What is Nifty BeEs ?

Posted on January 16, 2009July 21, 2019 by Jagoinvestor

Nifty BeEs an Index based ETF, which tracks Nifty index . Nifty BeEs can be a important part of your portfolio.

One unit equals around 10% value of index , Means if Nifty is around 3000 , one unit of Nifty BeEs will be around 300 (can be less or more a bit also , depending on demand and supply)

Some Advantages of Nifty BeEs

Simplicity : It is very simple to invest in Nifty BeEs, You can buy and sell it easily on stock exchange from your demat account, treat it just like a share.

Economical : It has no load scheme. The annual expense ratio including management fees is a maximum of 0.80% of the Daily Average Net Assets, which is one of the lowest for any mutual fund scheme in India. The costs reduce further to 0.65%.

Liquidity : Any time you want money, you can sell your units in the markets.

No Human Error or Bias : The performance of Nifty Baes is simply the result of performance of shares in the S&P CNX Nifty Index and demand & supply in the market. There is no Fund manager bias. Hence there is no chances of Human error.

If you see the returns, it has consistently outperformed Nifty.

Annual Returns

	2008	2007	2006	2005	2004

Fund Return	-51.28	55.97	41.49	37.75	12.30

Rank In Category	7/22	4/22	10/22	8/20	8/18

Category Average	-51.78	49.97	39.13	37.22	10.16

S&P CNX Nifty	-51.79	54.77	39.83	36.34	10.68

Sensex	-52.45	47.15	46.70	42.33	13.08

What are the disadvantages of ETF?

As such, there are no disadvantages , but obviously there may be many mutual funds which may perform better than Nifty BeEs, It may be because of good decision or pure luck.

Who do ETF work?

See this article from Deepak Shenoy to know about this.

My view

Any one who wants to participate in long term growth and with less risk can divert some part of his cash in Nifty BeEs. It scores really high when it comes to convenience and returns over long term. Its easy to purchase. Just invest some small amount every month with discipline over long term.

Other ETF’s

There are many other ETF’s you can go for, they are

– ICICI Prudential SPIcE : Tracking NIFTY
– UTI Nifty Index : Tracking NIFTY
– PSU Bank BeES : Tracking Banking Stocks

ETF’s are the best way to invest in a sector, you can also go for sectoral funds , but these are ETF’s.

Secure Your Family , Risk Management Part 2

Posted on January 13, 2009July 21, 2019 by Jagoinvestor

Why do we invest ?

Answer : For ourself, for our Family, for there better future , for our kids , for there better life , for financial independence, at last the answer comes down to Our Family.

But, before investing, do we make sure that , do we secure our family at first place against any risk and problems which may arise. You can invest in great things, whatever it is like Mutual funds, ULIPS, direct shares, gold, blah blah blah …

Why Do We Invest

But what if some bad things happens to you and your family is left behind with no money at present, what is your wife, kids or your parents meet some accident and go to hospital. Is that more important or creating your wealth for future.

What is more important is to first concentrate on “Now” and if everything is taken care of, only then think about the future. How do you secure your family.

There are two things :

1. Life Insurance for yourself (assuming you are the bread winner)
2. Health Insurance for your entire family, especially if your have old parents, or going to become old in some years 🙂 .

1. Life Insurance : Read https://finance-and-investing.blogspot.com/2008/06/life-insurance-revisited-one-of-my-good.html for understanding it better .

2. Health Insurance : Read https://finance-and-investing.blogspot.com/2008/07/health-insurance-what-is-health-or.html

Let me talk about a case study .

– Robert is in his 30’s earning 5,00,000/Annam. He is married and has 2 kids .

Robert needs life insurance of around 50 lacs to secure him Family . also he should take a health cover of 4-5 lacs each .

He can take a term cover of 50 lacs for 6367 . He can also take Health Insurance of Rs 4 lacs each for him , his wife and his 2 kids (family floater plan) @Rs 5000 (Check click2insure.in for these quotes) .

Means , he can take both of these things at 21,000 / year . It comes out to be 4.2% of his yearly Income.

Now think , can you spend 5% of your yearly salary for safety and coverage of your Family ? I thing YES !!

Once you do this , you are free of any tension , and now you can use your 95% money to generate long term wealth for your family and there security . You can effectively use your 95% , only if you use your 5% for your risk management .

There can be many cases when you dont cover your family and things can go wrong, like

1. You invest heavily in Mutual funds or ULIP’s or what ever and in 2 years you die in an accident, what will happen then …

2. You invest your money in ELSS (tax saving mutual funds) for last 2 yrs and have life insurance also , but suddenly you wife meets an accident and you require 5 lacs for an operation , but you never took Health Insurance .

Investing your money is important, Covering your risks are Vital !!

Live in the moment, “now” is the truth … Keep you family happy with covering then and yourself now .

Some tips :

– Take a life cover ASAP if you have not taken it yet.

– Buy a family floater plan if your family has spouse and kids, for Parents you need to take a separate individual policy, as parents are not covered in Family floater plans.

– You can also claim tax benefit for this under section 80D.

– Don’t feel that life insurance from other companies (other than LIC) are very risky and anything like that . Insurance sector is now getting mature enough and govt is taking all measures to confirm that the companies which enter Insurance Industry are from great Business families and conform with the guidelines . But its true that LIC will always be the safest (100%) .. but 99.999% is also safe …

Summary

Its more important to cover your Life risk and family Health risks first before any investments for future , when you put your money in Insurance and Health Insurance you are already taking steps for strong invesments for future which is safety of your family , which is of supreme importance . Dont ignore it … Take appropriate cover .

Game of Trading , Risk Management Part 1

Posted on January 9, 2009July 21, 2019 by Jagoinvestor

Lets play a game, the name of the game is “Game of Trading”. I am stock market and you are investor. You have got 2 chances of investing you money, One time I will give you 200% return and other time I will give you -80%, or in reverse order, so it can either be

200%, -80%

-80%, 200%

You have to decide in advance that how much percentage of your total capital you will invest each time (invest capital) and how much you will keep safe money (safe capital), you have to decide for both the times in the start only.

Lets analyse different cases.

Case A : You choose invest capital as 100% first time and 20% for next chance

Case A.1 : Return was -80% first time and 200% next time.

Case A.2 : Return was 200% first time and -80% next time .

Case B : You choose invest capital as 20% first time and 100% for next chance

Case B.1 : Return was -80% first time and 200% next time.

Case B.2 : Return was 200% first time and -80% next time.

You can see that at last A.1 = B.2 and A.2 = B.1 , so it means that order of your invest capital ratio does not affect your result , it both the cases it can either become 28 or 252 (depending on the return order) …

What should you do?

100% and 20% choice will always loose in long run, if you play this game over and over again for long run, Understand that in this game, you can make it “high risk high return” Game or “Extremely no risk, low return game”, And your choice of your invest percentage will decide which game is it.

Characteristic of “High return High risk game” : Its possible to make great money in short term, but in long run you will loose.

Characteristic of “Low risk, low return game” : You will Not make great return in short term, but with compounding effect, you are bound to be a winner in long run.

Let see if we can choose a ratio (invest percentage) can give us some profit irrespective of the return order.

Lets choose 25% invest capital :

Case A.1 : Return was -80% first time and 200% next time.

Case A.2 : Return was 200% first time and -80% next time.

You can see that in any case your 100 becomes 120, which is 20% return.

What if you choose 80% invest capital : In that case at last you will have 93.6 (calculate yourself). So what should be the best percentage capital to deploy each time in this game.

I tried to make an Equation, with all variables

p = profit times (2 or 200/100)
l = loss times ( -.8 or -80%/100 )
C = Capital at the start
T = Trade factor (.25 means, 25% of the capital will be invested at any time)

We want to find optimum T, given any p and l (assuming that the trade will be done 2 times)

So, If you calculate the total capital after the 2 trades (do the math), you will get

Total capital = C (1 + pT) * (1 + lT)

So our original capital is getting multiplied by (1+pT)*(1+lT), and we have to maximize this number.

lets say I = (1+pT) * (1+lT)
I = 1 + plT^2 + pT + lT

If we do some differentiation here with respect to T (people who don’t know differentiation, just leave it), and put dI/dT = 0

2plT + p + l = 0
T = – (p + l) / 2pl

So the best valeuof T is -(p+l)/2pl ..

For our earlier example , p = 2 , l = -.8

we get – (2 – .8)/ (2 * 2 * -.8) = .375

Which means, 37.5% of capital will be invested everytime, and with that our capital will become 122.5 and that is the max you can make without risk.

What if return = 200% and -90% , in that case p = 2 , l = -.9 , so T = 2 – .9 / 2 * 2 * .9 = 1.1/3.6 = 11/36, means investing capital will be 30.555% always and that will give us max return.

What is the point i am trying to make?

In any given situation of making money, there may be a big risk of loosing it, we should always use these kind of tools and always be safe. Don’t try to be very bold in stock markets.

People who make killing in the start often get killed somewhere on the way and people who make respectable and sufficient money with satisfaction become winner over long term.

Summary

When you do Investment or do trading, you should never put all your capital into it, one bad trade or investment and you will be ruined forever, better to risk only that much capital which can not take out of of the game, but just hurts a bit.

Take small and risk-less profits if possible, Investing and trading is all game of probabilities. Use math’s and logic to take smart decisions like discussed in this article.

“There are old investors and there are bold investors, but not both”.

Check out this blog for Risk Management Part 2.

The Straw That Broke the Camel’s Back

Posted on January 7, 2009July 21, 2019 by Jagoinvestor

One of my friend is fond of shares and options trading , from a capital of Rs.50,000 , he grew it to Rs 2,00,000 , whereas I am almost at the same place from where I had started because I do some thing called “Risk Management” … Every time I take a trade or invest in anything . This is how I go about it .

– Either I don’t take the trade
– Or I take the trade, but work on risk management, I hedge it using PUTS or invest less in that.

Because of these two things I either miss big profits or make very small profits. managing risk involves cost and that’s the cost you have to pay for trying to be “safe”.

Last week we both purchased some thing which gave him 50% return, but gave me just 7-8% return over my investment. The reason was that I also hedged my position and tried to be “smart”, which my friend didn’t Acknowledge.

There are many incidents like this, because of which I always lag behind him when it comes to performance, and I am always ahead of him in being safe which never helped until now.

Jan 7 2008 :

10:30 AM :

Markets were a bit up and things looked good , He bought Satyam’s Calls with almost all of his capital, He has good intuition of which options may work and which may not, but I tried to convince him that buying a PUT on a lower strike price will save him in case he is wrong.

But to my expectation, he was “sure” that it would work, He put SL at 175 just to show me because of the fact that he knew it wont be touched at least today.

11:30-12:00 PM :

Satyam Fiasco news came in and within no time Share was down 30-40%, No surprise that even SL was not entertained … because prices never stopped .. everyone was just in a rush … With in some time Share plunged to 60-70, My friends calls were worthless and It doesn’t look that it will now move up from this point.

In short He is dead … He is out of this game now … He has 20,000 cash and all 1,70,000 or 1,80,000 he had put in calls are not even worth 4,000 – 5,000.

Price of Satyam 120 PA Jan 29

11:00 AM : Rs.1
2:30 PM : Rs.90

Return : 9,000% in 3 hrs.

What is the point I’m trying to make?

Everybody likes to make big profits and we should but not at the cost of risk of blowing up all our capital. Its not just related to Share markets or options. It also applies to Debt market, Mutual funds.

Do everything you can do to minimize or avoid the risk. Its very true that returns comes with risk. I am not saying “not to take risks”, i am talking about “managing risk”.

“Managing Risk” is the biggest measure you should take if you are in this field.

In some of the next posts we will try to see what are the different kind of “risk management” techniques and its importance.

Tax Exemptions Rules , Who is included and who is not

Posted on January 5, 2009March 5, 2020 by Jagoinvestor

Following is a chart showing the list of people for whom you can claim deductions for tax exemption. For example, if you pay the LIC Insurance premium, you can claim if the got premium paid for.

Yourself
Spouse
Children

For further details … see this table … Click to enlarge it.

To know about the tax slab and an example for calculating tax .. see : http://finance-and-investing.blogspot.com/2008/04/tax-information-for-2008.html

How to choose Mutual Funds for tax saving purpose

Posted on January 2, 2009March 5, 2020 by Jagoinvestor

95% of the salaried people are rushing to invest in tax saving (India). 5% of smart people have already done it (like me). The biggest rush I know must be still for LIC policies and PPF because very fewer people in India invest in Mutual funds still.

How to choose mutual funds

In my earlier posts, I have told which two mutual funds are the best candidate for investing now. They are SBI Magnum tax gain and Sundaram BNP Paribas Taxsaver

Both of these mutual funds are long term consistent performers and come from very respected and best AMC’s in India. Both of these have always been one of the best in the category.

But time changes, situation changes :), We can analyze some numbers and see what are the future prospects for these two mutual funds in comparison to each other. We will see on what basis we can conclude that. Please read the following conversation with my friend. It should give you some idea about how to choose mutual funds and why one could be possible is better than others.

Robert: Hey Manish, need some suggestion from you.

Manish: Hi Robert, what’s up … how is life these days?

Manish: How is a job going on?

Robert: Nothing yaar, I am just busy with my tax savings, have to submit the documents ASAP, so need to invest now, I am thinking of investing in an ELSS, Any suggestions?

Manish: Hmm… See, There are two good funds I think you can invest in, SBI Magnum tax gain and Sundaram BNP Paribas Taxsaver. These are the 5 star rated funds from valueresearchonline.com. You can consider those. But if you only want to invest in one ELSS, I would say go with Sundaram.

Robert: Hmm. Can you give me how you did this analysis and why are you saying that Sundaram looks better than SBI at this moment? I thought if a mutual fund has been long term consistent performer and our time horizon is more than 3-5 years, We can invest in any good funds.

Manish: That is true, I am not saying that SBI is bad and Sundaram is the best, we are trying to see why Sundaram is a better choice for now. We will see the numbers and some charts, and we can look that Sundaram is doing much better than SBI for quite some time.

That gives us a good estimation of which one is good for investing now. So, this requires some long-duration talk, I will have to tell you the details, are you ready?

Robert: ok

Manish: So, Let me first tell you that Since Inception returns for SBI has been 16.67% and for Sundaram its 19.35%, Which is highly respectful .. Let us also look at the following chart of NAV of both mutual funds for last 3 years.

Green: Sundaram
Red: SBI
Blue: Sensex

Manish: You can see that in the last 3 years, Sundaram has outperformed SBI Magnum and also was less volatile than SBI, when it comes to being consistent with Sensex. Also, we must see the last year charts of these two in isolation.

Manish: You can see that Sundaram has taken over SBI around Jun 2008 and has performed better than SBI. You must keep in mind that NAV and index values have been rebased to 100, for comparison purposes only.

Robert: Hmm.. that is fine, I understood that we have some charts which try to prove the point, But there must be other numbers also which favors Sundaram over SBI.

Manish: Yes, let me tell you some things which you can use for comparison purposes.

1. Sharpe Ratio:

Generally, people judge mutual funds performance by the returns only, whereas the better parameter is Return with respect to the risk taken. The Sharpe Ratio of a fund measures whether the returns that a fund delivered were commensurate with the kind of volatility it exhibited.

This ratio looks at both, returns and risk, and delivers a single measure that is proportional to the risk-adjusted returns.

So, the Sharpe ratio is noting but risk-adjusted returns, So the higher Sharpe Ratio is better. Currently, in the Mutual fund’s industry, Sundaram Tax saver and Canera Rebecco mutual funds have the highest Sharpe ratio of 15. SBI has 0.0.

2. Alpha Ratio:

This is a very important ratio in mutual funds. Alpha is a measure of an investment’s performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index.

The excess return of the investment relative to the return of the benchmark index is its alpha.

Simply stated, alpha is often considered to represent the value that a portfolio manager adds or subtracts from a fund portfolio’s return. A positive alpha of 1 means the fund has outperformed its benchmark index by 1%.

Correspondingly, a similar negative alpha would indicate an under-performance of 1%. For investors, the more positive an alpha is, the better it is.

Alpha for Sundaram: 3.35
Alpha for SBI Magnum: -1.18 !! (Bad)

3. R-Squared:

R-Squared is a statistical measure that represents the percentage of a fund portfolio’s or security’s movements that can be explained by movements in a benchmark index.

Higher the R-squared Value, closer the mutual fund to the index, what it means is that it will behave like Index funds up to that percentage, which means what if a mutual fund has r-square value of 100, its nothing but an index fund, then why to buy the mutual fund and pay high managing fees, A mutual fund should have a balance in R-square it should not be more than 90 and less than 80.

A mutual fund with less than 80 R-square shows that they have more tendency to be volatile and be close to the index benchmark. forbes.com says: Mutual fund investors should avoid actively managed funds with high R-squared ratios, which are generally criticized by analysts as being “closet” index funds.

In these cases, why pay the higher fees for so-called “professional management” when you can get the same or better results from an index fund.

R-squared for,
SBI Magnum: 94
Sundaram: 87

Sundaram Portfolio

[su_table responsive=”yes”]

Market Capitalization	% of Portfolio
Giant	56.17
Large	17.10
Mid	24.88
Small	1.85
Tiny	—

[/su_table]

SBI Magnum

[su_table responsive=”yes”]

Market Capitalization	% of Portfolio
Giant	46.07
Large	21.48
Mid	25.52
Small	6.91
Tiny	0.01

[/su_table]

If you compare the investments by Sundaram, it has a high concentration in Giant companies and has avoided investments in Small and Tiny Companies, which helps in avoiding Risk (also returns can be affected, but more important is managing risk).

Also in the future when Markets improve and start rising, front line stocks (big companies) will be the first to move up.

Robert: Any other small things to consider?

Manish: Other things you should see are

Expense Ratio (lower the better) : Sundaram : 2,.24 , SBI : 2.5
Market Turnover
PE Ratio: Lesser is better
PB Ratio: Lesser is better, SBI is better in this Market Capitalization There are many other,

Robert: That is fine, but I can see that SBI is ranked 1st when you consider 5 yrs return and Sundaram is 2nd, I saw it on Value research online site.

Manish: True, But did you see its 3 yr Rank also? Its 5th !! and did you see 1 yr rank: its 12th for SBI Where as Sundaram is 2nd in 5 yrs, 1st in 3 yrs and 2nd in 1 yrs return category, which gives an indication that Sundaram is taking over as one of the best funds available over SBI slowly.

Robert: Hmm.. that makes sense, Great !! I would really consider these points, this helped a lot. Manish: My Pleasure !! But please understand that there is no guarantee that Sundaram will outperform SBI next year or from now on. There is just a high possibility for it, because of our analysis.

Question: Guys (and gals) … Do you know who is Robert and Manish 🙂 Ans: Both are Me … :), I just created this talk to present the article and learning in a different way and to make it practical and enjoyable .. I hope you all liked it.

Note: Please note that the views and analysis are personal, there may be some error, if someone finds any please, let me know. I will correct it. But I am sure there is no mistake or error in data.

Source: valueresearchonline.com and forbes.com

Financial Resolutions for 2009

Posted on December 31, 2008March 5, 2020 by Jagoinvestor

Hi Friends, Happy New Year to all of you. As this new year is coming, Let us discuss some things, they are:

1. Financial Resolutions for 2009
2. The outlook of Asset Classes in 2009 and onwards.

Financial resolution

Financial Resolutions for 2009

Let us all make sure that we will do better than the previous year and make some changes.

#1. Adopt the attitude of Expenses = Salary – Savings instead of Savings = Salary – Expenses

#2. Learn more and more about investing to at least up to a level, where I can take my decisions without any help of others and also be able to help someone else.

#3. Learn all the basic taxation rules and investing rules.

#4. Not take decisions whose Risk/reward ratio does not suit me, even if there is no risk in some investment, its return should at least match your goals.

Person 1: Person not investing his money in any thing (just putting it in the bank) and having a desire of getting a 15% return and risk appetite of the same.

Person 2: Another person investing in Equity for a return of 50% in a year, but he actually requires and can be fine with a 15% return.

Both the people here are wrong and are not doing correctly. They must invest in a way that satisfies both there return/risk ratio.

#5. Will not get trapped in useless products just because someone else thinks so, we will do our own analysis, take suggestions from reliable sources and people with knowledge and only then invest our hard-earned money.

Outlook and suggestions for Asset classes in 2009

Let us see some asset classes and let’s have a quick view of it.

#1. Mutual Funds: The situation now is little under control, with a downward bias for the first quarter, but things should be good by the year-end and then we can see a good rally there after. Better to invest though SIP only.

#2. Direct Equity (shares): Make sure you buy shares only if you have long term view and do not want to speculate for short term .. You can buy some very good shares now and hold it for the next 5-20 yrs, and I am sure they will return fortune. The best time after 2003 is NOW !! But better buy on dips …

If you want to invest 100, make sure you break it in 3-4 parts and invest on dips … its like following SIP on our own. Metals (safe) and Real estate (little risky for short term) can be a good bet for long term investments.

#3. Real Estate: No comments … There are still chances of further correction … But people who do not want to buy it for investment can still invest if it suits there requirement and budget.

#4. Bank FD’s: People looking for short term investments like 6 months – 1.5 yrs can put their money in FD’s… The interest rates offered are good and with inflation coming down, it will be a fair investment.

#5. Derivatives (Futures and Options): There are many people who are now trying these instruments, do not understand the risk associated, Please understand very clearly that these are Atom bombs in the Finance field … You can either kill yourself with it or make a Killing out of it …

If you want to do it .. better learn about it .. prepare heavily and only then enter .. Else defeat is almost certain. Some of the biggest financial companies have gone bankrupt over night because of derivatives.

See:

The use of derivatives can result in large losses due to the use of leverage, or borrowing. Derivatives allow investors to earn large returns from small movements in the underlying asset’s price. However, investors could lose large amounts if the price of the underlying moves against them significantly.

There have been several instances of massive losses in derivative markets, such as:

The need to recapitalize insurer American International Group (AIG) with $85 billion of debt provided by the US federal government[4]. An AIG subsidiary had lost more than $18 billion over the preceding three quarters on Credit Default Swaps (CDS) it had written.^[5] It was reported that the recapitalization was necessary because further losses were foreseeable over the next few quarters.
The loss of $7.2 Billion by Société Générale in January 2008 through misuse of futures contracts.
The loss of US$6.4 billion in the failed fund Amaranth Advisors, which was long natural gas in September 2006 when the price plummeted.
The loss of US$4.6 billion in the failed fund Long-Term Capital Management in 1998.
The bankruptcy of Orange County, CA in 1994, the largest municipal bankruptcy in U.S. history. On December 6, 1994, Orange County declared Chapter 9 bankruptcy, from which it emerged in June 1995. The county lost about $1.6 billion through derivatives trading. Orange County was neither bankrupt nor insolvent at the time; however, because of the strategy, the county employed it was unable to generate the cash flows needed to maintain services. Orange County is a good example of what happens when derivatives are used incorrectly and positions liquidated in an unplanned manner; had they not liquidated they would not have lost any money as their positions rebounded.^{[citation needed]} Potentially problematic use of interest-rate derivatives by US municipalities has continued in recent years. See, for example:^[6]
The Nick Leeson affair in 1994

Also See: https://en.wikipedia.org/wiki/List_of_trading_losses

#6. Gold: Gold has lost its shine a bit now and can not be considered the best investment you can make … Still a small part can be in a portfolio, but not more than 5%.

#7. Debt Mutual Funds: People can invest in these debt funds also if their investment horizon is less than 1 yrs (invest for short term goals).

#8. Insurance: Any one who has still not taken insurance and still finds that he/she needs to take it .. please take is ASAP. There should not be any delay in taking Life Insurance ever.

Some Notes on Inflation:

Inflation may go down below 0% in 2009, because of speedy fall in commodity and crude prices.

Source: https://www.zeenews.com/nation/2008-12-28/494368news.html

Economy and Job Losses:

India may see some effect of job losses and slow down in 2009 … Corporate results are expected to be devastating in the first and second quarters of 2009 at least … But still, India is among the top growing economies in the world. So we must not concentrate on the short term. India’s future is Great and unquestionable.

Summary: 2009 will be a good year, it is an excellent year and we will not do mistakes if we have done in 2008 and before. we will learn more and use our money in a better way from now onwards.

Jeevan Astha .. Another idiotic product

Posted on December 29, 2008March 5, 2020 by Jagoinvestor

LIC has introduced another Product called “Jeevan Astha” …

http://licindia.com/endowment_008_benefits.htm

Let me take one by one each line and do some analysis and raise some questions.

A)Death Benefit:

On death during the first policy year: Basic Sum Assured with Guaranteed Addition.

On death during the policy term after the first policy year, excluding last policy year: 1/3rd of Basic Sum Assured with Guaranteed Addition.

On death during last policy year: 1/3rd of Basic Sum Assured with Guaranteed Addition along with loyalty addition, if any

Some points here to consider:- Your risk cover will be 6 times your investment and just 2 times for the rest of the duration + some loyalty addition if any. So, in a nutshell, it as good as saying your Cover is just 2 times your premium …

– What does it mean? you will get double our initial investments if you die after the first year.

This is the case when you die …

B)Maturity Benefit:
On maturity, the Maturity Sum Assured along with Guaranteed Addition and Loyalty Addition, if any, shall be payable.
Maturity Sum Assured shall be 1/6th of Basic Sum Assured.

– Means, if your premium is Rs 1,00,000, then Basic Sum assured is Rs 6,00,000 and hence, Maturity Sum Assured is Rs 1,00,000

C)Guaranteed Addition:
The policy provides for Guaranteed Addition at the following rates:

Rs. 100 per thousand Maturity Sum Assured per year for a policy of 10 years term.
Rs. 90 per thousand Maturity Sum Assured per year for a policy of 5 years term.

– Means, if your premium is 1,00,000, then your Guaranteed Addition is Rs 10000 (10 yrs) … Means, You will get Rs 1,00,000 as Guaranteed Addition in 10 yrs .. and along with your original capital, you will get back Rs 2,00,000 back after 10 yrs.

D)Loyalty Addition:
Depending upon the Corporation’s experience the policy will be eligible for Loyalty Addition on death during the last policy year or on the Life Assured surviving the stipulated date of maturity at such rate and on such terms as may be declared by the Corporation

This may or may not be there.

Now, let’s take a real like example.

Ajay takes a 6 lacs policy over a 10-year term.

Jeevan Aastha Premium = 96,960
The amount he would get if he dies in the first year: 6,00,000
Amount on Maturity : 97000 + (10*10000) = 197000 (loyalty bonus is not assured , so not adding it)

from what angle do you think this policy makes sense. You are maximum doubling your money in 10 yrs and nothing else. And the best time to die after taking the policy is the first year itself .. then you can get a little benefit (but still at a big cost).

I don’t understand why people complicate things .. LIC plans to collect Rs 25,000 Crores from this policy, and I am sure they will succeed. Because there are many people in our country, who don’t understand the effects of Inflation, compounding and get confused with all those confusing statements.

Now if you are a regular reader of this blog .. then you should be able to utilize Rs 97,000 to generate better returns than Jeevan Astha.

Let us do this …

1. Insurance for the cover of 6 lacs, not just for the first year but for all 10 years .. Simple: Take a term Insurance of Rs 6 lacs for 10 yrs, it’s around Rs 9840 (single premium, SBI life insurance for a 26 yr old ) …

2. After this, you are left with around 88,000, which you should invest in Equity Diversified mutual funds either one time or through SIP for 10 yrs … Even if we take a 10% return. It would be 2,28,000.

When it comes to Investing, just Keep it Simple, Stupid (K.I.S.S) … 🙂

UPDATE (28 AN 2009 ): Shyam Pattabi (writes for HINDU) also shares his similar thoughts on this product at http://www.shyamscolumn.com/2009/01/guaranteed-return-schemeanyone.html ( i am glad I made correct analysis)

Update (Jan 19, 2008): On NDTV Profit, Monika Halan has given comments that “Jeevan Astha” should be the last product you should look for and only if you have cash to put nowhere, They have given “Don’t Buy” rating to this product and they also said that this product has lots of hype got created. Monika Halan is Editor of “Outlook Money” and One of the most mature and best personal Finance advisor I can think of.

Disclaimer: The above analysis is based on my study and should not be taken as investment advice or discouragement from advice, use your own analysis to take your decisions. I will not be responsible for your investment decisions.

Happy Investing
Manish

Exceptional Returns from GILT FUNDS

Posted on December 24, 2008July 21, 2019 by Jagoinvestor

During the last 5-6 months GILT funds have given returns like Equity funds … Something around 20-40% in last 5-6 months … And they are almost safe on downside … Lets see more on this

Read : 5 mistakes of my first trade

What are GILT Funds ?

A mutual fund that invests in several different types of medium and long-term government securities in addition to top quality corporate debt.

To have a look at different GILT Funds see :
http://www.moneycontrol.com/india/mutualfunds/gainerloser/17/15/snapshot/dlong/ab

Risks factors

Gilt funds have different kind of risks associated with it .. Once of them is interest rate risk … There returns are inversely proportional to the interest
rates and the reason for the exploding returns given by most of these
GILT funds or other Debt funds are the result of “interest risk drop in
last 6 months because of the measures taken by RBI” .

However, there are some negatives too to these funds. Bond yields carry
a higher credit risk than G-Secs and in bad times ratings can go for a
toss. Some retail investors don’t understand ratings and are also not
aware of which corporate debt these investments are made in to.

Read about “Why you need Contingency Funds”

In the link http://www.moneycontrol.com/india/mutualfunds/gainerloser/18/03/snapshot/op1/ab/option/dlong/sort/yr1
, If you see the 6 months returns and 1 year returns , they are 41.2%
and 41.8% , Think about what was the return during the 6 months period
before 6 months (Dec 07 – May 08) .. The last 6 months have been
exceptional for our Economy because of drastic decrease in interest
rates in short period of time . This happens rarely .

To get a good idea of actual performance of these funds , you should see
long term returns like 5 yrs returns or Since Inception returns .

Now if you see http://www.moneycontrol.com/india/mutualfunds/gainerloser/18/09/snapshot/op1/an/option/dlong/sort/yr1for annualized returns , No fund has crossed 12% returns CAGR , and most
of the top funds are in range of 7-8% Except the out performers with 10.3
and 12.4% .

http://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=1921 Shows the snap shot of a fund from the list .. you can clearly see that
the risk Grade is HIGH for this fund , because of the risk associated
with interest rates . (try to click on Portfolio part and see risk
return chart) .

The accepted return from these funds are in range of 7-10% , and they
are better for Liquidity and Tax benefit parameters (just 10% for GROWTH
and 14% for DIVIDEND option) .

8 important ratios to look at before buying shares for long term

What you should do now ? Should you invest in Them ?

Don’t get fooled by the past returns for these Funds , because now there
is no charm left in these funds now . They were excellent funds before 6
months and those who anticipated the interest rates drop made most of it
. So next time where you anticipate there is going to be fall in
interest rates , then you can consider these funds for your DEBT part of
portfolio … These are still good funds if you don’t believe in Equity
investment in these troubled times, but from my side “Equity Investments
are best as of now ” considering your time frame is 4+ years .

Summary

GILT funds are mainly DEBT products , the normal long term returns expected should not be more than 8-10% on average … But still short term opportunities exists when drop in interest rates are expected …

To read more articles : Go to the blog directory (Click Here)

4 reasons why creating an emergency fund should be a top priority for every investor?

Posted on December 22, 2008July 21, 2019 by Jagoinvestor

Planning your financial life does not mean planning for your long term financial needs only, It will be incomplete unless you keep an emergency fund for the unexpected emergency situations.

In this article i will tell you why it is important to keep emergency fund and how much of this fund you should keep aside.

emergency-fund-importance

What is Emergency fund?

Emergency fund is the money that you should keep aside, so that you can use it in case you meet up with some sudden financial surprises, for example –

Unexpected medical expenses
Job loss
Vehicle repair or home decor
Helping someone close in his need
Unplanned traveling or entertainment expenses
Any financial crisis etc.

Emergency funds are not to satisfy the daily expenses and basic needs, it is a support that you will have when you really need it in your hard time.

Why is is essential to have an emergency fund?

Having an emergency corpus must be the priority for everyone while planning for a great financial life. Let’s see some of the impacts of having emergency fund on your personal and financial life.

1. Helps you to keep your stress level low

When your know that you have an emergency fund, you can live a stress-free and relaxed life. Because you know that you have a backup plan and so if any emergency pop-ups you are already ready to face it.

2. No need to take an emergency loan

Taking a loan or asking for money in your hard time can sometime hurts your pride. Having an Emergency fund will be helpful not only to solve the problem but it also protects your self-esteem.

3. Don’t have to redeem from your future savings

Your savings are related to some very important future goals of yours. Contingency fund will help you to protect those dreams of yours by satisfying your today’s emergency need.

4. No need to cut your essential expenses –

It happens with most of the people, they have to sacrifice their expenses though they are important, to collect money for their unplanned or emergency expenses. Having an emergency will be a helpful hand in those difficult times of yours.

Why it makes sense to have an Emergency fund?

With the global slowdown, there are many cases of unexpected job losses in the field of Finance, IT, Manufacturing and many others. You never know when you will be without job.

Lets take two scenario when you loose your job and you either had Contingency funds and you did not, Let us see what happens in these two cases.

Case 1: You do not have contingency Funds: Put yourself in this Situation, Close your eyes and try to think about this situation, How do you feel?

Your Family depends on you, all your family expenses are met with you salary, now you loose your job!! What if you don’t find another job soon? In this situation you have a heavy pressure on you to anyhow find a new job as soon as possible, You need a JOB !! and not a “good” or “appropriate” or “Dream” JOB.

If you find a job, but you don’t like it or wanted to do it .. still you will have to take it because of the pressure of “finding a JOB because of others depending on you” …

You compromise on Salary, Company and your wishes. Why does this happen? This happens because you cant wait, because you don’t have the to survive of another 1-2-3 months. You know that you can wait a little more and find a good job suitable for you, but you cant wait.

Case 2: You have Sufficient Contingency Funds: This case is just the opposite of what we discussed above. When you have sufficient CF, you have a relief in mind that you have sufficient time to find a good job without compromising your family needs.

You don’t feel the pressure to get the job ASAP. Though you have to find a good job soon, its not necessary that you take any shitty job which comes your way …

See this Video too …

How to start saving for Emergency fund?

1. Pre-decide your monthly expenses –

Plan your monthly expenses. Try to control your expenses as much as possible, so that you can save money to invest in your emergency fund. Today’s unnecessary expenses can have a bad impact on your savings for your contingency fund.

2. Set an auto deduction towards emergency fund –

When you set an auto-deduction for your emergency fund at the start of the month, you will not have any regret at the end of the month for not saving anything for your unexpected emergencies.

3. Don’t touch the emergency fund for quick needs or smaller crisis –

Lot of people do this mistake, they use their emergency corpus for the some very small emergencies which they can handle with their routine expenses also. You should criticize the situation and

4. Save for emergency before investing in long term goals –

You long term investments are related to your specific goals. So it is obvious that you have as emotional attachment with those investment and you don’t want to touch that money for any other purpose. If you have an emergency fund, then you don’t need to use the money you have invested for your future dreams.

Besides, some long term investment have lock-in period, so if you want to redeem your money before completing the maturity time period, you will have to pay some penalty charge.

Where to have Contingency funds?

As per the name, it can be seen that this amount is required at the time of unforeseen situation which can happen anytime,so it must be parked at some liquid avenue like Bank account or Liquid funds.

If you are keeping 4 months of funds as CF, then you can keep 1 month money in Cash and rest 3 months money in Liquid funds.

Summary: Contingency Funds are the part of Risk management. And risk management is something no one should avoid. People realize its importance only when they plan for it and get trapped in a situation which demands Contingency funds. ..

So now its your turn. Plan for it, be ready for unplanned emergency, and secure your future.

What do you feel after reading this article? Do you agree with this?

do let us know what do you think about the concept of emergency fund and also your view on this article in our comment section.

Author: Jagoinvestor