Agents commission in Insurance Policies ?

In this article we will see the commission structure of Insurance Policies . We will look at Endowment/Moneyback/ULIP plans and how much commission an agent earns per year out of those policies.

As per Insurance Act, 1938, The insurance companies are allowed to pay a maximum commission of 40 per cent of the first year’s premium, 7.5 per cent of the second year’s premium and 5 per cent from there on. The commission paid is limited to 2 per cent in case of single premium policies. In case of pension plans, the commission is limited to 7.5 per cent of the first year’s premium and 2 per cent there on. Currently most of the policies are very much paying these kind of commissions . Let us quickly look some of the facts on Life Insurance .

  • Average sum assured of the insured Indian is around Rs 90,000
  • 1 trillion worth of policies lapsed in 2008-09 , this is mostly because investors have discarded their old policies to buy new one’s , thanks to agents who tell people about another “hot” plan in market. Another reason is that investors buy policies which have higher premium than what they can afford in reality and later feel that its time to stop it .
  • India Insurance penetration is around 7.5% of global numbers . i.e: 0.16% of the GDP, which is , against a global average of 2.14
  • As per IRDA report 2008-09 , Insurance Industry had 29.37 lakh agents by the end of Mar 2009 , out of which 13 lakh agents were added during 2008-09 .

Life Insurance Commission Example


Policy Type Premium Paying Term Upfront Commission (1st Year) Trail Commission (2nd & 3rd yr) Trail Commission (from 4th yr)
Endowment / Term Plans 15+ yrs 25% – 35%  * 7.5% 5%
Endowment / Term Plans 10-14 yrs 20% – 28%  *
7.5% 5%
Endowment / Term Plans 5-9 yrs 14% 5% 5%
Endowment / Term Plans Single Premium 2% 0% 0%
Money Back 15+ yrs 15% – 21%  *
10% 5%
ULIPs Regular Premium
20 – 40% 2% 2%
ULIPs Single premium 2% 0% 0%


Note : Some of the numbers are in range, which means the commission can lie between that range . Mostly its minimum commission + Bonus if any


  • Policy Type : Endowment Policy
  • Premium Paying Term : 20 Yrs
  • Premium/Year : Rs 1 Lacs

Agents Commission

Commission Amount
1st Year Rs 35,000 1 X 35%
2nd Year Rs 15,000 2 X 7.5%
4-20th Year Rs 85,000 17 X 5%
Total Rs 1.35 Lacs 6.75%

Q: So are you imaging which is more costly ? Mutual funds or Insurance Policies ?

Read subramoney’s article on this topic.

How to use this information ?

Agents have to make sure that they follow-up with clients and track the premium payment, this leads to overheads and regular feedback from agents side , apart from that there are operational expenses incurred by agents , so we should not forget those points . As a customer , you should be knowing how much an agent is making out of you , this should form the basis of the quality service for you . An agent should help you understand your Insurance requirement and provide you the best solution , He should assist you in buying the Policy and over the years he should update you/ help you with all the changes .

Hot discussion topic

As per a govt-appointed committee , Insurance commissions should totally be removed by 2011 . “Immediately the upfront commissions embedded in the premium paid (to agents by insurance companies) be cut to no more than 15 per cent of the premium. This should fall to 7 per cent in 2010 and become nil by April 2011”, said the consultation paper prepared by Committee on Investor Awareness and Protection. (Link) .

What do you feel about removing the commissions from Insurance products totally ? Will it impact the Insurance Industry , how much ? Do you think it will lead to fall in premium payments or new policy getting issued ? I personally feel YES . What are your views ?

Common Mistakes in Personal Finance [Part 2]

Unrealistic returns

Risk free returns, in our country are amongst the highest in the world. In countries like US, the interest rates are 1-2%. Equity markets in our country continue to provide 12-15% annual returns (Find Why) . But how much do investors expect from equity these days? A lot! No one is ready to settle below 20-25%? 12% is abusive to them, & makes them feel like they are cheated. A reader told me that he earned 100% this year from equity (2009) and he will be happy with even 25% next time! LOL! This happens when you look at short-term returns.  Investors who started in 2004 started thinking that they are all “Warren Buffet” and can leave their jobs in some years! Whereas all investors who started in 2007 end or 2008 start compare equity with their mother-in-laws, they just can’t stand it.

Think long-term, and timing will just not matter much. For retirement and child education, which is 15-20+ years away, just start a SIP in an Index fund and then go into a COMA, come back once in a while and just review it every 6 months to a year. That’s all.

Feeling special when it comes to Life or Health Insurance

I’m not sure why, but some people feel that they are god gifted. They feel good health is a good excuse to skip Health Insurance and just because they don’t drive carelessly, it makes them “Accident proof”. They don’t realise that most people die in accidents not because they don’t drive well; it’s because the other person does not. Probability of dying is almost the same for everyone, but everyone feels that they have better chances, of not being part of an accident or an attack.

Be realistic; especially in bigger cities the chances of accident is higher than smaller cities. Most and more casualties happen in bigger cities. Take adequate Life and Health cover.

Excessive Leverage and careless spending

In recent times, we spend like there’s no tomorrow. Easy available credit for home loan & the tax breaks available on them, EMIs available as an option for buying almost anything these days; all these easy means for laying hands on money has suddenly changed the way we see “Acquiring Assets” and “Spending”. Unlike our parents and grandparents, we are spending money, which we haven’t even earned. We buy houses, cars, vacations etc., and then pay the cost for the rest of our working lives. In some cases, it might make sense, but a large section of society just lives beyond their means (See this eye-opener from Subrmoney) .

Research shows, that we feel less guilty when we pay with our credit cards rather than cash. When we use cards, we don’t see money going out; there’s just a consolidated bill at the end. Nothing can be done (or undone) then, you just pay it. Imagine you are paying cash every time you are buying something you really do not need. We buy unwanted clothes, & unnecessary gadgets we can do without. How many of us claim, sometimes that we just can’t survive without a certain device, or feel that we can’t enjoy our life without certain doodads? Didn’t our parents and the old generation live without them or with limited quantities ?

Why have we all suddenly shifted to plasma TV rather than the old TV we have used in our childhood? Of course, technological changes should happen and we should always move forward, but buying a Plasma TV just because it looks cool in your drawing-room, does not make sense at all; that too, if you haven’t yet planned for your retirement or taken care of all the important goals in life. If it’s really your need , then go ahead , I would encourage , but most of the time people buy it out of comparison with friends and relatives. Once your other priorities have been achieved , you can go for it, But not at the cost of something more important .

I’ve heard horror stories of people who have bought homes and are crying today. Their home prices are moving up, but the quality of life has drastically decreased. They suffer horrible amounts of stress because now, even small things in life which gave them happiness, look unaffordable… all because that 2 BHK Flat’s EMI has to go through next month (A close look at Real Estate Returns in India).

No quality trips & vacations, heavy stress because of insecurities of jobs. Imagine a double income family with income of more than Rs 1 lac,  who belongs to top 1 percentile of the highest earners in the country, but not leading a happy life because of excessive debt they have taken on all the loans and not enjoying little things in life because of these issues . Whats the point of earning so well then ? Don’t try to be over ambitious at the cost of your current lifestyle and happiness! If you can’t manage your life successfully and happily, then the car, and the house, and all that financial planning is just a waste. (Read What is the goal of Financial Planning)

Short vision

Close your eyes and try to imagine your retirement, child education & marriage related expenses, and health care costs after 30 years. Can you predict your grocery bills after retirement? Living in present is great, but planning your future is critical now. Let us do a small exercise to show you what your dietary (food & eating) expenses at home after retirement will be.

Consider a 30 years old couple today… How much do they need to eat a decent breakfast, lunch and dinner at home? Even if you consider a meal at Rs 25, that’s Rs 150 for 3 meals/2 person a day, thats Rs 4,500 per month. I guess that’s what the grocery bill of most married couples in their 30’s would look like (I am unmarried, as yet). Now, Rs 4,500 per month today, means 25,000 per month after 30 yrs, which is 3 lacs per year just for groceries. Forget inflation for now, if you live for 30 yrs after retirement (worst case), that’s 30 years X 3 lacs = 90 lacs just for your breakfast, lunch and dinner and this, doesn’t even consider inflation. Some people think they would need 1 crore for their retirement , LOL !! . You will require at least 10-15 crores, start working on it NOW !! . Pray to God, you don’t live longer than that, else it would be really painful!

Not ready to pay for Advice

This is in our culture & our genes, it seems. The very idea of paying for advice is anathema to us. We rely on “free” advice most of the time. If we can get the top 10 mutual funds from, then why pay someone for advice? When we know term insurance is best, and we have a good formula to calculate life insurance requirement, then why do we need a financial planner to tell us how much Insurance we need? If we have so many personal finance websites and magazines then why do we need financial planner, we can do it all by ourselves? We are a DYI (do it yourself) country! . I get many questions over email and comments, Imagine me asking for money for giving personalised advice, How many people will consider paying or will even accept that its fine ?

We must understand, however, that there are situations where you just can’t match professionals in some areas. The other thing is some advice can be general. For example “top 10 mutual funds” might not work for you, & might not be suitable for your situation. A different set of mutual funds might work in your case and to analyse your situation,  an investment consultant can be helpful. You have to take a call on whether its worth doing it all yourself or pay the fees & have a pro handle it.

Take large real estate transactions for example; I am amazed to see many people mailing me questions on complicated real estate deals, they are doing themselves, which actually might need a CA attention or professional advice to deal with. But why pay the CA that extra 10k or 15k he will ask for? They then, make mistakes and in long run lose a big amount of money just because of ignorance and not having optimized the whole deal.

Read Part 1 of Common Mistakes in Personal Finance

Comments Please , What are your views on these mistakes , which was the real eye-opener for you ? Do you want more of these kind of articles ?

Common Mistakes in Personal Finance [Part 1]

Spending more than you should

Sometimes, people spend impulsively, on things which they do not really need. Just because, your plastic card is in your wallet and you “might” need it in future makes you believe that you need to get it right now. A brand new camera, with a 100 megapixel sensor and a 2000 x zoom is available at an EMI of just 1999 per month — and suddenly you’re interested in Photography! An EMI of 2500 a month, for that magical million colour, anorexic Flat Screen TV creates a magical belief in you that your normal TV at home is now really blurry these days (not to mention really fat!)

Is there a need, to splurge on Movies and eat out, every weekend? A regular meal at home, with a movie on tv is also a good weekend, at times. With many people, savings occur, only if they are left with any money at the end of the month. This needs to change – start saving first, then spend on what’s necessary and then spend on your desires – last. Financial planning does not mean compromising your dreams or what you love to splurge on; it’s all about knowing what you need and what you don’t, & knowing it well! . Read : Can you live with 90% of your Salary

No Financial Education to Spouse and Kids

Most people are more comfortable talking about SEX rather than FINANCE to kids (just kidding.) They dont feel the need to tell their children that they have bought life insurance for them (the kids) should they be hit by a bus tomorrow (the parents, not the kids 🙂 ). Once children reach an age of maturity like 16 or 17; when they can understand things & reason well and can take on responsibilities to some extent… Please start telling them about money and finances. Once you are gone, you can’t even regret.

Kids should know what your work is & how much you earn. They should be clear on how you are saving money to fund their education, bike , trips etc. Once they know about life t it, chances are they will be a lot more supportive, would be realistic in their demands & stay well within their limits. Kids don’t know sometimes, how much pain you take in earning money. Most of the times, kids know your salary and your designation at company and assume the family to be a “higher middle class” one. Once you tell them about Home loan EMI, Car Loan, other liabilities, Retirement SavingsEducation Expenses, Marriage expenses and the medical emergencies for which you are saving, they will have a better idea about the current situation and they will act responsibly.

Parents feel a little uncomfortable, telling their kids these things, as they feel children are still young and such information will create unneccessary psychological pressure and they would not talk about their demands and be unhappy. Parents feel that children should start learning about finance and applying that knowledge, once they are in a job and start earning. I say, if your finances and spending habits are messed up today, a big reason could be that, your parents never talked about finance with you openly. The same applies to spouses. Imagine, if you had all the knowledge and best practices you have learned on this blog, 10 years ago; or when you started earning? The situation would have been very different today, wouldn’t it?

Dont let this happen to your kids: Teach them!

Imbalanced Asset Allocation

A lot of people have a tendency to start working and then never look at, or review their finances. Tax Planning is nothing more, than a “signature” on some form for them. Initiatives from their side are limited to just calling an “agent” and nothing more. When they finally look back at their finances, they find that they have 40 Lacs in FD’s and 25  lacs lying in Bank. This happens a lot with NRI’s working outside the country. These are 35 yrs old who have 90% in debt or Cash, and 3-4 mutual funds and shares bought in recent years just for “trying”. This category misses a huge amount of returns which they could have made with just 4-5 hours of planning or hiring a proper investment consultant.

On the other hand, there are investors who have no PPF, no FD, no Debt Funds, no bonds; they just do share trading, buy direct stocks, invest in just Mutual funds (pure equity). Their imbalanced Asset allocation is responsible for the huge ups and downs their portfolio takes. One year the worth of their portfolio will be 10 lacs, the next year it will be 7, then suddenly it will be 14 lacs the next year. The numbers dance with huge fluctuations, but at the end of let’s say, a decade, they look back & find they are nowhere better than their “High debt Instrument” kind of Investor brothers .

Buying products from Close One’s

Will you sell a junk product to yourself if there’s a 35% commission and it will be a burden to you all your life ? I don’t think so, but if you had to sell it to your friend, colleague, brother-in-law, sister-in-law, father’s friend etc, you’d consider it, wouldn’t you? That’s what happens in real life too.

Most times, the “Best plan” comes from one of your relatives or some one known. STOP IT PLEASE! A simple NO might hurt your relations with said person, but it will save you, your hard-earned money, rather than waste it on idiotic products, which you’ll regret for life 🙂 It’s just common sense that there are better advisors and consultants than your relatives or a close ones, unless they themselves are known and respected in the field (of finance). Read : “Papa Kehte Hain” problem in Personal Finance

Most of the readers here, have shared their bitter personal experiences, where they bought products because it came from their relatives, Uncle’s et al. This happens a lot with young guys yet to start working, and their fathers have bought policies for them and then delegated the premium paying responsibility to them once they start earning, it’s a real “burden of legacy” .

Read Part 2 of Common Mistakes in Personal Finance

Comments please , Any other mistakes you can think of ?

Investing sensibly in the stock market

The common view of the stock market is that, it’s a place for gamblers and risk takers. Only if you have the capital, and the nerve to take risks, should you invest money in the stock market. Otherwise one is better off staying away from the stock market and putting money in safe fixed deposits. The truth is far removed from myth, if one looks at the stock market with a different perspective, and avoids the hype and hysteria associated with it. Let’s look at different aspects of investing in the stock market.

Let start with the basics – What is the stock market?

The stock market is a place, where buyers and sellers meet to buy and sell companies or rather small pieces of it. That’s all there is to it! Nothing more, nothing less! The small pieces are called shares and they represent a really small ownership of the company. Owning such a share, entitles the investor to his or her share of the profits, the business makes. This generally, is paid out to the investor, as a dividend. The management does not give out all the profits to the investor, of course. They retain some portion of the profits to re-invest and grow the business. Learn How to start in Stock Market

So how should one invest?

If you agree with the above definition of the stock market, the idea of investing in the stock market boils down to investing your money in a select group of companies. If the purpose of an investor, is to make a decent return on the money invested by him, then he should choose companies or businesses which are sound, consistently profitable for a long time and run by shareholder friendly management.

Finding a good company

investing in stock markets

Let’s explore the above statement a bit further. The long-term return for a shareholder, (where long-term is 5 years or more,) equals the underlying returns generated by the company. The returns for a shareholder can fluctuate from year to year based on the market moods and sentiment, but over the long run, investor returns always track the returns of the company. If the company can earn 20% on its capital, then the investor will make around the same returns over the long-term. Thus, we now arrive at the first criteria for successful long term investing, i.e., To make above average returns, one should invest in above average companies.

The above criteria is not a revelation to most people. However very few people want to follow the obvious as they think, that there’s some hidden magic in the stock market.

So how does one find the above average companies?

Look around you. Do you see products which have been around for quite some time and are used by a lot of people? Find out the companies behind them… That would be a good place to start. (Cue, the groans — I never said investing in the stock market does not require work. 🙂

Analyzing the company

Once you have identified a few names, the next step would be to get the annual report of the company and browse through it. The mention of reading an annual report sounds really daunting or off-putting to most people. However if you bring yourself to do it, it will place you ahead of 90% of the people in the stock market! The idea of browsing through the annual report is not to become an expert at it, but to get a feel for the nature of the company. One can focus on some of the following sections to see if the company is worth putting your money in,

Management discussion and analysis – This is the section where the management describes the business and lays out the plan for the company.

Profit and loss and balance sheet – This is the section which tells you, if the company is making a profit or not, how much debt is held by the company, the amount of dividend etc. If you come across a term you don’t understand – search for it on the internet or talk to a friend or someone with a background in finance.

A few important factors should be checked when analyzing the annual report. A short list of these factors can be

  • Is the company profitable and has it made profits consistently in the last 10 years?
  • Has the company paid dividends consistently in the last 10 years and has the dividend increased over the same period?
  • Has the company kept the debt equity ratio constant or better yet reduced the debt?
  • Has the company been able to introduce new successful products in the market?

An example

Let’s look at an example – Asian Paints. This is one of most well-known companies in India. This company has been the number one paint company for the last 20+ years. The company’s products like tractor distemper and emulsion, apcolite enamel, Apex exterior etc are well known and are widely available. The company has been in business for over 30 years and hence we can be confident that the company has done something right consistently to be the no.1 paint company in India.

The annual report shows good performance over a long period of time. The ‘ten year review’ in the annual reports shows an increasing profits and dividend over the years. The company has used these profits to reduce the debt, pay out an increasing amount of dividend and re-invested the balance in the business to grow it over the years.

The above performance has been reflected in the share price too. An investment of Rs 1000 in 1998-1999 would now be worth around 19000 which translates to an annual return of around 31%! And this doesn’t include annual dividends!

When to buy?

The immediate question which comes to mind is when should one buy the stock? There is an army of people out there, whose job is to advice investors the exact time to get in and out of stocks. I would personally say an investor would be far better off if he or she switched off the TV and ignored the advice of these so-called experts. If one is able to find a stock like the one above, the best approach is to invest in the company on a regular basis. If one can save Rs 2000 per month, then go ahead and invest 6000 Rs every quarter. A regular  program of investing in good companies on a regular basis, while ignoring the noise and chatter of the stock market pundits, will give you very good returns and also good sleep at night.


So… what’s the catch ? The catch is — us! A lot of investors like to get all excited and thrilled, when investing in the market. They want to chase the hottest stock, so that they can boast about it to their friends. At the same time, they ignore the gems lying right in front on them.

Investing is simple, but not easy. If one can find a few good and high quality companies and invest in them on a regular basis while ignoring the noise and chatter in the media, then that individual is likely to do well and have a really good amount of money secured for his or her retirement.

This is a guest article from Rohit Chauhan. He writes about his thoughts and analysis of various companies and industries and how to apply value investing principles, His blog is

Implications of the SEBI & IRDA issue for Financial Planning

In my opinion we are going to see far-reaching long-term consequences once the SEBI-IRDA issue gets resolved for Financial Planning profession. I base my fact & assumptions that SEBI is on a strong wicket rather than IRDA. However we need to go to the origin of this situation. In this article we will see what exactly is happening at this moment between SEBI and IRDA over ULIP ban and whats its implication on financial planning . Also Read : A short guide to Hire a Good Financial Planner in India

What is SEBI & IRDA issue all about? How it actually originated?

The IRDA was formed before SEBI and with the help of IRDA insurance companies came out with a Jugaadu product called ULIP which is just identical to MF with one minor difference that apx.2-5% of a clients investment goes to provide a life cover and rest is invested in either market, Govt. Securities, corporate debt or Equity, depending on the mandate of that fund. Now the second part is nothing but just like a mutual fund scheme.

Where is the problem now?

There is no problem with it as 90% of insurance premium world over goes to market or securities. However, in India the ULIP products become terrible investment products because if one invests Rs.100 in a ULIP then 20% of your money goes into commissions and approx. 2% into insurance, only 78% of one’s money is invested in market or securities. So to get back to 98 ( 100 –2 ) it would take in normal market conditions at least 2 years in Equity oriented funds and 4 years in debt oriented funds. So all you are doing is just recovering your principal in next 2 to 4 years. Now, the miss-selling by an insurance agent gets hidden in the bull run and because of rampant financial illiteracy even among so called highly qualified professionals & corporate executives leave alone the advisor selling the ULIP, the investor is fooled into putting more money in these bull runs saying that your money will double in “x” years and in the bear runs when the ULIP loose even their principal, the advisor gives them a either long term talk or plays on the investor fear and switches them to another products. Hence, an advisor in India is the a true definition of an “opportunist”. In the bull run he plays on the “greed” of the investor and in the bear run he plays on the “fear” of the investor.

What the above does is that apart from loss to investors it gives an unfair advantage to insurance companies compared to mutual fund houses where commissions are in fraction of your investments. What is the incentive for an advisor or even big distributors like banks & distribution companies to sell MF schemes when they have the option of selling a similar scheme where they gets heavy commissions… as an agent what would you do go for Rs.20/- commission on ULIP or Rs.1 on Mutual Fund Scheme on an investors investment of Rs.100/-.

Now, taking stock of the above problem SEBI has gone for an eagle eye’s view of the whole problem and to create a level playing field among all market participants.After a lot of cajoling & convincing IRDA which failed to budge, SEBI issued the harsh step of issuing an quasi-judicial order restraining Insurance companies from offering ULIP without proper registration with SEBI.

What will happen now?

Though there is likely to be a stay on the SEBI order given the large number of clients who hold ULIP products by the high court. This can be a short-term breather to insurance companies but it is not a long-term solution.

Who is on strong wicket when the issue goes to Court – SEBI or IRDA?

Mr. Bave is a master strategist, he knew that the lobby of insures is very strong and united and it will take him years to bring them to negotiating table. With the powers conferred to him by parliament, he issued a quasi judicial order.

Now, quasi – judicial order is such that even Mr.Bave cannot revoke it. The IRDA may win a temporary relief in this war, but SEBI stands on a strong footings as in the court of law the court will go where investor interests remains. Insurance companies must see the larger picture and rather than worrying about loosing valuations post an unfavorable order, they must prepare them self to change with the times.

What are the implications of the SEBI & IRDA issue for Financial Planning profession?

So lets come back to the question what’s in it for Financial Planning profession ? In my opinion, realizing the investors interest the court will rule in favor of SEBI, post which Insurance companies will have to bring down the commissions to Mutual Fund level on ULIP’s.

Is this is a good news for Financial planners?

Yes, but how many of us are changing as fast as the opportunity provided by structural changes effected by such orders? Time & again it has been proved that great opportunity lies when you have big structural changes in an economy. Every century gives some opportunity during financial turmoil and this time we are in the midst of such an opportunity.

What could trigger the next financial crisis?

There are many areas which we talk about regarding financial awareness, however there are things which a retail investor is never aware about and that’s “International finance”. It’s equally important to understand what is happening at national and international level which can hugely impact a common man. With financial markets becoming increasingly complacent about the recurrence of a crisis, we believe it is relevant to explain a couple of areas of concern which could trigger the next round of the crisis.

Greece – Europe’s Achilles Heel

Next Financial CrisisSource : DNA

What’s Going on in International markets

In the last few weeks, Greece has taken the centre stage in the financial markets. Within the next two months, Greece has to pay back the maturing bonds [to investors across the world] and finance its budget deficit. The country needs to borrow around $40 billion from the international market. With 10 year Greek Government bond interest rates of around 7% (more than 3% to 4% higher than 10 year U.S. Treasury or German Government Bonds), this has led to fresh worries over a potential default by the Greek government. What has added to the problem over the last two days is a rapid withdrawal of deposits from Greek banks by individuals in the country. Unless, Greece agrees to the terms set forth in the rescue package put together by European Union and IMF [to reduce government spending and increase taxes], it is difficult to get the support of this consortium to raise the $ 40 billion to stave off the crises. As you can see from the graph, Greece’s debt is over 111% of GDP. We believe the situation in Greece is getting grimmer day by day and could be a trigger for a crisis in other European nations – Portugal, Italy, Spain.

Read more on this through the following links :

  • (Retry opening this several times , if it does not show you article)

The China Bubble

The fiscal stimulus initiated by China last year through bank lending to the tune of $ 1.2 trillion has led to potentially unstable conditions in their economy. According to well-known investor James Chanos with 60 percent of the country’s GDP relying on construction ‘China is on a treadmill to hell’. Marc Faber a long time optimist on China and well-known economist Kenneth Rogoff have also spoken of a China Bubble recently. With the Chinese government trying to enable a slowdown in real estate speculation via a recent tax on sale of homes when they have been owned for less than five years, one cannot rule a rapid decline in prices which would have a negative impact on economic growth.

Read more on this through the following links:

Any one or combination of the two global factors identified above could trigger a mild to deep correction in the financial markets and slow down the world economy.  Due to the strong financial linkages with the U.S. and the rest of the world, India will not be spared.

This is a Guest Column by  Partha Iyengar – Founder and C.E.O and Srinivasa Sharan – Adviser, Investment Management Accretus Solutions

Disclaimer : The article is for information purposes only and should not be construed as any recommendations. Accretus Solutions does not intend to solicit any business. Accretus Solutions do not take any responsibility of the losses that may arise out of actions taken based on the article. This article is not a substitute for developing an investment strategy or plan with a professional adviser. The views expressed in the article are that of the authors only.

What are Different ways of Buying Mutual Funds

There was a time, when mutual fund investing was limited to calling an agent and investing through him. He filled a form for you, and only bothered you for signatures; This was called as “convenient service.”.  Things have changed now though. With entry loads abolished by SEBI and with so many technological advances, we have different ways of investing in mutual funds .This article explains the different ways of investing in mutual funds: through agents, AMC’s, demat, and web portals. Lets take a look-see…

Different ways of Investing in Mutual Funds

Through an Agent

This is the oldest and one of the most convenient ways of investing in mutual funds. You just call an agent and tell him you want to buy mutual funds. He comes right to your door, & fills in the various forms. All you need to do, is sign the forms. Since the abolition of entry loads, you now have to compensate the agent for his services, and pay him commission on the amount invested. Agents can charge anywhere from 1-2% of the amount to be invested. Make sure you don’t pay him more than 1%, which is a good enough amount of brokerage, for expediting the process (filling in forms, carrying them to the Mutual Fund offices, having them processed et al.) If he gives you sound advice on what mutual funds would suit you, and would help you achieve your financial goals, you could then, compensate him more. That makes sense. Be cautious though! Check the details of the form and what is filled. Ideally, you should fill the form.

You should go with this way of investing only if you want convenience and comfort takes more precedence. Click on this AMFI Agent Search Link to search for mutual funds agents in your city. You can submit the search with different parameters and get a list of all the agents with their name, address & phone numbers. There are many agents who are linked with many companies (like NJInvest or Prudent Advisory) who provide login facility, where you can login and see your mutual funds Performance anytime . Read : How many Mutual Funds you should have ?

Direct Investing through an AMC

You can now invest directly through an AMC (simply put – the Mutual Fund companies themselves.) There are many mutual funds who provide online facilities for investing. To do so though, you need to have a folio number, which you get only after investing in a particular mutual fund, which means that you have to go physically to the AMC office to invest for the first time. Next time onwards, you can invest in that mutual fund, online through their website. Using this method, makes sure that your entire amount, e.g. Rs 100/-  gets invested and there are no charges here. The only hiccup, is the manual work involved at the start of the process; you have to take the pain of personally going to the office and then filling in the form. Sometimes, it’s a bit of a headache. If you want to invest in funds from four different AMC’s, then you have to go to all of them.

It would make sense to use this method, if the amount of investment is going to be large-ish and your tenure is  long-term. In that case, using this way, will save you lot of money in commissions. Just imagine that if you invest 10,000 per month in mutual funds, then with a 1% commission structure, you save Rs 100 per month, which is Rs 3,600 for a 3 yr period. So 3,600 is what you lose when you go with an agent who charges a 1% commission . Note, that you do not require demat account for this .

Read : List of Best Equity Diversified Mutual Funds

Investing through a Demat Account

This is one of the most convenient methods of investing in mutual funds. If you have a demat account, you can browse through all the mutual funds on the site, and just with a few clicks of a mouse, you can invest in a fund of your choice. But then again, you have to pay commission here, since banks are also agents. Some charge a flat fee and some charge on percentage basis. For eg., ICICI Bank charges Rs 30 or 1.5% per SIP, whichever is lower and HDFC charges Rs 100 per quarter irrespective of the amount invested. The biggest advantage of buying and selling through a demat account, is that you control everything from one place. Some of the players in online mutual funds selling are :

  • 5 paisa
  • Geojit Securities
  • HDFC Securities
  • ICICI Direct
  • India Bulls
  • InvestSmart Online
  • Kotak Street
  • Motilal Oswal
  • Sharekhan


Investing through CAMS or Karvy

CAMS is the transaction processing company which services almost all the mutual funds in India. They process all the buying and sending the report etc to end customer . You can also invest directly through CAMS . All you have to do is Download the mutual fund form from the AMC website. Take a print out and fill the form . Then submit to your nearest CAMS or Karvy Investor centre along with copy of PAN card, SIP form(if needed) and cheque . For now , there is no way of investing online with them .

Here is the list of CAMS offices in different cities and Below is list of different AMC forms which you can download .

ABN AMRO Mutual Fund
AIG Global Investment Group Mutual Fund
Baroda Pioneer Mutual Fund
Benchmark Mutual Fund
Bharti AXA Mutual Fund
Birla Sun Life Mutual Fund
Canara Robeco Mutual Fund
DBS Chola Mutual Fund
DWS Mutual Fund
DSP Merrill Lynch Mutual Fund
Edelweiss Mutual Fund
Escorts Mutual Fund
Fidelity Mutual Fund
Franklin Templeton Mutual Fund
HDFC Mutual Fund
HSBC Mutual Fund
ICICI Prudential Mutual Fund
IDFC Mutual Fund
ING Mutual Fund
JM Financial Mutual Fund
JPMorgan Mutual Fund
Kotak Mahindra Mutual Fund
LIC Mutual Fund
Lotus India Mutual Fund
Mirae Asset Mutual Fund
Morgan Stanley Mutual Fund
Quantum Mutual Fund
Reliance Mutual Fund
SBI Mutual Fund
Sundaram BNP Paribas Mutual Fund
Tata Mutual Fund
Taurus Mutual Fund
UTI Mutual Fund

Break Down of How investors invest in Mutual funds [POLL RESULTS]

Here is a poll results

How to users buy Mutual funds in India

Note : This Poll is from the users of this blog only , so this result should not be generalised for whole country , Its just for the net savvy community.


Before choosing the way you want to invest in mutual funds , you should consider cost and convenience . If you are investing for long-term , you should definitely go through a way where there are less commissions or no commissions.  Only exception can be through an advisor who gives you very sound advice and you are confident that paying him a commission would help you get a better knowledge and returns .

Comments please , how do you invest ? What are your experiences and learnings ? Is there any other way ? Any tips from your side ?

There was a time, when mutual fund investing was limited to calling an agent and investing through him. Things have changed now. With entry loads abolished by IRDA (please provide link or full-form) and with so many technological advances, we have different ways of investing in mutual funds.

Are Company Fixed Deposit Safe ?

Today we will talk about Company Fixed Deposits. There are many investors who are very much impressed by the Corporate fixed deposits and feel like they are as good as Bank Fixed deposits, but one has to understand that if company deposits offer higher interest rates, It is bound to be more riskier than normal Fixed Deposits offered by Banks. Most of the investors think that Company fixed deposits are safe just because the company which is offering these Deposits are very famous one’s and very big in Size. But that is not true ! .  How to Find cheapest Fixed Deposit in India

What are Corporate Fixed Deposits

Corporate fixed deposits are normal fixed deposits offered by Companies. The interest rates  offered are generally higher than Bank interest rates and can be in range from 9%-16% . Higher the interest rates offered higher are the risks involved. Why do companies have these deposits? when companies have cash crunch and require money, they can offer deposits at attractive rate of interest to common public, one of the reasons for this can be that they do not want to raise the additional capital by issuing shares.  Corporate Deposits are governed as per Section 58A of Companies Act, however these are “unsecured” loans (we will talk about it) .

Risks with Company Fixed Deposits

There are two main risks associated with Company Deposits , they are :

A) Default Risk : These Company deposits carry a risk called Default Risk, which means, at maturity they might not be able to return your maturity amount and default in the payment. It can happen that company is out of cash at that time or does not have sufficient money in their hand to pay back , this can happen for many reasons like their business might not be going good that time or because of recession .

MUMBAI, MAY 19: The beleaguered CRB Capital Markets has failed to submit its plan for settlement of Rs 180-crore liabilities to fixed-deposit holders. Reserve Bank of India (RBI) is now free to move court seeking the winding up of the non-banking finance company (NBFC).

Prudential Capital Markets Ltd., based in Calcutta was one of the biggest and successful NBFCs. But their reputation came under a lot of flak the moment they began to default in the payment of interests and the matured amounts. When flustered investors started queuing up to withdraw funds invested in Prudential, the company managed to stave
them off by stating that it would repay 40% of the funds within a year and the remainder a year later. In some cases the cheques were issued but if they thought they were lucky, they were in for a shock for their cheques bounced.

B) Unsecured Deposits : Bank Deposits are secured by RBI up to 1 lacs rupees per branch, which means that if bank does not return you the money or goes bankrupt, RBI will pay you up to 1 lacs of deposits. There is no such Insurance on Company Deposits, hence they are totally unsecured . Link

Update from Rakesh : We have very bad experience with Midwest Iron & Steel company. My parents had invested in this company in mid 90’s and the company was defaulted in 1997. SEBI had included it in its list of vanishing companies. Its been over 13 years we have still not received any money nor do we know any status of it. I had written to SEBI but not update yet.

Caution Points

Premature Exit from Company FD’s are not that simple like Bank FD’s. You might have to run from one place to another and send loads of letters and some times even give reasons for Premature Withdrawals .

One such investor, Vidyadhar Radhakrishna Lad, a senior citizen and shareholder of the company, had subscribed for the fixed deposit scheme of Jaiprakash Associates by investing Rs 1 lakh. Despite writing to the company and running from pillar to post for two months, Mr Lad has still not received his fixed deposit receipt (FDR). Link

Make sure you also consider the credit ratings given by CRISIL and ICRA for that FD .  (Understand CRISIL Ratings and ICRA Ratings)

Refer to the article below to read about Panjon Pharma Fraud in Fixed Deposits (Credit : Hemant Beniwal)

Fixed Depoits fraud from Panjon Pharma .

Should you invest in Corporate Fixed Deposits

There is nothing good or bad , some companies which offer Fixed Deposits are very established and are highly reputed, however you can’t take it at face value and ignore the risks involved. If you want to park money for short-term and are comfortable with the risks which come with corporate fixed deposits, these Corporate fixed deposits can be a good products for you. The point here is awareness. It’s not recommended that you put a big sum in same company. If you want to invest 2 lacs in company fixed deposits, then better invest 1 lacs in 2 different company, that would diversify your risk to some extent. Also if you are investing for some very important goal, then better settle with Bank Fixed Deposits and not Corporate deposits,  it’s better to settle with 2-3% less returns then take unneccessary risk . Here are some words of caution while choosing Company deposits .

Which Company Fixed Deposits you should avoid

  • Companies which offer interest higher than 15%.
  • Companies which are not paying regular dividends to the shareholder
  • Companies whose Balance Sheet shows losses
  • Companies which are below investment grade (A or under) rating.
  • Pvt limited Companies and Partnership firms as its very difficult to judge their performance.

List of Corporate Fixed Deposits


Company Name 1 yr 2 yr 3 yr
Ansal Properties and Infrastructure 11.5 12 12.5
Ansal Housing & Construction 11 11 12
Ind Swift Ltd., 11 11.5 12
Ind Swift Lab Ltd., 11 11.5 12
Jai Prakash Associates Ltd 11 11.5 12
Surya Roshni Ltd. 11 11.5 12
Shri Ram – Subhihska (62 Months) 12
Mukund Ltd/ Mukund Eng. Ltd(Plan B) 10.5 11 11.25
Jagatjit Industries 10 10.5 11
Jindal Stainless Ltd., 10 10.5 11


See Full List of Corporate Fixed Deposits

Other Important Points

  • Generally Corporate fixed deposits come for least tenure of 6 months .
  • No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year.
  • It would be wise to check company performance and movement in share prices half-yearly at least . This is for a review .
  • Companies generally provide a very high commission to brokers in order to push their Fixed Deposits.

JagoInvestor Survey Results/Updates

There was a survey conducted on blog, which tried to capture what readers feel about JagoInvestor and what are their suggestions/expectations from Blog in Future. Please have a look and share your views. Thanks for every one who took the survey. I personally called random 5 people over phone who took the survey and had a talk in detail about what are their suggestions and what would they like to see here . Note ; I am changing the blog layout/design in 1 week time , please share your suggestions in comments sections .

Continue reading “JagoInvestor Survey Results/Updates”