kind of steps to be taken.

    If you can give some tips regarding redemption of you mutul fund and problems occurs at that time then it will help to keep in mind while investing.

    1. Umesh

      Thanks for the appreciation . Regarding your query , how many times have you heard this happening to someone whose signatures didnt match ? Gernally you will always be able to sign the same way you did while buying , nothing of this sort happens and if it happens i am not sure how we rectify it , may be other readers can share their leanrings .

      The other thing is that we are not going to keep money in one single mutual funds anyways , it will be changed .

      Manish

      1. srinivas says:

        Hi Umesh,
        Though signature issue is not so common but it can certainly happen. But today, signature is also once of the important criteria but not the only one like in the days of non-computer days. When you are investing in Mutual fund, PAN and Bank account is mandatory. During redemption, Bank account is treated important than signature mismatch.

        If you feel you signature has changed a lot as years goes by, you can talk to mutual fund office. As i know, in case of banks, If they suspect signature mismatch, they ask you to prove your identify and they will take your thumb print and latest signature specimen.

        Do not worry too much on these things as long as you can prove your identity (with Passport, Voter id, ration card)

        1. I agree with Srinivas points 🙂

          Manish

  11. Marshal says:

    Hi srinivas,
    thanks for replying, here are the details of my LIC polices
    http://www.4freeimagehost.com/uploads/1691d6a7222f.png

    i have already read term insurance article now this question arises should i continue with existing LIC or go for term ins? parameters to consider before terminating existing LIC policies?
    awaiting response!
    thanks for assistance, really appreciate it.

    Cheers
    Marshal

    1. srinivas says:

      Hi Marshal
      No problem, we are here to share knowledge and help each other.
      My suggestions are:
      Policy No.1 (New money back 25 years) – Analysis: You have already paid 16 years of premium and received 45% of 125000 as money back from LIC on 5th, 10th, 15th year. Now 9 years left, after maturity you would likely to receive around 2Lakh rupees.
      you paid till now Rs. 98696 (6158*16)
      money back received 56250 (45/100*125000)
      premiums to be paid for 9 years = 55253 (6158*9)

      Option 1:
      If you continue till maturity,
      you get another 15% of 125000 at 20th year = 18750
      and you get 190625 (=40/100*125000+125*45*25) considering bonus of 45 average for 25 years.
      Total amount u would have received from LIC in that case = 265625 (+10k approximately) and remember bonus declared by lic every year varies (no guarantee)

      Option 2:
      If you surrender then (number of completed years -1)*premium*30%+accrued bonus *30% – money back paid = 61,461.
      if u invest this money in equity MF for 9 years then considering 12% returns you would receive 239450/-
      Adding bonus till now received 56250 makes it 295700

      Option 3:
      If you make it paid up policy, then returns from LIC will be locked till 9 years and u will receive (premiums paid+bonus – money back received) after 9 years = 132446/-. and considering inflation of 6% per year; the value of 132446 after 9 years is 75891/-

      Though inflation is applicable in all options, in Option 1, money hardly grows at the rate of inflation. In Option 2, calculations are based till LIC maturity, but you can withdraw your investment in equity MF any time as per your goal. In Option 3, you money is locked and cannot beat inflation and you will be covered for 70k insurance till maturity

      Impression: considering your age and you do not have other term insurance;keeping your goal inline with lic maturity, I suggest to surrender and invest the money in equity MF.
      Note: First visit you home lic branch and inquire how you money receive in case of surrender. if any major gap, we can discuss.

      For other 3 policies, No much analysis is required as it has completed only 5 years.
      Bonus for the last year is already added.
      For the other 2 money back policy, you might be receiving cheque this month, wait for the cheque and do not pay LIC premium. After encashing cheque surrender the policy (Note: Do not pay 6th year premium)

      For jeevan surabhi you can surrender right away.

      hope things are clear, if not please let me know.

      1. Marshal says:

        thanks a ton srinivas, i will go thru all options and will let you know if i have further queries..

  12. Marshal says:

    Hello Manish,
    I have LIC policy and for this i pay annual premium of 16k/- Sum assured 2.80k
    Need input, can i terminate this and take a Term insurance of 16k with sum assured of 50lacs?
    What all factors should i take into account before taking this step?

    Thanks
    Marshal

    1. srinivas says:

      Hi Marshal
      First let us know, policy name & how many years you have paid premiums for this policy?
      regarding term insurance requirement read https://www.jagoinvestor.com/2009/11/how-much-insurance-cover-is-enough.html.

      1. Srinivas

        I havent thought or researched anything on this , but do you think that there is any case when not surrendering the policy is a better choice ? any condition ?

        Manish

        1. Srinivas says:

          Not surrendering the policy can be better choice only if 80% policy term is over and 20% is remaining then better to continue the policy.

          1. But why ? What is the reason ?

            manish

            1. Srinivas says:

              May be this % is incorrect for policy of different term. It should be otherwise, if your policy matures in less than 5 years; it is better to continue the policy because
              1. Surrender money will be very less compared to the amount you invested.
              2. Considering if you surrender and invest all the money in equity (may not be suitable for all people) with 12% returns also cannot beat the money you will get if you continue for next 4~5 years.

            2. Srinivas

              Is it ?

              Point 2 seems to be suspicious .. If we surrender the policy , then what ever premium we have paid , we will get its deflated value (approx) , we can then invest it in atleast debt oriented funds and get a better value ? no ?

              Example ?

              manish

            3. Srinivas says:

              Let’s take my own example for Jeevan Anand.
              Sum Assured 3,00,000 – Yearly premium is 12,228/- for 25 years.
              Let’s say If i pay premium till 21 years; then 21 * 12,228 is 2,69,016/-
              If I surrender after 21 completed years, then I will get 30% of 20 years premium + 30% of 21 years bonus (take bonus as 45 per 1000 of sum assured)
              30% of 20*12,228 + 30% of 21*(300 * 45) = 158,418/-

              If I invest 158,418 in equity diversified fund for 4 years with 12% returns then it becomes 2,34,406/-

              If I continue for another 4 years, then I will get
              Sum Assured + Bonus + Final Additional bonus (475 per 1000)
              3,00,000 + 3,51,000 + 1,42,500 = 7,93,500/-

            4. Srinivas

              I think you are getting it wrong here .. 30% is not always the surrender charges , 30% is the minimum SC , and generally its 30% if you surrender close to 3-4 yrs .. generally surrender charge is the equivalent money in today’s term for the amount which you will get at the end .

              So the surrender charge after 21 yrs would be close to maturity value at 25 yrs (obviously less) .. check please ?

              How did you assume that it would be 30% ?

              manish

            5. Srinivas says:

              From the LIC website for Jeevan Anand.
              The policy may be surrendered after it has been in force for 3 years or more. The guaranteed surrender value is 30% of the basic premiums paid excluding the first year’s premium. Any extra premium(s) paid and premium(s) towards Accident Benefit are also excluded.

              It could also mean, you will definitely get 30% of basic premium paid excluding 1st year. I did not get clear description on internet.

              Last time, I visited LIC branch and talked to officer. He said this is the formula 30% of premium * (completed years -1) + 30% of accrued bonus.
              The surrender value I will get what he told exactly matched with this formula.

            6. Srinivas

              No , it does not look right to me !! .. Somethign is wrong .. Let me drag Guru Prasad here and he can comment on this doubt (i mailed him) . Wait till then .. lets dig this out more and find out ..

              I am sure I am close to being right !! , getting plain 30% at any point does not make any sense from logic point 🙂

              manish

            7. Srinivas

              Can you try and see how much surrender value does it show ?

              Manish

            8. Srinivas says:

              Hi Manish,
              Yesterday, I also tried with this website, for my data it did not work out.
              Today, I tried with different data for 20 years back (most of the policies are not available from LIC now). our importance here is only for surrender value.

              Data from LIC website as per today’s date
              Plan – Jeevan Mitra (Double)
              Date of birth – 25-Sep-1990 (I am just taking it for 20 years individual)
              sum Assured : 3,00,000/-
              policy/premium term – 25/25
              Yearly Premium – 11,477/-

              With this data, let’s go 20 years back, and enter the appropriate values in

              Commencement date of policy 25-Sep-1990
              Date of birth 25-Sep-1970
              Plan number 88-Jeevan Mitra(Double)
              Premium mode Yearly
              policy term 25
              premium paying term 25
              Sum Assured 300000
              Premium 11477
              Rider premiumn 0
              Last premium paid date 25-Sep-09

              Final Calculation:
              Completed years = 19
              Money paid till now (11,477 * 19) = 2,18,220
              Accrued bonus (average 49 per 1000) = 2,79,501

              According my formula told you before, if I surrender today (30% of premiums till now paid for (completed years -1) * 30% of accrued bonus)
              = 30*11,477*18/100 + 30*2,79,501/100
              = 1,45,825/-

              Result from the website is 144,141.

              Final Impression:
              There is slight change in result because of bonus variation. This shows the formula I got from LIC officer is correct.

              Any thoughts?

            9. hmm.. in that case I dont have any other alternative but to believe 🙂 .. But in future we will get more details regarding this 🙂

              Manish

    2. Marshal

      It looks like a good option to me .. go ahead 🙂

      Manish

      1. Marshal says:

        Manish,

        Thanks for insight, will let you know soon my decision.

        Cheers
        Marshal

  13. yogesh says:

    Hi Manish,

    I too have learned much from ur blogs & now can choose better
    products & can invest wisely..Still in learning phase.

    Can u come with article related with NRI investment ?
    What are good investment options for NRIs?

    1. Yogesh

      I will write on NRI investments soon 🙂 . Give me time 🙂

      Manish

  14. Mayur says:

    Hi Manish,

    Good article (as usual) !

    I have an off-topic question that’s been bugging me for a few days now.
    I own a car that’s 5 years old. I plan to buy a new car in another 4-5 years.
    I don’t want to take a car loan (I had a painful enough experience paying off the loan for my present car).
    I am willing to put aside some money (upto Rs. 10k per month) to build up a fund to replace my present car (I’m looking at buying a car in the price range of around 7 lacs).

    What is the best option that I have? The most conservative one that I could think of was a Post Office RD of Rs. 9000-10000 that would give me 6.5-7.2 lacs after 5 years. Bank FDs give worse returns. Do you have any suggestions for these kind of short-term fund building?

    Thanks in advance!
    Regards,
    Mayur

    1. Mayur

      Given that you have 4-5 yrs in hand you can put some money in Balanced fund , even though there is some element of risk , doing SIP in balanced funds can give you good returns . Put some money in this .

      Most of your money should mainly go to debt . Try debt oriented mutual funds mentioned here : https://www.jagoinvestor.com/2009/11/list-of-best-debt-oriented-mutual-funds-for-2009-2010.html .

      Manish

  15. raja says:

    hi manish i plan to make 30 lakhs in three years to buy a house in my town.i save 60000rs after expenses every month .iam 25 yrs old and willing to take mediumto high risk.i alredy have a ulip(45000/annum) which is for the long term and i have money put aside for it.can u suggest me .i have no other jobs or responsibilities.

    waiting for ur reply

    tks
    raja

    1. Raja

      You will still need 22-24% return every year to achieve 30 lacs target with 60k per month . In Short term you have to take risky decision and that can be bad .

      Regarding your ULIP , its good that you are doing in for long term , just make sure that you are able to handle it and utilize it in the best way , There are many people who declare “It is for long term” to satisfy themselves mentally , make sure you are not one of them .

      Manish

  16. Sachin S says:

    Hi Manish,
    I have following queries.
    Is this right that in case of permanent disability premiums can be waived of by LIC. What if during accident someone gets permanent disability then how this is covered.

    What is annuity? How we can get annuity on lump some amount after 50 Years (retirement).

    regards,
    Sachin

    1. Sachin

      Yes , most of the health and life insurance products come with accidental rider , if you are permanently disabled , then you will get the assured amount in 10 equal yearly installment (depends on the policy document) .

      Annuity is nothing but pension , There are pension products available , so at the end you go with 50 lacs and you can get monthly income of say 30-40k per month (as per todays rate) .

      Manish

  17. Rakesh says:

    Very Informative post, well explained.
    Keep up the good work.

    Rakesh

    1. Rahul says:

      Manish, could not download your e book…where is the link??

      1. Rahul

        If you are talking about the “Free ebook” things, look at the “subscription confirmation” email you got . there are two links . One if for free ebook and other for “confirmation for subscription” 🙂

        Let me know if you can not .

        Manish

        1. Rahul says:

          ya…got it thanks..
          also, ichecked about the ETF tracking error…and have clarified on that blog..
          do have a look once

          1. Nice

            Is it too confusing to figure out the “download link” (asking for other readers , so that i can improve).

            btw , did you confuse ETF’s with Futures ?

            Manish

            1. Rahul says:

              No…checked out both instruments..

              ETF have significant tracking errors…upto 6-7%..
              Thats the most irritating thing for me…for i intended to mirror the indices…now ill have to do it the costlier and more fussy, paperwork way : buy index MF 🙁

            2. Rahul

              Ohh .. 5-6% is high , what is the source of information ? Which site are you looking at ?

              Manish

            3. Rahul says:

              Im sorry..dont have the link now..
              but u can check for Kotak ETF during sep 2009-dec 2009..

            4. Anyways . i will look into it

    2. Thanks Rakesh

      Did you had a feel about this article already in your mind , What are your other suggestions ?

      Manish

  18. Suhasini says:

    Well it is always as something to do with money so you have to be very careful before taking any decision….A very nice post.

    1. Suhasini

      Thanks for the comment . What do you think is the single most change a person should incorporate in himself to make sure he/she does not make mistakes.

      Manish

      1. Suhasini says:

        Well any one learn from their misakes and yes if some one wants to prevent themselves from commiting mistake they have to be updated and take calculated risks…

        1. Thats true , but dont you think the attitude towards finance and returns from product also plays the major role . there are different ways a person can be updated and take calculated risks , but unless a person knows what he/she is going , nothing will make sense .

          I think you already meant what i am saying , but just speaking my mind 🙂

          Manish

  19. Amarnath says:

    A Very good article as usual . Thanks 🙂

    1. Amarnath

      Thanks man , what do you feel about the views on the blog ? Any more additional suggestions ?

      Manish

  20. raja says:

    hi manish,

    good illustration.

    i think u spend a lot of time on this blog educating the rookies like us new to the mayabizzare called the stock market.iwant to know if u make any money from this blog,because u keep educating debutants like me spending alot of time in this blog.
    tks
    raja

    1. Raja

      Thanks 🙂 . Yes I spend a lot of time on this blog , its my passion 🙂 .

      Yes , I make some money from this blog through ads , getting clients for financial planning . For now its a start and recently I am making some pocket money kind of money , but lets see how it goes in future with more traffic . When I make more money from this blog , I can then add more things here and can take it professionally like labnol.org , so that readers have a better experience .

      What do you say ?

      Manish

      1. raja says:

        hope u will make it and be a facebook for punters like us

        all the best
        raja

  21. Sathya says:

    Good article…especially the invest early part…i m 21 now and will be starting a career this fall…i m planning to save 40-50% of my salary and put it via SIP into Equity diversified MF…wat do u say?

    1. MG says:

      Sathya, I am impressed to see that your age you thinking to save & invest in MF…….All the best

    2. Sathya

      Great to know that , If you save around 10,000 per month also and invest for next 30 years in Equity , that translates to 3.5 crores of Corpus 🙂 .

      Even if you invest just for 10 yrs and leave it for 20 yrs , that would be 3.3 crores . So think about it 🙂 . Save more in start and enjoy later (i would say dont invest even , just spend all the money for your fun , that will be good) .

      Manish

      1. Sathya says:

        @MD thanks. Life has shown its colours early for me. So had to learn it.

        @manish
        Hey thanks for the calucations. I wud put myself as an over amibitious guy dreaming about a portfolio of 100-200 crores while retiring. I m kinda guy who thinks that only if u dream u can do something but i m also a stern believer of only dreams cant bring everything, dream with actions does magic. So to the actions part, for such a kind of money i think business is the only option. I intend to start my own business at the age of 27-28. Wat do u suggest?
        And i m in search of a financial planner and want to put in some points. Y dont FP’s start charging on the basis of % of the asset in teh portfolio like If the portfolio is of 1 crore, FP can charge a % of teh portfolio rather than per hour basis. Wat do u think?

        1. Sathya

          Dreaming of 100-200 crores is good 🙂 . I also do that , but again , it wont be possible through job , you need ownership somewhere , so having a business can only achieve it . Starting at 27-28 is good 🙂 . go for it .

          Charging on basis of Portfolio will not always work . You are probably looking from investment planning view point where a guy has a portfolio already built in and now he wants to grow it , in this case what you suggest will work .

          But what is a guy is starting now with almost no money . How will financial planning charge him ? It has to be either of or combination of

          1. Fixed fee
          2. % of “future corpus” required for insurance + retirement
          3. % of money invested

          What do you say ?

          Manish

          1. Sathya says:

            Manish,
            “But what is a guy is starting now with almost no money . How will financial planning charge him ?”, Good point. But charges of say 25000 for a 2 cr portfolio looks high. I understand the worth but for Indian market where ppl have conservative attitude towards money, FP doesnt stand. Tell me is there too much calculations and work involved in FP than CA doing balance sheets and filing tax??becos a CA charges 1/5th of wat FP charges…

            one more thing…wat do u suggest for investments in MF? should i go thru agents who charges 1% of the assets managed or should i do it all by myself….I guess u kno that i m very new to this financial world…:)

            Cheers,
            Sathya

            1. Sathya

              Its not fair to compare charges of FP and CA, they do different work and type of calculations , and more than calculations there is creativity involved in financial plan , Work of two different CA will look very much simple because its more of manual process as things are properly defined .

              FP from two different planners may look very different , also FP is new in india , so as per international standards , FP charges are ok in range of 10k-20k in india .

              For MF , you can go directly through AMC , no agent .

              Manish

  22. Siva says:

    Hi manish,

    Once again very useful article.

    Last year I did a mistake by opening a money back policy in LIC (New BIMA Gold) for 7 lakhs. I have to pay 25,000/- yearly for 20 years. I have paid the first premium. Now what should i do with that policy… Shall I continue or not..

    I have opened a ppf account after reading ur article..

    Thank u so much for ur great work.

    1. Siva

      I replied you on the earliar comment , Have a look 🙂

      Manish

  23. Nikhil says:

    Good Article…

    Thanks
    Nikhil

    1. Nikhil

      Thanks, what are your suggestions on ways a person should avoid getting into the mess .?

      Manish

  24. Jagbir says:

    I’m also agree what srinivas said that real life scenarios are one where reader relates himself more easily.

    Another thing I want to say that seems we are stressing for building corpus by retirement planning that sense like we only have to rely on our pension/accumulated funds after certain age. I feel somewhat disconnected with this fact, I am in late 20’s and may start small business when nearby 40’s. So, how should one tweak his retirement strategy in that case?

    final thing in this comment :)… whenever you are going to write a new article.. to make it more factual/informative/detailed.. you can put brief intro in the forum in ‘upcoming’ section enabling regular readers to add their views.. so the final article on blog looks like a complete knowledge bank in itself.


    Jagbir

    1. Jagbir

      Nice to know this , Your idea on starting a small business in 40’s is a good idea . That will help in tweaking your retirement strategy .

      Thanks for the suggestion about link to forum on “upcoming article” . Let me see how can I implement it .

      Manish

  25. Siva says:

    Hi manish,

    Once again useful article from u.. After reading your article i have opened a ppf account last week.. I have done a big mistake last year by taking a money back policy form LIC New Bima Gold for 7 lakhs (20 years)..I have to pay premium yearly 25,000/- rupees. I have paid only the first premium. Now what should i do with that policy… shall i continue or not…

    Thank u so much for ur great work….

    1. Siva

      Thanks , Nice to hear that finally your PPF is done . I would say that you can forget the LIC policy, You will loose the money but you will gain the biggest opportunity of making better use of your money. What do you think ? Does it pinch ? i Know it does 🙂

      Manish

  26. vipin says:

    Hey manish G8 going as ever ..
    Also as srinivas pointed out we would like to see an article from you on Financial planning with real life scenario and also your views on Home loan Vs Rent.

    1. Vipin

      Yes , I made a note of it . I will write on those soon , but lets wait for some time as I have things planned 🙂 . What other things you would suggest .

      Manish

  27. srinivas says:

    Hi Manish,

    Very well said. Prevention is better than cure, otherwise damage is costly. I was hit by endowment policies in early days of my career which was sold by family relatives. I do not want to blame them as it was my lack of knowledge in this field and now bearing the pain.
    I am sorting it out one by one now. I was very conservative investor. I always thought equity is risky and never invested and lost an opportunity to invest 5 years back when index was around 6k.

    Past is past.
    1. Now I have started SIP in equity MF for long term, as my age is 27 now, I could invest more % in equity (say 55%).
    2. Now no agent can do monkey business with me. I am good enough to defeat them easily.
    3. I do lot of study, mathematical calculations before zeroing on any product.

    Finally many thanks to you, I was reading financial articles, website previously also. but I found your jagoinvestor.com very easy to understand and logical way of expressing.

    I suggest few topics to cover in coming days.
    1. Rent v/s Home loan – How to decide?
    2. Non-Convertible Debuntures – How it works, tax structures, (I did not find enough material on this and so many questions around)
    3. Product reviews at least one for a month, like Liquid BeES ETF, any newly launched ULIP, so that we can evaluate and stop the people from investing in wrong products.
    4. Financial planning considering example real life scenarios (say husband and wife working in govt service with salary of (7k+6k) and having 1 year kid) How they should plan? I have seen people reading articles which matches their life pattern/scenario.

    I too thought of coming up with my own blog for some of the uncovered areas in financial planning and coming up with more logical analysis. But as there are so many blogs, I was demotivated to start new one and thought better to contribute in good one.

    In case you run short of ideas, keep readers posted, they will give nice topics.
    All the best, keep up the good work. 🙂

    1. Srinivas

      Excellent , you made my day by telling me those 3 things you are now doing especially “2. Now no agent can do monkey business with me. I am good enough to defeat them easily.” . Thats the aim of Jagoinvestor and I can see that happening now after 2.5 yrs of this long work i have been doing . I would call this my achievement .

      Thanks for the topics you have suggested . Most of them are somewhere in my “to-do” list . but it will take time for coming .

      You should never feel demotivated before doing anything . Yes , there exists many blogs about finance and you might get a feel that they are big enough and you cant compete with them , but this is wrong . You can always start with small and with time and hard work and creativity you can create some thing unique , the fact that you try something is in itself a great thing and makes you winner . I would say do it . You will learn a lot of things which you wont get anywhere . I have learned most of the stuff on this same blog after i wrote an article .

      Or you can do another thing , why dont you write articles on this blog in the way I do with simple language and the same style . I am sure you can do it if you want . I will publish them giving credit to you . You can show your skills here for all the unexplored things you have not got anywhere but still feel you can digg them down .

      What do you think ? I would be happy to hear .

      Manish

      1. Srinivas says:

        Yes. you are right. Finally I also decided to write a blog on financial literacy.
        I will try to come up with articles with indepth study and analysis. Talking is easy but presentation is very important. Blogging also helps to improve my english, grammer.
        Thanks for the motivation. Your blog is on my blogroll. 🙂
        My blog: https://money360.wordpress.com/

        1. Viswa says:

          Good Luck Srivinas.
          Manish, Thanks for your motivation. You are my financial evanglist.

          1. Viswa

            Thanks 🙂 . I am honoured 😉

            Manish

    2. raju says:

      Dear Sir,

      Can you suggest the Forum some method of calculating for selecting Good MFs for SIP. With LONG TERM HORIZON

  28. Deepak G says:

    Nice article, however, this is sort of a summary of lot of other articles that you have authored.

    I do agree that lot of people buy products which they do not understand. I have done it myself. I bought one ULIP and honestly speaking, as of today I do not know whether I can stop it or not. When ever I think about it, I feel a pinch but can’t do much. I do not even know whether I can stop contributing to it or not. The reason I bought it was some several calls, home visits by the agent and he disappeared right after I signed on that paper and gave him the cheque. Have not seen him since then :)).

    I think that generally people are careful with their money but there are times when they make very impulsive decisions driven by factors such as dream of fast returns, lack of knowledge, jargon of financial world too complex, lack of time and greed :).

    I seriously think that independent financial advisors can help lot of people but irony is that most of the people are not even aware that they exist. I wonder why the CFPs or non CFPs financial advisors do not market them as aggressively as these so called agents do to push their money eating products.

    -DG

    1. Deepak

      Lets take your questions one by one .

      You have a ULIP , but you wonder if you can stop it or not . Yes , you can , see https://www.jagoinvestor.com/2009/11/what-happens-if-you-stop-your-ulips-before-3-years.html .

      You are correct about why people get into mess , they are greedy , unrealistic about returns .

      CFP and non-CFP dont market themselves aggresevely because of lack of passion and because investors in india still do not understand financial planning and dont entertain them well .

      Manish

      1. DG says:

        Thanks for your response, Manish.

        I will check out the ULIP link later today. Lot of things to catch up on personal finance front :).

        Regarding your reasoning about CFP and non CFP’s about not marketing themselves,
        I think it is more of lack of passion than the 2nd reason. If it is a non-explored market then I would think that there is a huge business opportunity there. Unless you market yourself, how would the people know that you exist ? I didn’t know about that ULIP until I got a call one fine morning and then repeated calls over next few days, nights and weeks :). If you think fitness, new gyms are coming up and so people are getting more and more aware @ fitness. It is sort of a vicious cycle – more and more gyms come up, more and more people go to gym and so some more gyms come up. I believe (w/o any concrete numbers to support my argument), that there are lot of people who will entertain serious, analytical FPs and there are lot of people who will not. So there is a right way to market yourself. Every other day I see fliers (hand bills) about some insurance agent, some ULIP agent but never see a flier of FP. May be I am living in a wrong world but I believe there is a huge market for FPs in today’s urban service class India.

        1. Woo …. You gave a new direction to the discussion . The gym example was superb .

          Yes , I now get a good feeling after listening to your thoughts that the market for FP is much higher than what I thought earliar . But then the other issues are there which is COST .

          Which class is the biggest market ? Middle Class ? Lower middle class ? Its now the question of “Who is the bigger Market” and “which is the most profitable” market . I am now seeing and asking things from “business” point of view 🙂 .

          Manish

  29. Amit says:

    Hey Manish
    Seems the toon was in keeping with the Valentines Day 🙂

    I agree with all your points above but then Most of us don’t learn by other people’s mistake! We put a lot of hard work in earning the Money but at times it really amazes me how easily we let it go & the reason we were too lazy to click that two buttons on internet to search about it, or didn’t really question the product, or became too greedy that lost the mind and many more. Every time it happens & you think this was it but then “History repeats itself” & we do it again.
    I feel the Financial decisions like – Goal Settings, Investments, Insurance etc are least discussed topic in our homes & infact considered a taboo in most of the households. For e.g. We take days to discuss which TV to buy, do a market survey or even go to the extent of visiting someone’s place to just check the product but honestly how many of us could say the same thing for insurance or investments?

    I started my career some 20 months back & first time got into the maze of “Financial Jungle” with agents & companies pouncing for their share of money. And you can only escape them with your weapon of knowledge & common sense. And to sharpen this further I read, I blog & I comment 🙂

    1. Amit

      I liked your comment part which says “We never plan for goals settings , Investments etc , even though we plan for simple things in life” . Yes i would agree to that and the reason i say this happens is that we think its too complicated procedure and hence are reluctant to take the action , also the other reason is that we dont understand or know the importance of “planning things” .

      What do you feel ? Do you have other ideas ?

      Manish

  30. krish says:

    You are an eye-opener Manish…Nicely customized. Great article!!! Keep up the good work.

    1. Thanks Krish

      Nice to know you liked the article 🙂 . which part was your favorite ? Has anything happened to you personally ?

      Manish

      1. krish says:

        Hi Manish,
        I liked the entire article. Starting from story, where we usually make mistakes and where we lag in knowledge… Only one thing I wanted to comment…Personally I felt it would be better if the solution part is little more in detail. Overall your article looks like a part of the body…each and every single line is useful and knowledge base (:)(:)…

        Luckily not happened to me personally. Now I am part of your blog, so I don’t think will happen to me in future (:)(:)… I will follow the points which you gave as a checklist.

        Thank you so much for putting so much effort on doing this.

        1. Krish

          If you look closely to the “Solutions” Part . you will see that I have linked each point to some relevent article , which would make the solutions part very big . Go to them and read and you will then complete the whole article 😉

          Do you think I should have included the summary for each and not linked to each article . I think what I did is a better way . What do you think ?

          Manish

          1. krish says:

            You are right Manish…Sorry..I missed that part.

            1. Krish

              Thanks for your comments overall 🙂 . Have a good day ..

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