Author: Jagoinvestor

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Term Insurance Plans – 20 different policies compared with charts !

Posted on by Jagoinvestor

Which is the best term insurance plan in India ? Which Insurance company has the best claim settlement Ratio? Should you buy online or offline plans ? These are some of the questions which comes in the mind of every insurance buyer! .

So are you looking for Term Insurance comparison at one place ? Do you have all the sufficient information to decide which is the best term plan you can buy? Today I will show you all the data like riders, maximum/minimum tenure, max age till when these plans covers a person and data on the premium, Claim settlement Ratio at one place! .

Best Term Insurance plans in India – A comparison List

There are many term insurance plans in India, but all of them have different premiums and features which confuses a prospective customer to choose the best term plan for him. Below is a table which shows most of the policies name along with their premiums. But before that, make sure you fully understand what is a term insurance plan ? Better read the 9 most asked questions about Term Insurance before you move ahead.

Company Name Policy Name Mode Riders Available Premium
(1 crore SA)
Aegon Religare iTerm Online Yes 7,300
Bharti Axa e-Protect Online No 7,300
Aviva i-Life Online No 7,368
HDFC Life Click2Protect Online No 10600
Kotak e-Preffered Online No 10825
Edelweiss Tokio Life Protection Plan Online Yes 11,500
Metlife Met-Protect Online No 11,600
ING Vyasa My Term Insurance Offline NA 11,891
ICICI Prudential i-Care Online Yes 13000
DLF Pramerica U-Protect Online Yes 13,400
SBI life Smart Shield Offline Yes 16,798
Bajaj Allianz iSecure Online Yes 18400
Max NewYork Platinum Protect Offline Yes 23,500
IDBI Fedral Termassurance Online No 25,350
LIC Amulya Jeevan Offline No 33,600
Future Generali Smart Life Online No NA
Birla Sun Life Protector Plus Offline Yes NA
Tata Aig Maha Raksha NA NA NA
Reliance Term Insurance Offline NA NA
Canara HSBC Life Pure NA NA NA
India First AnyTime Plan Online NA NA
Sahara Life Insurance Kavach NA NA NA
Star-Union Dai-ichi Term Plan NA NA NA

Note : The premiums above are for 30 yrs old non-smoking male, and 30 yrs policy tenure. The premium quoted is for Rs 1 crore sum assured and does not include service tax. The premiums displayed were taken from respective life insurance companies websites and should be treated as indicative premiums.

Brief overview of Riders

Most of the term plans also allow riders along with their plans. Riders are nothing but additional benefits which you can take by paying some extra premium. Lets see some of the riders and what they mean. A term insurance plan might be offering some of the riders mentioned below.

AD (Accidental Death) : The policy pays you additional sum assured in case the death happens due to an accident . Note that even if you don’t take this rider, the sum assured is always paid on death, whether accidental or not !.

CI (Critical Illness) : This rider gives you a lump sum amount if you are diagnosed with an illness which is mentioned in the policy . Generally all the major illnesses are covered in Critical Illness cover.

DR (Accidental Disability Rider) : This rider covers you for disability and pays you Sum assured in 10 installments per year  incase you becomes temporary or permanent disabled person.

WP (Waiver of Premium) : This rider makes sure that incase you are not able to pay future premium due to disability or income loss, the future premiums are waived off , but your policy is still in force like always !

Claim settlement Ratio of Life Insurance Companies

While deciding on a term insurance plan, the biggest point which a person concentrates is the Claim settlement ratio (read this comment) . Claim Settlement ratio of a company tells you that how many policies were settled by paying back the claims in case of death. However note that these numbers are not for pure term plans, but for any kind of policies.

Solvency Ratio of a Life Insurance Company

Another small things to look in a life insurance company is Solvency Ratio. It indicates how solvent a company is, or how prepared it is to meet unforeseen exigencies. It is the extra capital that an insurance company is required to hold to meet all the claims which arise . In other words , Solvency margin refers to the excess amount of asset the insurance company has to maintain over its liabilities. Basically, it is the amount the insurer has to stash away in order to pay the claims during emergency. IRDA requires the insurance companies to maintain a particular level of solvency margin for their smooth functioning

Below is the Table and a Chart showing Claim Settlement Ratio and Solvency Ratio of all the insurance insurance company in India. The data is taken from 2011-2012 IRDA annual Report.

Company Name Claim Settlement Ratio (2011-12) Solvency Ratio
LIC 97.4% 1.54
ICICI Prudential 96.5% 3.27
HDFC Life 96.2% 1.72
SBI life 95.5% 2.04
Kotak 92.1% 2.67
Birla Sun Life 90.9% 2.89
Bajaj Allianz 90.6% 2.86
Max NewYork 89.8% 3.65
Aviva 89.6% 5.4
ING Vyasa 88.8% 3
Bharti Axa 87.7% 2.14
Star-Union Dai-ichi 86.2% 6.7
Reliance 84.6% 1.66
Tata Aig 83.9% 2.16
India First 82.2% 6.36
Metlife 81.4% 1.69
Canara HSBC 80.6% 3.07
Sahara Life Insurance 78.0% 4.82
Future Generali 68.1% 2.21
IDBI Fedral 67.5% 6.6
Aegon Religare 66.1% 3.22
DLF Pramerica 24.5% 2.53
Edelweiss Tokio 100% (Just 1 policy) NA

Claim settlement ratio of Life insurance companies in india

Term Insurance – Online vs Offline

With online term insurance plans coming in market, two things has happened. First, Customers have really got excited seeing very low premiums which insure them at throw away prices, however low premiums does not appear on the top wish list of customers and what everyone needs is very high claim settlement ratio and excellent customer service. This is where online term policies have disappointed customers, there has been huge disappointment from ICICI iCare and Aegon Religare iTerm Plan in terms of customer service. There have been cases where customers bought an online policy and after that, they had horrifying experiences starting from increase of premium once they bought it, No-response from the company for long duration and Long & frustrating delays in medical tests. This is what pisses off customers most and they get a feel that If situation is bad at the time of buying the policy, then what will be the response when their families for claim settlement .

Another important point which comes to a persons mind is Are private Insurance companies safe ? and what is the claim settlement ratio of the company. From last year IRDA report, we came to know that Aegon Religare did not settle even a single claim out of total 7-8 claims they got . However, this years IRDA report (2009-2010) shows that its better at 48% settlement ratio for Aegon Religare, but Life Insurance is not a maths exam where 90-91% marks will make people happy. We all need 100% or 99% at least !. Because most of the companies are very new, the trust factor is missing from public. Note that not everyone who bought term insurance policies had bad experience, there are many buyers who got very good response and good customer service, but it was a smaller section .

So if you a kind of buyer who understand Insurance very well and how things work in this area and you also have trust in online term plans then you can go for online plans. But if you are not comfortable with it, then you should try the old way of buying insurance through an agent. However it would cost more than online plan, which many are comfortable with! .

If you concentrate on the claim settlement and trust factor then the only option is LIC of India Term Insurance (Jeevan Amulya). However if you are fine with the pvt Insurance, but still want the best features, I personally see Kotak-preferred Plan as a good option. The premium for Kotak-preferred is the lowest in the offline term plans and this plan has good riders along with other good options.

Term insurance plan from LIC is obviously the best option if you do not believe in the pvt companies and insist on high claim ratio, but premium for LIC term policy is too high . So I think you can consider a mix of the LIC term insurance and any one from Pvt insurer. Soon you will also see LIC online term plan

Special Features in Some Term Insurance Policies

There are some policies with very different set of features. Lets have a look at some of the those. These features can help you further in your decision.Term Insurance policy features

Which online term plan do you have currently and incase you planning to have one, which one those the above will you buy ? Will it be LIC Term Insurance or some one else and why ? Also share, If you need any other factor before choosing the term plan ?

3 categories of Investors, which one are you?

Posted on by Jagoinvestor

Suppose you have 3 buckets, and you have to put each kind of investor into those buckets!. What would be the criteria you will use?

In my experience of dealing with hundreds of readers and dozens of clients till date, I can categorize them in a very interesting manner which shows their knowledge and attitude towards personal finance. I call it “I know” or “I don’t know” model. If you look at all kind of investors, at a broader level, you can put them in 3 categories.

Lets see each of them and you can identify which one you fit in.

Categories of Investors

1. I know that I don’t know

The first category of investors is very basic and large in number. They are not very much familiar to personal finance concepts and how to manage their financial lives and mostly they have no idea on how good or bad their financial lives are.

These people are mostly careless in this area and don’t give sufficient time to manage their financial life. They take it as it comes. Many a times they are great in their respective fields, may be one of the best performers and very smart in what they do, but when it comes to personal finance or managing their own money, they are clueless.

People in this category are aware about the fact that they are not good at personal finance and they need assistance when it comes to recommendations, calculations or any kind of basic planning in area of money. They are lost in this overloaded world of information.

Who falls under this category?

Most of the salaried class people fall in this category. Software engineers, doctors, media personals, defense-personals and even self-employed. At times people related to finance like CA, CS, MBA finance also fall in this category!

Whats common in each of them is that they are modest enough to realize and accept that they don’t know. If you ask them simple question like “Does term insurance make sense compared to Endowment Policies ?” (read this and this), they would be very confused and might not come to a strong conclusion on their own. They will not have much idea on how to start.

Anyways, the point is not whether they know how to do it or they don’t, the point is, if they are aware about this fact that they know or they don’t!

People in this category get mis-sold by agents and often take wrong decisions because of tricks applied by marketers and often they feel that the other person is smarter and knows better than them. That’s the reason they fall prey. Most of the readers here I think would be falling in this category and they are constantly trying to shift to the 3rd category which we will discuss !

2. I don’t know that I don’t know

This is an interesting category. Just like first category, even people in this category don’t have much idea or have wrong concepts in area of money, But the main difference in this category is that they are not ready to accept the fact that they do not know things, but they feel that they know enough, and live in their own world with their own understanding which  in reality is incorrect.

They have their own way of looking at things and suffer a lot in their financial life because they have no idea what they are doing. They are actually not very smart in personal finance, but they “feel” that they are.

Finance is just some math’s and number’s game

Ironically, some of these people are very smart and intelligent in other areas of life. So much, that intelligence now comes on the way to their financial life. They assume that they know everything very well and are not open to listen to other views and learn from that.

They consider personal finance as something which they can excel easily, just because they have been successful in other things in life. After all its just some maths and numbers game, as they feel so ! . Interestingly not just investors but lot of agents and advisors also fall in this category. A lot of misselling which happens is accidental at times and not intentional. These agents/advisors do not have any idea that they are actually misselling.

They do it thinking that they are doing a great job. They themselves are not aware that they have missold accidentally, believing in what they were told in their sales-meetings.

Let me give you a personal example:

I used to talk a lot about Insurance commission and how insurance agents make huge commissions compared to Mutual funds. At that time I was not aware of the fact that mutual funds commissions are paid on AUM basis.

argument on insurance and MF AUM commission

I used to make my own theories based on calculations for some hypothetical examples. Even I use to argue with many Insurance agents on the commissions structure, some of them told me that even mutual f‌unds have high commissions, but I used to think that they are referring to the high ticket transactions only, and trying to cover themselves.

I was in this category because at that time I was not accepting that even mutual funds have AUM linked commissions and I used to just argue with them based on my ignorance. So I didn’t knew some important information and I didn’t knew that I don’t know.

In the same way, people in this category do not have proper understanding of basics, but instead of accepting it, they have some other kind of knowledge or wrong knowledge and notions and based on that they mess up their financial life.

3. I know that I know

Last section but a very small one is of people who understand truly what they say and suggest in personal finance. If you ask them some question, they would be very confident in what they tell you. This comes from the confidence, which is result of experience and deep self-learning in personal finance.

These people use their mathematical and analytical ability to understand what is right and wrong. You can find many of these people on this blog and our helpline Forum :). A lot of people from “I know that I don’t know” category get promoted to “I know that I know” in some months or years.

An experiment:

Try this!. If you ask a question like “Does term insurance make sense compared to Endowment Policies ?” to these people, they would eventually come out with the right answer even if they do not know.

They would not need any guidance or very little guidance and they would take this kind of problem as a pure logic based comparison questions and will try to compare both term plan and endowment plan from different points and would come up with a conclusion that Term insurance is the best way of Insuring one’s life and it makes sense to invest the rest money in some other product.

Also, if you don’t tell them how much return one can expect in long run, they would still find out somehow how to look at historical returns and equity is less-risky in long run ! . They are like a new-born baby who was not told anything, but they just start doing what needs to be done somehow.

What category are you in and What should you do ?

Which ever category you belong to, your final goal should be to get into 3rd category where you are aware of everything yourself and you can guide even others.

To eventually reach 3rd category, you have to do just one thing, whenever you are in conversation or debate with anyone, have an open mind of discussion and be open to accept that you can be wrong and might not have some information. Be ready to learn things from other person. With time you will slowly reach 3rd category .

These 3 categories are not just for personal finance, you can categories people in these categories for any area of life and solution to reach 3rd category is still same what I suggested above. Do you think there can be other categories than these 3 discussed above ?

Which category are you in currently ?

Did you shift from one category to other by reading this blog ? Share ! . Also have a look at these unansweed questions on forum Incase you can help in answering them. And if you are wondering why there is less activity on comments section, I am on vacation for your info !

Personal Finance doubts and their answers on Forum

Posted on by Jagoinvestor

Even if you are not participating on discussions at our questions and answers forum, I want to make sure you do not lose out of the valuable things  members are asking and all the valuable learnings which come out by participation of other members.

There has been discussions on variety of topics like Real-Estate , Insurance, Financial-planning, Stocks,  mutual-funds and general finance in day-to-day life. In this post I have just picked a handful of learnings and valuable parts from here and there on forum. Personal Finance doubts

Which small city looks most promising for real estate investment ? (Link)

Members gave some suggestions, but the two cities which were mainly recommended were Ujjain and Gaziabad . Ujjain was recommended because Govt has started Projects of Rs. 1600 Crores due to Next Kumbh after 4 years ) and Ghaziabad (Indirapuram, NH 58 & Vaishali) was recommended as its near to overpriced Delhi & Noida and Metro line will be extended soon. Other suggestions were Indore, Raipur and Hosur .

What is meant by Company’s book value ? (Link)

In simple terms, a company’s book value tells you how much money would be left for shareholders after selling all its assets and pay off all its liabilities at the particular point of time.

Book value = (Total assets-Intangible assets) – Total liabilities

1. Subtract the reported value of the company’s intangible assets from the value of the company’s total assets. Intangible assets are things like trademarks and patents, which are difficult to value. The valuation of intangible assets is highly subjective, so just exclude them from your calculation.

2. Then Subtract the value of the company’s total liabilities from the value of the company’s total assets less intangible assets. The resulting figure is the company’s book value

What is NCD (Non convertible debentures) ? (Link)

“NCD” is “Non Convertible Debenture” issued by corporates. This is fixed income instrument. NCD provides fixed return just like FD interest. Duration of NCD and rate of return are fixed at the time of issuing NCD. Some NCD are secured against assets.

NCDs more or less work like company fixed deposit. One advantage of NCD, at least in theory, is that they are listed on stock exchanges. Hence, provides liquidity to holder. However, there is normally not much volume for NCD. Hence, this advantage mostly remains on paper. For buying NCD, demat account is needed as these NCDs are credited to and debited from Demat account just like shares and no certificate is issued like FD.

When and how much can one withdraw from PPF ? (Link)

One withdrawal, once a year, is allowed from 7th year onwards. You can withdraw an amount not exceeding the lower of:

a) 50% of the balance at the end of the 4th immediately preceding year
b) 50% of the balance at the end of the immediately preceding year

Example: If the account was opened in 2005-06, and first withdrawal can be made during 2011-12. . The amount of withdrawal will be the lower of:

a) 50% of the balance as on March 31, 2008.
b). 50% of the balance as on March 31, 2011.

Facility of Loan: In case of emergency situations before the 7th year, you can take loans from your PPF account. You can take loans between 3rd and 6th year of opening the PPF account.
The maximum loan amount available will be equal to 25% of the balance at the end of the 2nd immediately preceding year.

Example: In your example, if loan is sought in 2010-11, the maximum amount of loan available would be 25% of the balance as on March 31, 2009.

The rate of interest on the loan is usually 2% over and above the rate of interest you receive in the PPF account. This loan has to be repaid within a period of 24 months. Once you repay a loan, another loan can be taken as long as you are within the 3rd and the 6th year of opening the account.

Is there a need of PAN Migration in case of Job Migration ? (Link)

Jayaprakash shares the answer and his personal experience

There is no need for PAN migration in case your residential address is changed. Your Pan card address details are nothing to do with your address given in ITR. Whatever you mention in your ITR is considered for your refunds. The bank and address given in the ITR form will be treated as current for refunds.I’ve submitted my returns in a different IT ward every year since financial year 2007. My address is different in all of those ITR forms.

For 2007 it is Pune, 2008 it is Pune (different ward) and for 2009 it is Hyd. I’ve changed my PAN card address in 2009 but they have not considered that address for refunds of 2007 and 2008 financial years. They have sent cheques to the address given in ITR form (2007, 2008) instead of new address, which I’ve updated with IT department. Now, I’m running behind local ward offices to get my refunds.

Forum Prize Winners for November

For the week of November, Winners for the Forum Monthly Contest are Ramesh Mangal and Shashank Kashettiwar. The first prize goes to Ramesh for answering lots of questions with his knowledge and second prize goes to Shashank for his detailed and amazing insightful/detailed replies . Big thanks to these guys !  .

Do you have any personal finance query which you wanted to clear ? Ask today on Forum !

How you can create huge wealth by small savings?

Posted on by Jagoinvestor

Small is Big? Are you worried, about how will your financial goals be achieved, because you are not able to save more? Do you feel that small savings will not help you much to reach your big goals in life? If that’s the case, you are mistaken!

While it’s true that small savings won’t be able to help you much in short run, they can impact your financial life in a really big way and contribute significantly in long run.

wealth creation through small savings

In the tribal villages of Cameroon, there is a community called “Mofu“, who grow and eat millet’s all year. They store their entire crop for the whole year in their store houses made of mud and wood. Unfortunately, in some bad years, termites attack these store houses and no matter what the villagers do, termites destroy just about all the crops in a short span of time.

The only creature which can now save these villagers, are driver ants which they call “Jaglavak” in their native language. They search the village and try to find those ants. Just a handful of driver ants, kill all the half-million termites in a few days!

How are these ants able to destroy a big army of termites? The answer lies in their strategy and their team work! If they are not disciplined in their approach, it would not be possible to defeat the big army of termites. It’s not the power of a single ant which makes them winners, its numerous ants working together and following a few simple rules.

Small Expenses can help us grow wealth

Just like the story above, we in our financial life have a lot of small/medium expenses which keep rotting and destroying our wealth and many a times, our health too.

Some of them are smoking, drinking, too much eating out without any reason or out of sheer laziness in cooking at home, spending on items which give us instant happiness, but in reality we don’t need them, buying things just for ego-satisfaction (My neighbors bought it, so we should also have it!).

Small pains taken today by saving money and investing properly will help you generate enough money in future (read this story). Most times, we keep thinking about bigger problems in life and do not value or think about taking care of small things. We ignore them because we see them in isolation a lot of time.

My friends case –

One of my really good friends works in a finance company and earns around Rs.25,000 a month. Just graduated from college and found a decent job in Delhi. He lives a great life! Movies with friends, eating out, smoking and drinking.

His credit card bill keeps piling up month after month, but the instant gratification of paying “Minimum due amount” is much higher than the pains which will follow years later when banks will deny or ask for a very high interest rate when we will need a Home Loan or a Car loan.

I asked him his financial goals in life, and got this answer –

1. Retirement corpus of more than a crore by the age of 60

2. 40-50 lacs to open a restaurant once he retires

3. 6-7 Lacs for a vacation in Europe after 10 years with his wife.

How cutting some bad habits helps in long term

He was expecting a big laugh from me. He expected me to tell him, that he is living in fantasy world. With a salary of Rs.25,000 per month how is it possible to achieve these financial dreams in a situation where he was not able to save even Rs.1,500/month?

To his surprise I told him that if he is ready to compromise on bad habits and have discipline in investing from today, it might just be possible to get closer to his dreams! He thought that my advice and plan for him would be tough, complex, and full of jargon and he will have to spare next some days to understand what I was going to show him.

Here was my plan for him.

Small savings can build wealth

Goal 1: Retirement

His retirement can be taken care of, by just investing the money which will be saved by quitting smoking. I don’t know how much a quality smoker spends on his daily quota of smoking, but I guess I can safely assume Rs.50/day which turns out to be Rs.1500/month.

Instead of using this money to deteriorate his health every month for next 35 years, if he invests it in equity mutual funds regularly through SIP. Assuming a 12% return, he can make around 97 lacs (calculate). Note that this amount is without taking into consideration any inflation, if we incorporate inflation of 5% (in cigarette price); it would turn out to be 1.2 crores in 35 yrs.

Equities in long run might give excellent returns and a 15-18% return can be expected from equities if the time horizon is 30-35 years, especially from Indian Markets (Read why)

Goal 2: Restaurant

My friend’s plan for opening a restaurant in retirement can easily be achieved if he controls his drinking and starts investing that money. I have some idea on how much it costs to booze per week (no, I don’t drink, I actually thank my friends in college), I assume it to be around Rs.200/week. Let’s consider Rs.800 for a month.

If he invests part of this in PPF and rest in balanced funds, he might be able to generate 10% returns , and with 35 years in hand, it would be Rs.48 lacs assuming that he also increases this investments by 6%/year (come on, alcohol prices also increase!)

Goal 3: International Vacation in 10 years

My friend spends a lot on phone with his 10 “best friends”, eating out, shopping gadgets and clothes every month/quarter. Not sure why he keeps flying from Delhi to Varanasi every quarter when he can take an overnight train! And save thousands.

Cutting a bit on all these habits I mentioned, it should not be a big deal and he should be able to save few hundreds from each of those and save another Rs.2,000 in total months.

If he saves this money in balanced funds, he should again be generating 3-4 lacs in next 10 years and if not Switzerland, he can go on a vacation to some near-by destination :).

Small savings can create wealth

Conclusion

A bit of restructuring and prioritization in your spending habits can give you a good idea on what all things can you saves on. If you are disciplined in your approach, over the time these small savings if invested with proper plan can help you in a big way in your financial life.

Just like my friend in above example, we have many areas in our life where we can cut our expenses or stop them. If we use it and invest systematically for some goals in our life, slowly it can turn out to be a very big amount. If you are still confused and can’t think of where to cut expenses, another alternative for you is to live on 90% of your salary. It works!

Assumptions : It’s assumed that all the spending might have continued for all life which are saved and diverted to investments. Also the investments are assumed in Equities.

Can you think of anything similar in your life and how it can help you in saving some money? It can be asking small as Rs.100 or Rs.200. Please share! Also share how it can help you in achieving something, use our calculators to find out.

Are you sharing agents commission ? Its Illegal

Posted on by Jagoinvestor

“Discount kitna doge ! Mishra ji mujhe 35% de rahe hain ” , as per Rakesh ,this is exactly how a lot of customers ask their agents commission to be shared with them in Insurance or Mutual funds. Have you ever asked your agent how much discount he can give you on the premium? This happens a lot with LIC agents and other insurance and mutual fund agents. Many times, even agents offer discount or some gift in return, if you buy the policy or mutual funds through them. This practice is illegal and totally against the laws of Insurance Act and SEBI. The agent can even face cancellation of his license if he is found to share his commission. (Read about agents commission in Insurance)

Insurance, mutual funds Commission passback to customers by agents is illegal

It kinda works like this. Suppose, an Insurance agent sells you a policy with a sum assured of Rs. 10 lacs, with a  premium of about Rs. 50,000/- per year. An agent will make around 15,000 in commission for that year, out of which he might offer you a discount of Rs 5,000-10,000 for the first year or he offers you some gift! A lot of insurance agents do this to make sure they do not lose the business or get more and more business . In the same manner, if you have Rs. 30 lacs invested in mutual funds, your agent will get around Rs 10,000/- in trail commissions. It might happen that he can offer you 50% of that commission to make sure you stay with him .

Why you should stop asking share in Agents commission ?

Mutual funds : As per SEBI mandate,  sharing the commissions received from AMC  is illegal and should be avoided . Pass-backs, the practice of sharing a part of the distributors’ commission with the investor, have been made illegal under the code of conduct issued to distributors. “Intermediaries will not rebate commissions back to investors and avoid attracting clients through temptations of rebate/gifts etc” – As per a SEBI circular.

If a mutual fund agent shares his commission with others, it opens a big hole, not just for mis-selling, but also dilutes the whole industry atmosphere. There have been rampant cases, when an agent asks customers to leave their current agent and transfer their funds with them as a new agent (link) and they are ready to transfer a part of agent commission to them (the customers). For example, if a person has Rs 30 lacs invested in a mutual funds, an agent would get around Rs. 10,000/- as trail commission in a particular year. A lot of agents offer 5,000 (50%) back to the customers to attract them. A lot of agents pass back a part of commission and customers get into wrong & ill-suited mutual funds because of their greed!

Insurance : Other than the fact, that it’s illegal, you should not encourage or engage in sharing the agent commissions because, for one thing, it hampers your relationship with agent. Don’t forget that your agent will be the one to help in claim settlement when you are dead. If you snatch his share of commission today, it might leave him with a bitter taste in the mouth and not result in a healthy relationship. So please live and let live! The other important reason, you should avoid asking for agents commissions, is that it leads to mis-selling. If you ask for a share in commission, it will leave agents with less earnings and that would encourage them to sell more by any means, which in turn fuels mis-selling. So in a way the whole “asking commissions back” will hamper investors in the long run. What you sow is what you reap!

As per section 41 of the Insurance Act, “No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to  take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out OR renewing  or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer.”

Real Life experience

As per Dhawal Sharma, a Delhi based agent shares his experience

I face this problem day in and day out and many a times have to miss out on prospective clients because they want “passback of commission“. This practice (Sorry to say, but started by LIC agents) is so much part of the Insurance selling culture that 99.9% of the public thinks that it is obligatory on the part of an agent to part with his commission. But even LIC agents were quite smart at that time as they use to pass back comission mostly on ENDOWMENT or MONEYBACK policies which generate hefty renewal commissions as well (Unlike ULIP) and reversely, would be of little or practically no use to the client in the long term. This practice is actually pound foolish , penny wise approach..

I know at least 100 people, regularly buying insurance for their entire family (father , mother, brother,uncle, aunty) for last so many years from SHARMA JI or OFFICE WALE CLERK who passback 20% commission, and if we make a thorough study of their Insurance portfolio, they are underinsured (No term plan), not properly equipped to handle retirement (their agent never knew that annuity fund is tax exempt only upto 1/3 amount), and no proper child planning (In many cases, child plans where child is life insurand and not father).

 

Violation of law using Multi-level marketing in Insurance Policies

For some years now, a new way of selling is evolving. It’s called MLM. Here a big agent sells a policy to some one and makes him a customer. Now, this customer also acts like an agent and starts adding new people in the network and sells them policies. This goes on to many levels, a person earns a part of commissions earned from every person under his personal network. This whole idea of multi-chain selling violates Insurance law and is illegal.

As per Section 41 of the Insurance Act, “A licensed agent, whether individual or corporate, can’t appoint a sub-agent and pass on a commission to another person or entity. Any passing of commission by an agent is construed as rebating and is prohibited under the Act.”

There are many companies operating in different part of our country like TLC Insurance (India) in Bangalore, RMP Infotec in Chennai, Golden Trust Financial Services in Kolkata and SecureLIFE out of New Delhi (read more here and  here)

Responsible Investor = Health Industry

We as buyers, shape this whole industry based on how we act. Over the years, we expected and asked for share in agents commissions, without realising that it will one day work against us resulting in misselling. So please do not support it! A couple of hundreds or thousands is not going to make you rich or poor, but it sure dilutes the whole environment!

Have you ever experienced a situation where agent has tried to give back his commission? Do you think if everyone stops asking for any agents commission back, it can really have any impact?

JagoInvestor/Moneylife helps a customer get his money back

Posted on by Jagoinvestor

What do you do when you are facing un-ethical practices by some company officials and You are not getting justice anywhere? You should reach out directly at the top of the management somehow because, believe me customer care just does not work ! . This is exactly what I did, when one of the readers complained on our forum that one of his friend is facing issues with India Bulls Real Estate from last some weeks. Here is his complaint

Dear Forum Members,

I’m writting this on behalf of my Friend-Colleague, Ravikumar GovindaNaik, who had a very Bad experience with Indiabulls Home Loan division.

Application Ref no with IndiaBulls – 150625

Name: Ravikumar Lamani GovindaNaik

In August 2010, he initiated the process to buy a 30×40 site near Hosur road, Bangalore. Since the property had only B-Khatha and loan amount was only 10 Lakh, most the major bank representatives denied his enquiries.

Then one Mr. Sivakumar from IndiaBulls Home Loans have appeared as life saver to him an agreed to get him the loan amount approved, with the whatever B-Khatha he have. Every now and then he asked for somany documents copies and it went for almost for a month. In between my friend got an SMS from indiabulls informing that his loan got approved. When he asked about this to Sivakumar he told, Loan is approved by Finance Division but Legal team still have to approve. Also he asked my friend to pay Rs. 5,000/- so that lawyer from Legal division would approve the loan amount. My friend disagreed to pay and asked the contact details of the Lawyer to talk. He refused to gave and tried to divert our attention.

When there was only few days to expire the sale agreement with the Land owner, Sivakumar again appeared and told Loan in COMPLETELY approved and shown photocopy of the cheque favoured the Land Owner. Later Land owner had some dispute on the registration amount and canceled the Land deal.

On October 05, 2010 My friend send a mail to Sivakumar and Indiabulls to cancel the Loan, since he no longer needs it. Nobody responded to mails and phone calls even after repeated attempts, and my friend was scared about the blank cheques he have given.

As he feared, on 13-Oct-10 Rs. 2,216/- was withdrawn from his bank account using the cheque claiming as Pre-EMI, eventhough the Loan Amount cheque was never delivered to him. Immediately my friend contacted Sivakumar and his Manager Praveen enquiring about this, but they suggested to contact customer care. When he contacted the customer care they told him to contact Praveen, The MANAGER. Many e-mail written to Sivakumar, praveen and customer care fell into deaf ears.

On top of that, again on 8-Nov-10  Rs. 20,275/- got withdrawn from my friends bank account using another blank cheque claiming as EMI of the Loan Amount, when the loan amount was never disbursed. Now they have stopped answering my friends calls. Do the Financial Institute have the rights to do like this?

The representative was from Indiabulls that we confirmed, called up the customer care, they also have the application reference number. The cheque’s were in favor of Indiabulls Housing Finance Ltd., only the amount was unfilled. They told that cheques are required for security and to initiate EMI-ECS facility. After the second incident of cash withdrawal, my friend used the “stop payment” facility of his bank. When I searched in Google, I could find lots of complaints against Indiabulls Loan services. In this case they have looted the money on top the processing charge Rs. 5,000, charged earlier.

Yesterday, my friend spoke to the representative Sivakumar again and threaten to send the details to RBI and would file a case, he was least bothered. He just told “Do it!”

What should my friend do now? Anybody knows a Higher official in Indiabulls, who could help? Or writing to RBI about this would help?

Please Help, Thanks, Surabhi R

What action I took ?

I emailed the whole incident as it is to Sucheta Dalal of Moneylife, who  helped in escalating the whole issue directly to Gagan Banga, CEO of the company . Moneylife got the reply directly from CEO within same day that he will look into the issue and by next day itself .

—– Forwarded Message —-
From: Gagan Banga <>
To: Sucheta Dalal
Sent: Sun, 21 November, 2010 1:31:12 PM
Subject: Re: Bad experince with Indiabulls Home Loans

Ma’am, this will be sorted out by tomorrow. Thanks for your feedback and for escalating this issue to me. Regards, Gagan

IndiaBulls had talked to the customer and apologized, they also handed over the refund cheques towards Pre-EMI & EMI the same day. They also dispatched Post dated cheque’s & loan cancellation letter to customer the same day. Here is a reply

From: “Gagan Banga” <>
Date: Mon, 22 Nov 2010 17:09:28 +0530
To: Sucheta Dalal

Subject: Re: Bad experience with Indiabulls Home Loans

Dear Ma’am, Firstly I would like to accept the mistake of my team and our system . We have already apologised to the customer for the inconvenience caused and handed over the refund cheques towards PEMI & EMI today. The remaining PDCs & loan cancellation letter are being dispatched today and should reach him in a day or two. Once again thanks for bringing this to my attention, such feedback will surely help us in improving our processes. Regards, Gagan

This was a reply made from Gagan Banga to Sucheta Dalal of moneylife and she forwarded to me later. Sucheta Dalal has been in journalism from last 25 yrs and its because of this fact that Moneylife has strong ability to reach top management. Moneylife has been helping investors like Ravikumar get justice from many years now and they routinely do grievance redressal with success rate of over 80%.  Moneylife also conducts various Financial literacy initiatives for common public in association with Industry experts .

Customer finally got Justice

After I got an email from Suceta Dalal that finally the issue is resolved, I personally talked to the Ravikumar (customer) on phone. Here is what exactly happened (as per the telephonic conversation)

Ravikumar went to Koramangala IndiaBulls office on Saturday (20th Nov) and the Manager-Praveen was not in office. One gentleman at office connected Ravi to Praveen over the office phone, and Praveen was not happy to talk with Ravi. He told that, today I’m on leave, will be back to office on Monday only, would look into then. There was nothing much to do for Ravi so came back home.

I think after that moneylife sent mail to Indiabulls CEO and he acted on it. On Sunday morning Ravi received a call from Mr. Praveen Pradhan (some other Praveen) , we claimed to the Location head of IndiaBulls in Bangalore. The other manager Praveen reports to this Praveen Pradhan. He might have received the communication from CEO by that time.

This Praveen Pradhan spoke to Ravi for 10-15 minutes, and collected the whole information about the story. He promised to Ravi that, he would receive money on Monday morning without fail. The interaction with Pradhan was pleasing and he apologised for the whole mess.

Monday morning (22nd Nov), Ravi visited Indiabulls office at Koramangala again, and he was directed to finance division. Straight away they have handed over the Refund-Cheque of Rs. 22,491 and as a latest update, while I was drafting this mail, some executive from Indiabulls called up and informed that he is coming down to our office in hour and would deliver the rest of the documents and those blank cheques collected.

– Ravikumar Govindanaik

Problem lies at Bottom level most of the times

This whole incident and what happened opens some questions . Is the problem mainly at lower levels or bottom of the pyramid which involves employees, and managers at lower level ? When we face any issues its never entertained by them or even customer care as they are just not bothered about the company ethics and only interested in their salary and day-to-day activities . However top of the management takes these issues very seriously and acts upon them faster ? What is your opinion on his point ?

Also what are your comments on this whole story ? Do you know some one who has faced these issues ? According to you, what can reduce these kind of frauds or un-professional behavior ?

You also make no mention of the fact that I told you in my email that Moneylife Magazine (www.moneylife.in) routinely does grievance redressal and that our success rate is over 80%.

Its time for Portfolio Rebalancing

Posted on by Jagoinvestor

Are you thinking of entering the equity markets now? Are you thinking of buying some equity mutual funds? You must have heard by now, how the markets are back in action, reaching highs again.

Today, I am not here to discourage you and say “Don’t enter markets” or “Its time to exit” — because neither I or anybody else can predict it. We are here to take decision based on what we can control; and the market is definitely something, which no one has control over.

Portfolio rebalancing

However we can control our actions, greed or fear! I am here, just to remind you about the last crash and how stupidly we all behaved out of greed or fear. (read my story)

The first thing you should understand clearly, is that it’s not the best time to enter the markets for the long-term, because markets are not back in action from last few weeks. It was back in action 1-1.5 years back when markets started rising from 8000 to current levels of 20,000.

It has already given 150% return on an absolute level or 100% CAGR 🙂 and the retail public is now waking up like always to enter with all its money for “long-term”.

Lets us see in this article some good practices and what you can do at the moment .

We, as investors have to be very cautious and not lose our control. It has been 30 years now, that markets are in existence and these kind of situations have come along loads of times. Let’s make sure, that this time we do not regret like we did before. IPOs have started coming in and we recently saw one of the biggest IPO of Coal-India in the history of Indian markets.

All the news channels are back with all the so-called analysts and discussion on how markets can reach new heights and logical explanations about economy booming, deep valuations and what not.

Good time to Rebalance your Portfolio

Markets are nearing an all time high of 21000! It has come a long way from 8000 to 21000 in last 18 months. For investors who bought equity funds or direct stocks at lowest points, it would be a good idea to book profits or rebalance their portfolios.

Look at your investments in Equity as growing a tree. When you invested 1 yr back, you had started with a plants which over these 1-2 yrs have grown to a tree and now is the time for you to pluck the fruit; at least book the profits partially if you don’t want to sell everything.

Note that it does not mean that markets will fall or should fall. But rather than trying to control what markets are going to do, concentrate on what you can (and should) do at the moment. Don’t loose your sleep over what will happen in markets, reduce your tension by booking your profits partially atleast.

Incase you had bought stocks, mutual funds randomly without any proper study, you should immediately get out of markets.

Two dimensional possibility in markets

Right now, there are two really important influences that can affect your investments. One of those is Market direction and the other is Self-Direction. Market direction is something you can not control and it’s almost impossible to predict.

However, self direction is something you can control. Let’s look at a couple of different scenarios and what they mean!

For simplicity purpose we will assume that following two things can happen in Markets-direction and your Self-direction

Market-Direction

  1. Markets can go DOWN by 50% in next 1 yr
  2. Markets can go UP by 50% in next 1 yr

Self-Direction

  1. Rebalance your portfolio from 100% equity to 50% equity and 50% debt
  2. Leave it 100% equity

Case 1 : Markets go Down by 50% in 1 yr

If your Rebalance :: In case you rebalance right now , you will have 1 lac in equity and 1 lac in debt, The equity component will go down from 1 lac to 50,000 and debt component will rise from 1 lac to 1.08 lacs.  Your total worth would be 50k + 1.08 lac = 1.58 lacs. That would be a 21% loss overall .

If you Dont Rebalance :  If you don’t rebalance right now, you will have 2 lac in equity and it will go down from 2 lac to 1 lacs – a 50% loss overall .

Case 2 : Markets go UP 50% in 1 yr

If your Rebalance : In case you rebalance right now , you will have 1 lac in equity and 1 lac in debt, The equity component will go up from 1 lac to 1.5 lacs and debt component will rise from 1 lac to 1.08 lacs. Your total worth would now will be 1.5 lacs + 1.08 lac = 2.58 lacs, a  29% profit overall.

If you don’t : You will have 2 lacs in equity and it will go up from 2 lac to 3 lacs – 50% profit.

markets flowchart

Results

You can see by this small exercise that in one case you are going to see 50% loss or 50% profit and with another case you can see 21% loss or 29% profit. Now it’s your choice. Which situation are you more comfortable  with? I personally feel, retail investors should concentrate more on limiting their losses.

Where is Nifty PE ?

The Nifty PE has been a good indicator in the past to judge overbought and oversold situations . One problem with Nifty-PE though, is that it can’t give you precise a timeline, for when markets can start rising or falling. Nifty PE right now is somewhere around 25, which has proved to be an overbought situation historically.

In the past Nifty PE has reached this level before markets fell after few months. It happened in 2008 crash. On the other hand, a high Nifty PE also indicates strong momentum and can be seen as an opportunity to make some quick trades by entering on the weaker days.

So it’s your choice on how you want to look at the situation .

Nifty vs Nifty-PE

Note that Nifty PE at the moment is very much near that previous high’s of 25, where markets crashed, but it can still go to 27-28 or even 30 in worst case, which can take another 3-4 months and then market can fall ! severely .

Some views from Market Experts

“This current fall of 1200 points on sensex is an obvious downside which always happen after a spectacular upmove and it is nothing but a pure profit booking correction which has happened in last 1-2 weeks.

There is still 1 leg of major upmove remains in markets and unless Nifty breaks support levels below 5700-5800, instead of panicking its a good time to take some positions for short-term of 3-4 months, markets can break the previous levels and reach upto 25000-25000 levels” – As per Hemen Kapadia, a noted technical analyst (I met him at a seminar in Bangalore).

Another friend of mine and a technical analyst Nooresh Merani shares his similar views “Unless nifty breaks down by another 200-300 points, we can see it as a trend reversal pattern, and it still have steam left for another next few months, there after we have to look at charts again to give views”

So If you are an aggressive investor, don’t sell. Just ride the trend; you can also add some money when market cools off a bit and then ready for the move upwards again.

But anyway, you have to be cautious and make sure you have control on yourself. And you should be selling if there are major indications of markets being weak.

JagoInvestor Completes 3 yrs

Posted on by Jagoinvestor

JagoInvestor.com recently completed its 3 yrs in Nov 2010 and following is the interview taken by one of the fellow bloggers .

Yet another milestone for Manish Chauhan, founder of JagoInvestor.com. It’s been three years since Manish started blogging and on Nov 5th 2010, JagoInvestor.com celebrated it’s third anniversary. After three years of run up, JagoInvestor.com boasts of a massive 6500 RSS followers which is still growing and a treasure-house of articles where you can find almost anything on personal finance. On this occasion, here are some snippets of a tete-a-tete I had with Manish on his journey over the last three years and his vision for JagoInvestor.

Jagoinvestor completes 3 yrs of blogging

Q1) Which is your best personal finance book and why ?

I have not read any book on personal finance nor I am aware of any pure personal finance book which gives a good idea of everything on personal finance at this point in India. However there is enough material on Internet and loads of good websites and blogs which gives great education on personal finance.

More than knowledge, Personal finance is about attitude and applying common sense in area of personal finance. There are few things which a person has to understand and on top of it he himself can build all the knowledge and analyze things . Incase some one has any idea about personal finance books in India , please give the names in comments section !

Q2) What is your vision for JagoInvestor in the next 5 to 10 years ?

Personal Finance is a huge area with opportunity. I see JagoInvestor being synonymous with “Financial Literacy” and  “Psychology changing website” which along with providing personal finance knowledge also provides counseling in the area of personal finance, I want to build a program which would span over few months or may be 1-2 yrs which if any one who is interested in financial freedom can join and they can totally transform their way of looking at personal finance. The program can turn a novice into a pro in area of personal finance. (Would like to read comments from readers on this point)

Overall JagoInvestor’s main motto is to “change investors relationship with money” over time.

Q3) You did you manage running a personal finance blog despite being from a different background ?

There is Chinese proverb, “start doing what you truly love and you will never have to do any work !”. Common sense has no background and I consider personal finance as pure common sense fueled with a passion to change one’s financial life. As I like number crunching and I consider myself a logical person, I started a blog one fine day without realizing that it would become this big today, readers liked it and it was making difference in their life, which motivated me to work hard and make sure I keep running this movement of financial freedom.

Q4) What would be your top three advice for investors ?

Top 3 advice I can suggest some one is

  1. Start investing time to understand how important personal finance is in one’s life, thats one thing we work for and our quality of life depends on.
  2. Take pain of cross-checking each and every aspect promised by products, like investors in endowment plans should calculate what is the return they are getting and how 1% more return can impact their wealth in long run.
  3. Shift from free advice to paid services and value them, paid does not mean costly, if you get more value than what you pay, thats even cheaper than FREE. This mind set of getting FREE FREE FREE in each and every aspect of life actually turns out to be very costly in long run.

Q5) Top 3 urgent changes required in the personal finance space ?

a) Shift from sales driven attitude to value-based model in selling : When even you get a call about some product, all you hear is how great the product is, how much return it gives and blah blah.. all the focus is on the sales and even the conversation you hear is driven by sales. The biggest change which should happen is the whole model should be based on how the product will help customers in achieving their goals, a client buys a product because it helps them in life, not because its GREAT.

b) Training to agents and IFA’s : There is good number of magazines/portal for investors to help them in taking informed decisions, however I don’t see anything which helps agents and other IFA’s/CFP’s to understand how they should change their strategy in acquiring clients and giving value service to them. We need some services like these.

c) Basic Financial Planning for each Indian : While financial planning is a detailed thing in general, each person should have access to cheap basic planning for their life goals such as child education and retirement at least. There has to be a model which gives them inexpensive plan for their most basic goals in life.

Thanks to all the readers of Jagoinvestor for giving me an opportunity along with them to create this platform for learning personal finance.

Comments

Would like to hear your comments on how do you feel associated with jagoinvestor and what changes has happened in your financial life ?

The Interview was from thewealthwisher.com

Importance of will and some essential points to be considered while making a will

Posted on by Jagoinvestor

We will learn about creating a WILL in India today, but before that you need to answer this question – “Do you want to leave your wealth and let your loved one’s fight with each other to get their shares (a la the Ambanis!)?” –

I guess not! . If you nominated some one in all the financial products you bought and thought that it will be passed to them legally without any issues, you are living in the world of fantasies (kind of :). It’s a common misconception). You need to create a WILL to distribute your wealth in the manner you want to, and having nominated someone ain’t the answer!

Lets fine out in this article, how to make a will in India ?

importance of will

What is a Will ?

A will can be made by anyone above 21 years of age in India. You can make the will on plain paper in India. It’s not legally necessary to make the will on stamp paper. It is advisable to write your will in your own hand writing, as the same can be verified later in case of any doubts raised by relatives.

It might happen that according to your family structure and your preferences, you want to divide your wealth unequally or make a provision for a close friend or a faithful servant. This isn’t possible if you die without a will.

A lot of us feel that talking about “Making a Will” is pretty morbid, and hence, we don’t look at it with right attitude.

“A will is a sensitive topic to open up to. People are not comfortable discussing a will in India. There is a misconception that if someone tells you to make a will, the person thinks that indirectly you are telling him that his end is near or that you are eyeing his property. However, all apprehensions disappear when I tell them the consequences of not making a will.”

– Says Shankar Pai, who has done some commendable work in area of spreading awareness on making wills.

How to make a WILL in India and its importance ?

A will is so important, that it should be your first step in your financial life. If your family structure is diverse, and you want to leave your wealth to different members of family like you want to, you should prepare your WILL today, not tomorrow, not later.

To wit, if you die without preparing a WILL in India, your wealth will then be distributed as per ‘Hindu Succession Law’ (Government rules, on how wealth should be divided among family members). A common misconception, is to believe that all the estate is automatically passed on to the spouse, because children and sometimes even relatives can stake a claim to the property.

Laws of inheritance and succession, are complicated and diverse in nature, and are different in case of Hindus and Muslims.

Inconvenience for the family members:

Another point you should consider, is the inconvenience caused to your family members because of your laziness, in not making a will for them. In case of a dispute, your family members have to produce the proof about their relationship with and also have to go helter-skelter to lawyers and spent money and energy.

Much better then, to gift them some time of yours, and creating a will! This will save them a lot of headache.

Watch this video to know why it is necessary to get a registered will:

How do you make a Will in India?

A will has several parts, which duly completed, make up a complete Will. Though there is no legal or defined format, there is a template, which has been generally used for ages. It’s simple, it’s very logical and derives from common sense. Let’s look the whole format and some important points while creating a will.

Step 1 : Declaration in the beginning :

In the first paragraph, you have to declare that you are making this will in your full senses and free from any kind of pressure. You have to mention your name, address, age, etc at the time of writing the will so that it confirms that you really are, in your senses 🙂

Step 2 : Details of Property and Documents :

The next step is to provide list of items and their current values, like house, land, bank fixed deposits, postal investments, mutual funds, share certificates owned by you. You must also indicate, where all these documents are stored by you. In all probability, these are in your bank safe deposit box.

Even the will should be stored in there! Make sure, you take the details from the bank manager, about the procedure and rules of releasing your will from the safe deposit after your death. Make sure you communicate it to the executor of the Will or your family members.

I am sure, they’ll be pretty interested in this 🙂

Step 3: Details of ownership :

At the end of the will, you should mention who should own your assets items and in what proportion, after you have gone.  If you are giving your assets to a minor, make sure you appoint a custodian of your assets till the individual you have selected, reaches an adult age. This custodian obviously, has to be a trustworthy person.

Step 4 : Signing the Will :

At the end, once you complete writing your will, you must sign the will very carefully in presence of at least two independent witnesses, who have to sign after your signature, certifying that you have signed the will in their presence. The date and place, also must be indicated clearly at the bottom of the will.

Make sure you and the witnesses sign all the pages of the will. One important point while choosing witness, is that they should be your friends, neighbors, or your colleagues and not the direct beneficiaries in the Will. They only certify, that you yourself have signed the will in their presence and are not a party in making the will in India.

The envelope has to be sealed after completing all the formalities and the seal must bear your signature and the date of sealing. The witnesses need not sign on the seal of the envelope.

sample of WILL in India

See another Template from Department of Stamp and Registration, Karnataka here, thanks to Babu .

Execution of Will in Court ?

When you are dead, there is someone called an “Executor” who will be responsible for dividing your wealth amongst the beneficiaries and he will make sure the whole process is smooth (You must have seen this in Hindi movies). It is not legally required to get the will executed in a court of law in presence of a judicial Magistrate in India.

However, if you wish, the will can be executed in the presence of Magistrate or the public notary, nominated by the government authorities and sealed in their presence.

Changing the WILL in India ?

You can change your will any time you want to. However, make sure that when you make a new will, you mention that this will is the latest and supersedes all earlier wills. If you don’t, it can complicate the situation, cause major confusion, make such matters go to the court of law and take several years before arriving at any final verdict.

Making a Will through Lawyer

“Do-it-yourself” wills often do not contain all the necessary components as required by law and many times ruled as invalid by courts (for example no signatures from witness or no witness at all). Many a time,  it can happen that while creating the will, you use such ambiguous language that it results in lengthy legal battles (“My House should go to Sunita.”

Now if both mother and wife are called Sunita, which Sunita ought to get it?. Anyone who might benefit from the ambiguity of the will can jump in to claim a share! And if the courts decide in his/her favour, you wont like that situation 🙂 (not that, you’ll be around!)

What is a Probate and it’s importance?

A probate is nothing but a copy of will, certified under the seal of court. The executor (someone who is responsible to execute the will) has to file a probate petition in the court of law and if all goes well, the probate takes six months to a year. No right as executor or legatee can be established unless a court has granted the probate of the Will.

Probate can be granted only to the executor appointed by the Will. The cost of getting a probate includes legal fees as well as stamp duty on the value of the property being willed. The stamp duty varies from state to state. Probate is very important in case of Real Estate.

As per Sundar, a reader of this blog…

Legal heirs to get possession of the property from the nominees have to go through a legal process called probate. In Maharashtra this means, the will have to be submitted to Registrar and one will have to obtain a probate. The Registrar may ask the claimants to put an advertisement in newspaper to ensure that they will not be contested.

They may even ask the witnesses who have signed the will to come to their office and sign documents. After all this, and some court affidavits, the claimants have to pay the necessary tax to the state govt. which is hefty and based on property value. After Goverments takes its cut, then finally the probate order is given. Only then will the legal heirs get their property.

Note that, probate requirements differ from state to state. Hence even when making a will a Lawyer should be consulted. I know of fights between Nominees and Legal Heirs. Roadblocks put up by Goverment ( some times they ask for Registered Will etc.).

So just writing a will is not the end of the story. Better consult a lawyer before drawing a will.

Further please note especially in case of land or house property, the society will not transfer the flat without a probate and tax paid certificate. Many times, a prospective buyer will not buy a flat or land, if the holding is not clear and if the property had not been cleanly transferred and if there are disputes between nominees and legal heirs.

Flat may still stay in the dead person’s name till their heirs and nominees settle their disputes. Till then, the flat may be used by Nominees or any other person. But Society will not transfer the flat to prospective buyer till the process of probate is settled first. Hence such property cannot be sold easily.

Please proceed with great care in this matter.

Important points while making a Will

  • If possible, have the two witnesses be a doctor and a lawyer. A doctor signing a will, won’t raise any question of you, being of unsound mind. The lawyer, will vet the will and make sure you dont make stupid mistakes at the time of writing and signing it. 🙂
  • The attesting witness and his or her spouse should not be a beneficiary under the terms of your Will. This might create vested interests and some times make your will invalid. Also, make sure the witnesses are younger than you and not very old as your will might be in effect for several years! And you want them to be present in this world 🙂
  • Write your will on good quality thick white paper so it doesn’t get spoiled over a period of time. It should be stored in a plastic envelope in full size, without folds.
  • Note that you should keep just one more copy of will and stored separately from the original will. The will must be stored very safely in your bank, in safe deposit box. You must also inform your next of kin, as to where you have stored your will. Do not make many copies of your will.
  • In case of Hindus, it should be clearly stated if the property is inherited or not, because it makes a huge difference, as no ancestral property can be assigned to any person through a will. All rights on inherited property are acquired by birth. So if you inherited a property from your Father, you cannot say in a will, that you want to assign it to person X only! It will go to all your legal heirs as it is “Inherited”
  • A will must always be dated and if more than one will is made, the one with the latest date will nullify all the previous ones. In fact, there should be a statement in your will, nullifying all other previous wills. The pages should be numbered to avoid fraud.
  • The value of assets often fluctuates, so it is better to mention how much each beneficiary will receive, in percentage terms rather than absolute numbers. Unless it is pure cash.

So what appeals to you more ? Writing a will your self or hiring a lawyer for this and pay to him ? I hope you are clear about the rules and procedure for writing a WILL in India ?


	


	





	

		
Bad side of Financial Products
			

				Posted on  by Jagoinvestor			

			


	
	

		
Over time, we have seen a lot of products, and figured out some good ones. In the process of understanding them, we now believe that some things are always good — which sadly, is never the case.


So today, let’s have a look at just the flip side of all the products and concepts. This post is going to talk about the problems and issues associated with financial products & services.


bad side of financial products


Term Insurance


Term Insurance, as you know is pure risk cover, with a cheap premium. The problem with Term Insurance, is that many people get over insured because of the fact that premiums are cheaper in case of term insurance. Many people who need coverage of 25-30 lacs might end up taking higher amounts of  insurance as it costs very less.


They might think that nothing is lost — What you lose, is the extra premium over the years for over insurance. At the end, your chances of death increases drastically (duh!). A lot of people on the other hand are severely under-insured because they think that just because term insurance does not return your money its a bad product , but these people are totally wrong (read why)


Equity Mutual Funds


Equity Mutual funds are taken as the best investment option by many. And they are, but not for everyone! A person needs to understand, that they are long term products, due to their inherent nature, equity funds should be invested in, for the long term.


Over a short period, like 2-3 yrs, Equity Mutual funds can be risky and can give you jitters whenever markets make a heavy movement to either side. Also your choice of funds matters! Choosing any equity mutual fund will not help you grow your money, since nearly half of the equity funds, under perform their benchmark indices themselves.


Debt Mutual Funds


Remember this, No Mutual fund is safe! There is always some kind of risk with every mutual fund, unless stated otherwise. Does any debt fund mention clearly that it’s 100% safe? No!


Watch this video to know more about debt mutual funds:




Debt funds are of different kinds and they are depend on several factors like inflation, price variation in bonds (More), the ability of corporate’s to repay the debt on time, and other economic indicators some times.


Overall, debt funds do not give negative returns and mostly perform better than plain FDs, but there have been instances of debt funds giving very low returns like 3-4%. Negative returns in short term, can’t be ruled out either. (link). Risk with debt funds though, is usually very small.


Many people also put money in Debt funds for very short term, just as an alternative to Fixed Deposits (FMP ?), which earns them marginally better returns but at what cost? How much in absolute terms? The quantum is so less, than it’s not worth the hassle.


Real Estate


“Real Estate is the best Investment!” – While that’s open to debate, let’s looking at the negative aspects and issues. First of all, real estate transactions are really complicated and as an investment it means you have to figure out a lot of things at every step of the transaction, else you might pay more than what it takes, every time if you don’t know the game.


There’s also no proper regulatory body in real estate, so things are unaccounted for, with no proper sound rules for the whole process. This means, every step has its own price depending on the city.


Another major issue with real estate is liquidity. You buy a flat, you spend 2-3 months on the whole deal and once things settle down, you live happily in it. But life takes a wrong turn, it can take several months to find a prospective buyer for your asset at the price you want.


It may be frustrating to see prices move down and no body ready to buy at your price, in which case you have to settle for less. You might have to compromise for a really low ball offer too, if you need money urgently for some emergency need, unlike fixed deposits, mutual funds and other products. (Returns from Real Estate)


PPF


PPF is considered to be the most secure and best debt product. However, putting money in PPF for 20 yrs can be just as idiotic as anything else. At the end, you are not getting more than 8% on your money, so only invest as much as is good & needed your asset allocation.


For a young starter his/her debt component is generally taken care of, by the EPF in the company. It makes no sense to put another 70k every year in PPF. It will just increase their debt percentage share in their portfolio to no good end.


Use PPF to build some debt component (Read a tip), but it’s not always prudent to put the whole 70K every year religiously. At the end, its not going to fight inflation very well. Want to open a PPF account at SBI , read here


Endowment/Money back Plans


They are totally secure products.., true, however the returns you get on your Endowment/Money back plans are pathetic . The worst part of these plans are that they trap you like anything.


Ask some one who has bought them recently, paid a couple of premiums and now wants to get out. The products are designed in a way that err, discourage you to move out of. If you do, you get a very small sum in return.


You cant beat inflation with these products, as the returns for all type of plans range from 3-6%, at the most 7% once in a while, depending on the bonus (and probably the phase of the moon :)) Don’t let the trust factor influence your thinking so much, it makes your financial life miserable.


ULIPs/ULPPs


Nothing wrong with the concept, but the costing of the product is such, that they are highly prone to mis-selling (and they have been mis-sold/mis-bought heavily.) You make some profit in a ULIP, but get out soon & the cost of the product will be very high. They are complicated products and 99% people don’t use ULIPs the way they should be (switching is not used by most people) .


A 3 year lock in period is often taken as “I can sell after 5 yrs and I will get 100% of my money”, which is not true. 5 years is just lock in, from a taxation point of view. If you sell the ULIP before 5 years, first you have to pay surrender charges and the the money you receive, will become taxable in the year of receipt.


However if you know how to use them,  ULIP’s can beat mutual funds


Watch this video of Term plan vs Endowment plan vs ULIPS: 




Direct Equity


The biggest problem with direct equity is that a very small number of people can do it right. Most of the people just feel they’re alright, till they get really screwed big time. Direct equity demands too much attention at times.


Also depending on your time frame, it can be addictive! And when you can’t control yourself, it can ruin your portfolio and wipe out your savings.


Gold


Too much confidence from investors. At the end of many years gold should be giving around 8-9%, a little more than inflation, but in this new generation, gold has done so beautifully that it might outperform earlier returns and end up giving 10-12%. Fingers still crossed though. Read a study on gold


SIP


SIP is sometimes seen as the ultimate solution for generating good returns, but SIP can give lesser returns in growing markets, so for people who have that ability to sense the movements in markets, SIP will prove to be wrong thing to do. These kind of investors can take a call on direct investment.


SIP is good for investors who does not have much idea about how markets functions but want to invest in equities without worrying about movements in the markets. So the best learning is, don’t start SIP after a bear market !


Diversification


You should always diversify your investments.  Whats the problem with that? The main problem is that this is not true for a person who understands the ins and outs of an asset class and has all the time to closely look at his investments.


diversification


In that case, diversification will prove to be very costly. I know people who have 96% in Equity and they are doing wonderfully well, because they are masters of the subject and closely follow what’s happening to their money. So diversification is not the ultimate solution.


As Warren Buffet says, diversification is for one who does not understand what he is doing, which actually means that a person does not have much knowledge about an asset class to exploit it’s full potential. Most people fall in this category and for all those, it would make sense to diversify in Equity, Debt, Gold and Real estate etc.


Read more on Diversification


Health Insurance


I don’t see much negative in Health Insurance, other than the dilemma customers have, in choosing the right products for themselves. There are many things which a customer should look into a health insurance product which would suit him, but because of plethora of products & options, customers are confused and end up taking the inappropriate policies.


See 17 most asked questions and answers in Health Insurance here.


While we should cover ourself with health insurance, the best health insurance is good health by eating well and doing exercise everyday, read this ebook for more .


Saving Account 


Though there is nothing called as “investing” in Savings accounts, maximum number of investors keep their money in their savings account unintentionally over and above their emergency needs and it’s like loosing your money to inflation , prices are rising at rate of 8-10% and your money is rising at 3.5% or even less. So in a way your money is depleting over time .


Fixed Deposits


While fixed deposits are excellent and easy short-term investment option, it leaves your money handicapped when you invest in it for very long duration like 10-20 yrs and many investors actually do it especially in smaller cities and towns , for them its the only investment option .


Though the number goes up in your bank account , the purchasing power remains at the same point or at worst decreases sometimes due to inflation and taxes overtime. So use Fixes deposits for short-term investments not very long-term.


Portfolio Management Services (PMS)


The biggest problem with PMS is that there are rare PMS which can be called good. PMS is also managed just like Mutual funds where some person or team takes the decision of buying and selling , the only difference is that its meant for HNI’s, who have minimum investments of 5-10 lacs.


There are high costs involved and most of the people fall in trap thinking that it’s some premium product which would deliver better returns . However there has been cases where PMS delivered great returns, in most of the cases they turn out to be a hype.


Most of the big companies in financial services run PMS schemes which do not have that strong performance or are half-baked . Read a review of ShareKhan PMS.


Comments ? Do you think I have left anything or any product ? Which was your favorite one ?