Author: Jagoinvestor

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How Career affects our Financial Planning

Posted on by Jagoinvestor

“When you grow up, What do you want to become ?” , and the general answer is Doctor, Engineer or Pilot . That’s the story of 99% people . I just wonder if some kid today says “I want to become a Financial Planner” , how will his/her Parent React ?

They will either think he is an alien or they will find fault in their DNA .

How career affects financial planning

So here is the main question. Where are we in our Life, in our Career? I bring this important question because one of my client 2 days back told me that He is not happy with what he does and he is looking forward to do something which really satisfies him and therefore he cant make long term commitment.s of doing SIP , Paying Regular Premium Payments etc etc, because he is not sure if he can take it anymore.

He is a well earning Software professional , but he actually never enjoys his work and actually wants to be into something like Education or Music which he loved always but had to give up because His parents wanted him to not waste his Life .. LOL . Now I am not a Magician who can fix all the problems like these .

Relation between different aspects

We are today going to talk on how your Career affects your Financial Planning . Lets see how things are related and dependent on each other .Our Goals in Life are important to us, We need money to fulfill them , at least most of them .Money comes from our Jobs and Jobs come to us from our Education (most of the times) .

And Our decision of what we get in Education , from where do that come ?

Here is the root cause . Ask any MBA aspirant why he is preparing for MBA ? What kind of answers do you get ?

  • My friend is also doing it
  • What else can i do ?
  • Good money in MBA

Same problem with Engineering and others Jobs . How many people do you know who say “I love what I do” .. “My day is amazing everyday at work and I am so happy to be at work” . Lets see a typical situation of an average Indian which is happening from Decades and needs to be changed .

“Borrowed dreams don’t make for happy realities”

What happens with average Indian in Career

“Dont let your Schooling come between your Education”

How Career affects our Financial Planning

Finally I come to the point . So for acheiving our goals and satisfying our needs of daily life , we need consistent flow of money from our Jobs , Consistent money can come in two ways

1#. You don’t truly love what you do in your Job , but keep doing it no matter what , and get your Salary every month

I don’t need to explain much here , but you smart to understand and picturize the situation , these people do not like what they do , but are dragging

from years in the same company or same profession.

These are people who make decent money from their jobs , but they are internally never satisfied from their career and somewhere unconsciously are afraid of the fact that If they loose the job or leave it themselves ,from where will cash flow in to meet the expenses .

Life is long, if you are just 25 or 30 in this situation, this situation may not look very bad to you , but wait for some more years , once you have other responsibilities like a Family and Children ,Regular Bills and Education costs , you will so stuck .

One of my friend in Pune says that “It comes to his life daily morning when he has to leave for office, He just dont like the work he does” , This is critical situation .Our lives today is full of stress , Problem at work , Issues with Marriage (Amazing Book I am reading these days) , Unhealthy life style and many more like these and combined all , It has deadly effects.

In coming years you will have to plan for your expenses and money will come from this job which you hate , and then it will be tough situation . These people unconsciously worry a lot for their Financial Goals like Child Education , Marriage , Retirement etc because they somewhere know that there are greater chances of not excelling at what they do because they just cant perform better and what is expected out of them .

These are the people who make Investing mistakes in hope for big returns because they want to fulfill their Financial goals as soon as they can .  Most of the people in this category do things like one mentioned in this article

I know people who earn 90,000  per month but they are the most negative people I have seen when it comes to their future , and yes they tell me how idiotic job they do .

2#. You Love what you do in your Job and get your Salary every month

Now this is a very different Situation , here you love to do the job , Your satisfaction part is already fullfilled . If you not paid for what you do , you can still do the job sometimes and wont feel about it . I charge clients for the Financial planning , but I do not charge my close friends when I do it  .

I am not paid there .. but Its fun to me , Its something I enjoy . Every new article is a challange for me,  Its never a job for me .  Every new comment is an appreciation and a message from you that I am being read and I write wonderful 🙂

As per a famous Chinese proverb “Find a job which you truely Enjoy and you will never have to work after that” . People who love their jobs already solve one of the big issues in daily life . When they are at Home , they are more cheerful , more energetic and tend to make a better environment  around them .

These poeple Financial life is also better because they dont have a mental pressure of “making themselves fullfilled” at work . These people know that they are going to get much better in what they are doing and someday will reach heights , where they will have much better salary and hence it will help them that time if they are unable to save and invest today .

I am not saying that they dont save or invest, but they are not worried for their future .  Read an interesting article on “Can you live with 90% of your Salary ?”

I know a person who is 23 and recently left his Software Job to make a career in full time blogging , He earns more than 1 lac per month now .

What is the Solution ?

Oops .. Its a tough problem to solve . The best thing I can think of is

1. Identify first if you are happy to do what you are doing , make sure you understand that you are going to do it for 20-30 yrs . I am referring to people in Software especially , because most of them just know it sucks .

2. Identify what you like to do and how can you make a career out of it . Career 360 is a good place to look for some career related stuff

3. Gradually start upgrading your skills and get some education in the field and in the meanwhile create a buffer of money which will support you for some 1-2 yrs if things fail and you can get back to what you were doing.

4. Gradually shift to other field once you are ready to make a move .
One thing is sure .. If you do what you love , you worry least about salary hikes , office politics , worry for slowdown and most important “getting Fired”, you have that amazing confidence that you are the powerful person in your job because you will always excel at what you love to do .

What should be the Ideal Situation

We have to plan for different things in life , some are small things and others are very important in life . Below is the list of things I personally feel are extremely critical for a successful Life .

Life Planning

Each of them is dependents on the things coming next in life . Your Education decides what Job will you get in , Your Job decides how much you are happy and how much you make in money terms .

This combined with how well you choose you Life partner and how great you plan your Family decides your Life ahead, and at the end what we discuss on this blog comes “Financial Planning” . It depends on various small things we generally ignore 🙂 .

So you need to ask following Questions

1. Do I love my job ?

2. Even Though I feel I love this Job , Is there something I can do better and Make a much better career ?

3. If I had to do my current work for next 30 yrs , Am I mentally Ready for that or Will I just Die out screaming !! .

4. What is it that I like to do and what are the career opportunities in that field ?

Answer it yourself 🙂

Conclusion

This is a very Important aspect you need to think about , Financial Planning is totally dependent on how comfortably and happily manage to get the cash flow in your accounts . If its a burden on you rather than a enjoyful event, you are bound to get screwed some time in coming years .

Forget how to choose the best Mutual fund and what is the cheapest Term Plan or What is the best way you can invest your 2 lacs kind of silly questions .. They are idiotic questions which we try to find answers for , answer these real questions in life first .

Comments

I am sure my writing this article at 3:30 am in morning will not go waste and you will provide your valuable comment on this .

Why don’t you let me know about what you feel about this and to what extent you agree on this, Can you suggest some ways out for this problem?

Some Investment advice from P V Subramanyam

Posted on by Jagoinvestor

“You dont save for Retirement these days , You invest for Retirement these days” . Great Words , P V Subramanyam is an excellent Financial Planner . I read his posts and enjoy it at lot . Here is a video from him , which explains some of the basic and important advice from him .

Please share your views on his advice and let me know if you like these kind of Videos or not … Shall I put more of  these of not ?

List of Best Debt Oriented Mutual Funds for 2009-2010

Posted on by Jagoinvestor

If you don’t like Equity because you have a lesser risk appetite and  still you want to make better returns , where do you invest ?

The answer is Debt Oriented Mutual funds , In this article we will see What are Debt Oriented Mutual funds , A list of Good mutual funds and what are the returns you should expect from them .

mutual funds

Have a look at List of Best Equity Diversified Mutual Funds. These funds are getting very popular these days as people are not ready to put their money in market for long term because of Market Uncertainty and decreased risk appetite after the recent fall in 2008-2009 .

Hence these Debt Oriented Mutual Funds have become very popular , Read This Article

What are Debt Oriented Mutual Funds ?

Debt Oriented Mutual Funds are those Mutual funds which Invest primarily in Debt products like Debentures , Certificates of deposits from Corporates , Govt Bonds etc , They put a small portion in Equity also (10-40% max) . These funds generally return in range of 10-20% in long term and the downside is limited in these Mutual funds as Debt Component is High.

Please note that even these Funds can give Negative Returns but that happens in Extreme fall downs or very bad times. You should not assume these will always give positive returns. Also You should also concentrate on Long term returns, Dont judge a Mutual fund by Its Short term Returns

Let us see some Stats which will give you more idea about these .

  • In 7 yr time frame Best return is 20%and worst return is 8.09% .
  • In 3 yr time frame Best return is 12.09% and Worst return is -5.87%  .
  • 5 funds are more than 10 yrs old .
  • Most of the Funds do not have an Entry load, but can have exit loads if exited before 2-3 yrs . Some have locking period also , but no tax benefit .

Below is the Chart I created which Shows CAGR return of Top 10 Debt Oriented Mutual Funds (Click to Enlarge)

List of Best Debt Oriented Mutual Funds
List of Best Debt Oriented Mutual Funds

Source : ValueResearchOnline.com

List of Best Debt Oriented Mutual Funds

UTI Mahila Unit Scheme

  • 16%+ return Since Launch, 8 yrs old Fund , Excellent Track Record .
  • This is my Favorite Mutual Fund . Amazing one .. Read a complete review for this Mutual Fund Here

Tata Young Citizens

  • 14 yrs old Fund, Excellent Returns , This is extremely Risky Fund .. Don’t consider this as a Debt Oriented Fund
  • Equity Component is very high at 50% . So I am not sure if this will suit as Debt Oriented Fund .. only people with strong heart should take this .

UTI CRTS 81

  • One of the Best Funds , 28 yrs old fund , Lambi Race ka Ghoda , 13%+ return CAGR which is amazing for any debt oriented fund .
  • Equity Exposure of less than 30% and the worst return ever in 1 time period is -14% , the best is 35-40% in a year .

HDFC Multiple Yield Plan 2005

  • 4 yrs old fund , Extremely low Equity Exposure of less than 15% ,  Average return
  • Looks great for Future performance .

Other Good Funds

  1. Birla Sun Life Asset Allocation Conservative
  2. Templeton India Pension
  3. Unit Linked Insurance Plan ’71

Note : please make sure you read all the other details yourself before you decide on buying , These are just my personal opinion and make sure you are your own decision maker 😉 .

Last year when markets were doing bad , Debt Funds were the best choice of the Investors , However Its not the best time to Invest in pure Debt Funds , but rather invest in Debt Oriented Funds if you are not ready to take high risk.

Look at the following Video which Is not a recent one, but talks about How investors were eager to invest in Debt Funds Last year .

Conclusion

If you don’t have very high Risk Appetite , you can look for alternatives to Debt Oriented Mutual Funds , Its always better to park your funds with these if you want more than 10% return with some amount of Risk .

Please note that These are not equity Diversified funds and hence you should not expect very high returns from these .. If you get around 10-12% from these funds that is more than good . Anything more is wonderful .

Please share your comments. Do you think you will invest in these funds, Are the returns from these Mutual funds are worth looking at them? Any do you know of any other fund which is not covered here? Please leave your comments.

Do not Invest just for Tax Saving

Posted on by Jagoinvestor

“Tax saving should be result of your Investment planning and not vice versa” . Understand this very well . For most of the people, saving tax is such a big thing , that they forget the primary rule of Financial Planning and concentrate all their energy into Tax Saving .

I see most of the people are trapped in idiotic products because of their obsession with Tax Saving . Most of the people today are invested in products which does not suit them, which they dont need, Which they do not understand .

All because of their idiotic decision of “Investing for Tax Saving !!”  .

tax saving joke

 

For some people the Products they buy for Tax savings are like This Pond , They are not sure what they will get from buying it , but they are happy about the fact that they are saving some money in Tax . Which is idiotic .

Typical Scenario

Most of the people dont do their Tax Planning in the start of the year . They just neglect The Tax Planning part. Somewhere at the end of the Year around Feb, They recieve a letter from their company that they need to submit their Documents for Tax savings so that they can avail the benefit of 80C and other Tax saving benefits like HRA , LTA ,  Medical Reimbursements , etc .

Even then they dont budge and most of the people wait till the deadline date to come very near .

Then finally comes the deadline date and now “Giving The proofs of Investment” is much more important than “Making Sensible Financial Decisions” . Its too late to Plan for things . ULIP agents , Insurance agents and Mutual funds agents are ready to take the charge and they will brain wash you with all their nice words , They themselves dont understand the product a lot of times .

You have no choice but to invest so that you save tax now . You cant even imagine a scenario where you dont invest your money and pay the tax . It feels like the most idiotic Decision ever . Which I feel can be a good decision sometimes .

Top Reasons for Investing

Below is a small diagram which tries to show how what are the biggest reasons people invest their money . Please Note that this is based on my understand and experience with so many investors over the years . And this is what I feel depicts the scenario closest to actual .
Investing Pattern for Tax Saving in India

Problems arising Due to This

  1. The worst Sufferers are those who invest in LIC and other companies Endowment Polices and Money Back Polices  for the primary reason of Tax Savings. These people do not think that even though they are saving tax for this particular year , they are actually getting into commitment for next 15-20 yrs (or Policy Tenure) and Have no Idea how its going to meet their Future Goals . Read a Review on LIC Jeevan Tarang Policy .
  2. Similar problem is with people who take ULIP’s . They Invest for a year to save tax and then next year they have no idea if they would be able to even afford it or not !! . This happens with mostly new joinees in Companies .They have no idea what to ask their ULIP agent at the time of Buying the product .
  3. Next is “Liquidity Problem” . Most of the people do not think about the lock in period and do not take into consideration their Liquidity Requirement for coming Years . They Invest in ELSS and then next year they need money . They Invest in Tax Saving FD’s and then cry for any Expenses which were very obvious to arise down the line .

What we must Learn

Tax Saving is just a benefit provided when you Invest your Money, dont make it as a Primary objective to Invest. What you have to concentrate on is your Investment Planning , and after you have to restructure your Investment planning in such a way so that you also get Tax Benefits from them.

Investment Planning First and Tax planning second .If you are not able to save tax , its fine , Pay taxes . Its always better to avoid getting into messy products which dont suit you and suck your blood out . Tax Planning is Important, But the more Important things is that you don’t get to obsessive about it and do it only if its needed.

Its not a big deal to save tax at the cost of your Finances future . See an article on Gfactor , a decision making tool for Financial Products

I can relate this with “Not using Protection during Sex” and then suffering for a long time because of that small mistake .  This is exactly True with all people who dont not need Crappy Insurance and then one single mistake, Investing in it for Tax saving and then every year , Suffer with it, Paying a huge premium for the Small Insurance not sufficient for you and for the Maturity Amount which is not at all exciting .

Make sure that you invest in some product only if matches these 4 criteria .

So are you one of them who tax Tax saving with High Priority ? Have you invested for Tax saving as primary reasons ? Share with us . We can talk about it and make sure that it does not happen again . Post your Views on this ..

If you liked the Post , then Subscribe to this Blog to get updated .

Rebirth of Jagoinvestor , We will get more Awesome now

Posted on by Jagoinvestor

jagoinvestor moved to wordpress Readers , We have successfully moved to WordPress platform and its a very emotional moment for me. This blog has been my baby and I have nurtured it all these 2 yrs. Today it has grown up and now comes another important milestone , Jagoinvestor is now one of the few handful of blogs on Financial Planning , which is known to deliver high quality content on the topic .  I am sure moving to WordPress will boost more traffic to this blog and over all ranking would improve in search Engines because of better SEO capabilities .

This blog needed some Investments from long time and finally I have done some investments on this blog like

  1. Hosting on bluehost.com
  2. To give you an awesome User Experience , I Bought Premium Thesis Theme (this is considered one of the most amazing themes in WordPress , very Optimized for SEO and very easy to manage , we will see in coming days)
  3. I Hired a Professional for Migrating it to WordPress , I wanted to make sure nothing breaks in migration and Its done quite fast so that the blog is available to readers and not down for a lot of time .
  4. This is not monitory Investment , but more important investment and thats time investment by me , I would now be reading more stuff (for my personal growth and To write on more diverse topics for you all) . Also I am now planning to be more regular from now onwards because I am now taking this blog more seriously . Expect More articles but with smaller sizes 🙂 and more frequently , but remember that  “Key to Happiness is Low Expectations” . I am also starting my personal blog in some days which will contain my random posts and life experiences (Will update you later) .

I am in no mood of writing anything till this weekend now , So lets use this time to get suggestions from you all on what all new things we should do on this blog . I have Some suggestions and ideas , may be you can vote for it or give your own 🙂 .

Suggestions

1. Add Forums: Readers can make their profiles and then start discussions on some topic . You can talk over variety of topics like Mutual funds , Insurance, Taxation , Stock markets , products review , any thing else related to Finance and Investing .

2. Start a Knowledge base of products , topics and services in Financial Domain . It would be like Wikipedia of Indian Financial planning world , we can have any topic , idea or whatever … and have details , we can have opti0n of any user editing it so that it can grow quickly and you can also contribute .

3. More Videos More videos and audio tutorials

4. More Calculators and Presentations to make things easy for you ..

5. We can have podcasts and Live tutorials where we can meet (limited people , Free sessions , through registrations only) and we can talk over some topic .

6. Personal Consulting through Skype or Phone (you will call me) , Only for people seleted by me through Quizs and Contests coming soon …

Feel free to suggest Ideas which can help this blog grow .

Some Updates and Clarifications

1. I am receiving a lot of mails now on random topics directly , Please make sure that you ask important and worthy questions , I still get “I have bought XYZ at Rs 30 , please advice” kind of mails , I would not be answering those questions , please use Logic ”

2. This blog is still not getting readership which It should get and deserves , So from your side what you can do is

  • A lot you who are working in company’s must be having an internal mailing list where you talk to other people on random topics , feel free to put excerpt of articles and give back a link to this blog .
  • If you have a blog or site , feel free to review it on your blog so that your readers can know about it . I would take this as your giving back to this blog . Noting more than this . mail me if you do this . Atleast you can put a link back to this blog on the sidebars .
  • Talk more about this to your friends and feel free to send them a good article which you come across , like some review of product I do .

Thanks

overall I am a One team person doing everything and we have to act as a whole family to grow , Incase you can do this small part from your side , It will make a big difference .

Note : Over 2-3 weeks , please expect some random changes happening to the blog . I would be making a lot of mistakes and then re-fix them to learn a lot .

Jagoinvestor is Moving to WordPress

Posted on by Jagoinvestor

Readers , I am extremelly excited to announce that We are moving from Blogger to WordPress now . It has been amazing experience till now and now I have decided to move to WordPress . After I migrate to WordPress , I will have better control over everything and we will have much more things on this blog .

When is the Migration ?

So the day of Migration is 11th Nov 2009 , Wednesday . Hence , This blog might be down for some hours on Wednesday , at worst the whole day .

What Happens after we move to WordPress

We are going to make this blog much more exciting and much more happening place after we move to WordPress . We will add things like

  • Forums (where all the readers can interact with each others) .
  • Profile Pages for all the Readers
  • Videos section
  • Calculators Section
  • Much better feel and look (someone help me with some good theme please, any WP experts here)
  • Overall it would take time and I things will be added slowly .

Well , all this has happened very fast and i am writing this post in a hurry .. so please bear with me 🙂 .

Please give me some time to get back in form and become familiar with WordPress , expect some low activity on blog for 1-2 weeks . See you all at new Jagoinvestor.com@Wordpress 🙂 .

As always , I would like to hear your comments 🙂 .

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How much Insurance Cover is Enough ?

Posted on by Jagoinvestor

A reader asks me “How much Insurance is Enough ? Is 1 crore Enough ? ” . Now this is an extremely important and very easy to answer . How do you think about it is very very easy .

There are two models of answering this , One is to sum up everything as per your situation and then come up with a Figure and the other one which I recently thought about is a reverse answering yourself (yes !! , yourself) on how it will take care of your dependents after you are gone .

How Much Insurance Is Enough

Are you Wondering How much Insurance you should take ?

Many people I interact with come up with Weird Figures for their Insurance Cover , Without any calculations they will cough up numbers like 5 lacs , 20 lacs , 50 lacs , 80 lacs or 1 crore (Come on .. this is not a game called “Even Figure , Even Figure” , Its not a Game !! ).

I ask them a very Simple thing, I ask them to explain me, literally explain me in writing, How the money your Dependents are going to receive will be utilized and How it will take care of things once they are not there.

Not even one of them succeeds in allocating that money for different goals which are pending after they are gone and be satisfied with it.

There are numerous things to be taken care of after the earning person is gone, like –

  • Providing Regular Income to your Family (like you would have done if you were Alive)
  • Making sure all the Debt is Paid off (Which you were going to clear off If you were there, Things like Home Loan, Car Loan, Any other loan)
  • Making Sure that your Children Future Expenses like Education and Marriage are taken care of (Some money might be required to be Invested for these goals which will haunt you later in life)
  • Enough Money for Emergencies which could Arise and Literally Destroy your Family Happiness like Unexpected Accidents, Some Critical Illness etc

Seriously !! .. This is Common Sense .

Read an article on Process of Calculating you Insurance Cover

Insurance Cover as 10 times of Yearly Income is not a good Idea

Now most of the Insurance agents definition of Insurance cover is “10-15 times of your yearly Income”. I ask Why?

Ajay Earns 8 lacs, Just one dependent, Has some good asset corpus, Should he just buy 10-15 times of Insurance cover … No !!

Robert Earns 4 Lacs , Has a home loan (Read how to find the cheapest Home Loan), 4 Children and a personal Wife along with Old Parents, High Expenses, No other Earning or “Capable of Earning” Member in Family. Should he buy 10-15 times of Insurance only? NO !! .

The Model just gives a rough Idea on what can be your Requirement but most of the times it does not work, have the guts and logical mindset to Deny what People in personal Finance space tell you , they are not GOD, they lack common sense sometimes (Read “most of the times”)

Calculating Insurance is not a very tough process, Its just Logical and step by step process.

An Example

Robert tells me that he earns 4 lacs a year and he thinks that 50 lacs is enough for Insurance cover. Some one told him that 10-15 times of his yearly Income is what he should be Covered for.

Conversation goes like this

Me : So you believe that 50 lacs is a good amount for you to be Covered. Fine !!, You are dead and tell me what happens Next !! .
Robert : hmm .. ok , See , my Family expenses is around 20k per month If I am not there , So that is one thing which should continue , so I will put 30 Lacs in some Instrument Like some Best Fixed Deposit (FD) or MIP and it will pay 20k per month to my family , I think 30 Lacs would go for that . 30 lacs getting 8% interest will be 2.4 lacs and that means 20k per month .
___

Me : OK , Not the best way of doing it , but looks workable and safe .. Go ahead
Robert : Another 20 Lacs will be enough for other Important things 🙂
___

Me : No .. Get Deeper !! , Dig out things and tell me exactly How !!
Robert : OK , I have 3 children .. I think a Good Education today can be taken care by 20 lacs for all of them .
___

Me : Talk About Future , Its 12 yrs away , They are kids now .. Today 20 lacs is good , but what about 12 yrs from now ? Do you know that Education costs are increasing by 10% per year now a days . You require 60 lacs after 12 yrs For Higher Education of your Children . Understand Inflation .
Robert (quiet) : Hmm.. That’s something I didn’t think about . So I will need 60 lacs , I need 40 lacs more of cover .

___ Read Top 10 Financial Planning Doubts

Me : Actually No !! , All you need is to get 20 lacs only , because you will actually Invest it , You need 60 lacs at the time of their Education , not now . So you Invest that money in such a way that you get around 10% return and you will have enough savings for your Child Education , Make sure you dont take more than required risk for this .

Robert : ok , Got it . So the 50 lacs exhausted . I am not sure what are the other things which needs to be taken care of ?
___

Me : DO you have some liabilities, Like Loans?
Robert : I had a Car loan, but only 6 lacs is remaining. Should I take care of that also?
___

Me : I don’t mind if you don’t think about it , just tell me how is that going to taken care of if you I kill you just now !! If Its paid from 20 lacs , then somewhere your Child Education is compromised . (This Idiot Doesn’t have a Home yet and He is riding a Honda , and smartie earns 4 lacs a year)
Robert (Dying to kick me) : OK OK . Add another 6 lacs , now its 56 lacs .

__

Me : Good 🙂 . Was there anything you wanted to provide your Family if you were there with them.
Robert : (after a lot of thinking and trying to hide his guilt now) Well Actually We dont have a Home yet. I am planning to buy a Home soon, may be around 30 lacs. [doesn’t fits his Budget, but smartie recently bought A Home Theatre (Doesn’t Have a home yet), This is what I call “Not understanding Difference Between Needs and Wants” ]

__

Me : So definitely you want to make sure that they have a Home once you are not there , the same way you were going to buy one , or you want to live on rent on life because you are not there to enjoy the “Sweet Home”.
Robert : So that adds up 30 lacs more and the requirement is around 56 + 30 = 86 Lacs .

__

Me : I am happy to say “YES” 🙂 . you made my day …
Robert : So that’s it .. I need 36 lacs More .

__

Me : So your Parents are Old , correct ? And you people have spacial blessings from god that your Family can never have accidents or your family will never get into Emergencies ? Right !!
Robert : Well .. That can Happen , But lets skip it . It has never happened and I don’t think it would happen with my Family .
__

Me : No !! I refuse to accept it .. You have taken care of other things, All your 86 lacs is going to help them in some or the other way. Now tell me how will your Family will Handle with emergency situations which might demand 10 lacs of Expenses. I know you cant calculate exactly how much they might require. It can be 5, 10 or 20 lacs, but lets take a good figure of 10 lacs and better prepare for something if not anything .
Robert : OK, Lets add 10 lacs more for anything unexpected or Emergency expenses which we have not taken care of .. Its 96 lacs now ..

__

Me : OK, this is a better situation !! I would not say that this is the best Insurance Planning, but you have done a good planning and this is a much better situation than earlier. This is what a common person can do for himself and this should work.
Robert : Yup .. I accept .. I understood it now ..

__

Me : So Robert , Make sure you understand that Insurance is something which you need to take for your Family and it should be enough to make their life comfortable once you are gone, this extra 46 lacs of cover will cost you not more than 20k per year (10k for people around 28-29 yrs). If you are planning why not plan systematically and 100% , why mess it up.
Robert : Yup, Actually my Uncle told me that I should take around 10-12 times of my Yearly Income as my Insurance Cover, so I came with figure of 50 lacs

__

Me : F^&%#!^#(@^……….F#*(^$(*@^*$^@*(…….F*&#^&^$*#^$
Robert : Yes, you are right !! I understand it now.

Note : the assumption is that there are no assets, If there are Assets, then you need to deduct it from your Insurance cover.

Learning from This

So if you think you should have Rs X amount of Cover, Just ask yourself how is that amount going to take care of everything after you are gone and you will be surprised to know how wrong you were . This is specially for people who have those Endowment Policies stinking in their portfolio.

I ask them openly if they want to share with us How is that helping their Families if they are not there. Some Important learning are.

  • Covering your Dependents is P1 (software guys will understand this), P1 means some thing with Highest Priority, something for which you should stop all other tasks and make sure you fix that.
  • It does not cost a bomb if you fix this, Term Insurance is Cheap

That’s all ..

@Ganesh has a very good comment which completes the post with his awesome thoughts . please go through it ..

I don’t think any part of the example is incorrect or unnecessary. In fact, a thought process like this can open up someone’s mind completely, and arrive at a well adjudged decision on his/ her insurance needs. Kudos to you.

But having said that, drawing a line between one’s insurance needs and his means to cover premium expenses is critical as well.

Let us take Robert’s example. He has a salary of 4 lacks per Annam (33.5K per month). Expenses include 20K per month living expenses (excluding his own) and roughly 13.5K per month EMI (for 6 lakhs, at 12%, for 10 years) among many other.

So he is living way beyond his means already. How will he ever pay premiums for insurance? Beats me 🙂

But it is just an example, right? Characters like Robert, though rare, do exist. Before he starts with high insurance cover, he should start building assets or save/ invest for building assets.

So in my opinion, Robert should cover living expenses, loan liabilities and sufficient contingency to begin with and slowly increase his cover based on how his earning/ saving potential progress. It is unfortunate that he is in this position already, but that’s the truth.

So providing exclusive cover for children’s education and future home, though very important, is beyond what he can afford at present. (By the way, LIC’s Anmol Jeevan – a term plan – for a cover of 96 lakhs and 25 year term would cost 36.5K per Annam or around 3K per month)

Here is another view point (bit radical) on being heavily insured. The amount at stake is 96 lakhs in case of Robert’s death. It’s a scary thought, but in today’s world it might just be enough for greedy, evil minds to devise devilish ways to stake claim for the bumper jackpot (given his current earning potential).

To put it simple, the insurance amount should be sufficient enough for Robert to say “I care about you” to his dependents and not so much to hear “Hell with you” from them!

Comments are Welcome, If you read this and feel like you learnt some thing useful, you are obligated to put your Comments here ..

What to do with your Junk Insurance Policies?

Posted on by Jagoinvestor

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

Junk insurance policies

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

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

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

Top Reasons Why you hold some Endowment Policies

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

what is meant by making a policy Paid up?

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

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

What is Surrender value?

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

Read why Endowment Policy should be avoided

I have paid Premiums for less than 3 yrs

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

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

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

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

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

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

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

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Important Points

Point 1 # Paying 3rd Premium

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

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

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

Point 2# Getting Stuck

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

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

Point 3# Abandon those “Friendly Uncle” agent

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

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

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

Posted on by Jagoinvestor

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

UTI mahila unit scheme mutual fund

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

UTI Mahila Unit Scheme-G [Link]

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

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

Highlights of this Fund

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

Comparison with Nifty

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


Who should Invest in This Fund ?

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

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

Other Alternatives or Good Funds in Same Category

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

Disclaimer

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

Comments

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

Note : Wrote this article while travelling from Varanasi to Delhi

What do Friendship and Marriage teach us about Investing?

Posted on by Jagoinvestor

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

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

friendship and marriage

Friendship

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

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

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

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

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

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

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

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

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

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

Marriage

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

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

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

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

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

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

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

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

Comments

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

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