Many people have been sold LIC policies without making them understand what is that policy and how is that structured for you.
I have recently been informed by one reader how an LIC agent sold her a policy claiming it to be “a great opportunity” and gave her wrong information about the policy and the actual thing was totally different, which she discovered from another LIC agent years after.
Now the situation is a total mess. [Written in Train, Posted from Home]
Mis-selling from an LIC agent
Hello manish..
I have been taken for a ride by a cheating “char so bees” LIC agent. Please help me. In 2006 I got married and moved in with my husband to a very remote mountainous region. Soon we had a Lic agent pestering my husband about taking a ” good” life insurance.
I had read in a Readers Digest issue about term insurance and asked the agent about the same. But that shameless fellow said that such a thing was not available in LIC.
Since he was the most “renowned” agent, I trusted him and took the next best thing he offered – a 22 year 16 lakh money back policy Jeevan Anurag in which I would have to pay Rs1.21 lakh per annum for 7 years after which we would start getting money back( Rs80,000 in the 7th, 8th, 9th, 11th, 12th, 13th, 15th, 16th, 17th, 19th, 20th, 21st year and 3, 4, 5, 9 lakhs in the 10th,14th,18th,22nd year).
He also said that our as our policy got older we would have to pay less premium. I did’nt quite understand when he gave us 4 policy papers and questioned him about it on two occassions. But he asked us to trust him and ” reap the benifts of this incredible policy”.
I had my doubts but I was naive and did not want any trouble. 2 months back we got transferred to a more” civilised” town and soon we had a new LIC agent knocking our door. As we talked about my previous policy this new agent said that he has never heard of such a policy and asked to see the papers.
I was dumbfounded when the agent told me that I dont have a 16 year policy but 4 different policies of 4 lakhs each for 10,14,18 and 22 years of which the premiums are Rs 46032, Rs31842,Rs 24355, Rs19357.
Jeevan Anurag provides the following assured benefit-“..an amount= 20% of of basic SA at the start of the year during the last 3 years before maturity shall be payable . At maturity balance 40% of basic SA+bonus…”.
That cunning man had arranged the policies in such a way that when one reached maturity the other just stared paying up. I feel so stupid for having been duped. I have already paid 4 premiums(4.9 lakhs)…
now I am in such a state of confusion that I dont know what to do next. Should I discontinue or should I continue ???
I see a lot of sense in what you say and I would really like to invest into some of your ideas but my money is stuck and I dont know where to go from here..Where I live the only financial advisor available is the LIC agent and I dont trust a word he says so please show me a way out.. I really need your help.
And is there a way I can get back at that sleazy agent? Help?? please..
I can see that you are mis-sold the policy , The returns which you mentioned to me also looks little cooked up , please check the numbers once again , if needed involve that new LIC agent to find out what is the exact money you are going to get back in different years .
If you have 4 lacs policy for 10, 14, 18 and 22 years, then that 80k figure is correct. but looks like the 3,4,5,9 lacs thing little cooked up . you should be actually getting 1.6 lacs + Sum assured in each 10th, 14th, 18th and 22nd year.
Looks like this has overestimated the sum assured part and made it 3,4,5 and 9 lacs, This might happen but the probability for that is close to 0. Ask the new LIC agent to estimate how much is it…
My estimate is not more than 2.5 lacs in each 10th, 14th, 18th and 22nd year. max 3 lacs… Apart from this the premium of 1.21 lacs is to be paid upto 7 yrs, that is true, but after that, only the first premium will stop, the other 3 will continue and then 2nd will stop in 10th yrs .. and so on.
Truly speaking, I am more mad on you guys than that LIC agent
Regarding tracking down that LIC agent , you might have phone or address or some sort of contact . If not , Contact LIC and find out your LIC agent name and agent number or something . File a complaint with LIC on this matter and once its not taken care within 2 months, file a compaints with IRDA on this .
Take this matter to consumer court . I am giving all these suggestions but not sure if this will be of too much help , because you guys have signed the document which says “I hereby understand and agree with Policy Document and am responsible for all the invesment decision” , Hence I am raising my hand to help you but fingers are crossed .
Apologies if I my words sound little rude , but I am an emotional person .
Comments
What do you think about this issue, Do you know how to track that agent again, Anyone can help this person? Contact me…
Here are a set of 5 questions and answers asked to me on “Ask a question section”. These questions are on the topics on ULIPs, General Investing and Achieving Financial Goals, Stocks. You can also look at other Questions and sections part here at Part 1, Part 2, Part 3 and Part 4
Question 1# [Stocks] – by Ramesh Rao
sir, I bought rei agro ltd at Rs.48/- for short term of 1 week or 10 days.
I am observing it for the last week its not moving much higher than the price i bought. so what should I do, please guide me, shall I wait for a week.
Answer
I do not give recommendation about stocks as I mentioned in the form itself. Anyways its too late now for me to reply, but I will give you basic advice, I can see that you dont have a strategy in place for trading, thats very dangerous in long term.
Please understand one thing very clearly, Random trading will never make you money in long term, its just a blind gambling. So learn Technical analysis basic, Master the psychological issues involved in Trading. Once you make money in Paper trading for 3 months ,then move to real trading, there is study and experience both behind my advice.
Question 2# [ULIP] – by Vivek Kumar
I am looking to invest around 6 lacs in next 3 to 4 yrs period with a view to get a return of more than or equal to 15 lacs in next 10 years. Considering the recovery mode of market what should i go for, I have come across this plan called TATA AIG Invest Assure Apex, should i go for this ulip or something better u all cud recommend…! cons
Answer
Expecting 6 lacs to become 15 lacs in 10 yrs is very realistic and acheivable target, Here is the plan
– Invest 12,500 per month for 4 yrs (total 6,00,000) in Mutual funds through SIP. Take 3 different Mutual funds.
Assuming a return of 12% (1% per month) over 10 yrs, which is like very much possible, you will have 15.8 lacs in 10 yrs.
– totally in Equity diversified Mutual funds,
– Mix of Equtiy Diversified + Balanced Funds
– Mix of Equity funds + Some Debt funds
– what ever else you can make yourself (be creative)
I don’t like to take plans from companies because thats like giving away all the fun in other hands then, Dont hesitate to excute your investment plan as I suggested, Its too easy to execute and does take much time and you get to learn seomthing out of it.
Question 3# [Making Long-term corpus] – by Aakaash Nair
Your blogs are excellent coming from someone of your age. Kudos to you. I can save about 60K per month and would like to have that multiply to about 2 Crores in the shortest possible realistic time. What would be the best way to achieve this, apart from Gambling of course 🙂
Answer
Thanks for the appreciation, Regarding your Query .. The best way to find the answer of shortest possible time is to find out what is the realistic rate of return you can expect over some tenure. I would say that over a long term you can expect 12% and it can go upto 15-20%, but let’s be conservative and expect 12% only.
So if its 12%, then it’s pretty simple equation where we have to find the tenure which generates 2 crores from 60k per month
With simple maths, we can see that 156 months (13 yrs ) is a good time frame to achieve this. It might be achieved early also, but let’s be conservative in this as the amount invested per month is high and there can be changes of slumps in between which can affect psychologically.
I would recommend this
– Utilize PPF for this as it will take a small part of your investment. (70K per year)
– Put a small portion in DIrect Equity after doing some research on stocks and give them time to grow (monitor them every year)
– Start a SIP in 2 good Sectoral Funds (10% amount)
– Start a SIP in 5-6 different good Equity diversified Mutual funds.
– Rebalance your Portfolio every year as per your asset allocation (let’s have 80:20 or 75:25)
The above mix is quite good in Risk appetite. which I assume is fine.
Question 4# [Stock Trading] – by Shubhankar
Hi, I am very much thankful to whatever information u have provided. I trade in options and its intraday or 3 to 4 days positional. So can you please suggest what time frame I will select to get the right moves -for example today is 28th August.. .
Now what time frame I will choose fr Nifty/Stock PE for September series so that I can capture either side of nifty/stock movement.
Answer
You have asked very innocent question, The answer is, that right moves are in every time frame, its you who have to configure yourself for some condition and time frame and startegy, there are people who make money in every kind of time frame,
You have a great site. I must congratulate you first for your efforts!
Frankly, your articles have been eyeopeners for me, and I’m now in a fix, about what to do with my existing insurance/ulip policies.
I have the following policies:
1. Birla Sunlife Dream plan:
Premium = Rs. 50700 p.a.
Sum assured – Rs. 1908000
Coverage period = 20 years
Start date – 27/07/2009 (have paid 1 premium so far)
2. LIC Profit Plus (T.No. 14)
Premium = Rs. 20000 p.a.
Sum assured – Rs. 200000
Coverage period = 20 years (premium paying term is 5 years)
Start date – 18/12/2007 (have paid 2 premiums so far)
3. LIC Endowment Assurance Policy
Premium = Rs. 27540
Sum assured = Rs. 600000
Coverage period = 21 years
Start date = 28/09/2008 (have paid 2 premiums so far)
4. MNYL Life Maker Premium ULIP
Premium = Rs. 20000 every six months
Sum assured = Rs. 400000
Coverage period = 10 years (premium payment term is 5 years)
Start date = 07/09/2008 (have paid 2 premiums so far)
And, my wife has the following policies:
1. LIC’s Money Plus (T.No. 180)
Premium = Rs. 100000 (single premium)
Sum assured = Rs. 500000
Coverage period = 20 years
Start date = 06/02/2007
2. ICICI Prudential LifeStage RP
Premium = Rs. 100000 p.a.
Sum assured = Rs. 500000
Coverage period = 10 years
Start date: 08/02/2008 (have paid 2 premiums so far)
After going through your articles, I’ve realized that I’m wasting my money by investing in these policies. How can I exit out of these policies? When should I do it? And, where should I invest my money instead both from investment & tax-saving POVs?
My age is 27 yrs, and my wife’s age is 25. We both work in the IT sector. And, we would love to buy a house/apartment in 5-10 years frame. What can be the best financial plan for us?
Any kind of advise would be helpful. Thanks for your help.
Answer
OK , lets take it easy .. Manpreet , your Finances are not in great shape .
You people are paying 2.37 lacs per year as premium (excluding single premium) for your Investment Planning , please dont tell me you still think its a Insurance Policies 🙂 .
WIth this kind of Premium every year , you Insurance is still a tiny 41 lacs which seems to be a small coverage for you guys . I can smell around 1 crore Insurance requirement for you people (assuming no assets) .
Your Insurnace Requirement can be met with a small premium of 23-24k per annum for 30 yrs tenure . You will be left with 2 lacs every year in that case to invest somewhere else ..
Using PPF + SIP in Mutual funds and may be some Pension products , you can generate atleast 12% return which is totally possible , you can generate close to 3 crores in next 25 yrs .
Regarding getting out of your Policies now , I can see that you have paid 1 or 2 premiums in most of them .. this is a very critical situation , which can not be handled easily now .. I would recommend still pay for polices you have to and once they recieve surrender value after minimum lock in period, then take them out and make your Investments more easy and simple .. for now .. make sure you take Term Insurance for another 60 lacs .. for a penny amount of 13-14k per annum ..
The current situation is too messy and complicated , I would not day BAD , but messy . Its not simple .. too much clutter there . You need a simple Term Plan for you and your Wife , Two PPF accounts (you and your Wife) , a bunch of mutual funds linked to your Financial goals , A family Floater Plan and may be 1-2 FD’s .. thats it ..
Some ULIPS you have might be goodone and can be used for some investment , but still they wont be the best thing .. This the all advice i have with the given situation . You might want your Financial planning to be done professionally , because there might be small small issues and one time restructuring for long term is required I guess . take your call ..
And one more thing , I almost forgot .. How are you claiming for tax deduction with so much of premium? Tax planning is also not up to the mark .
Apologies if I scared you , but thats my 100% real reaction .. I cant lie 🙂
“Invest in Equity for Long term” You might have heard this sentence from me and others numerous number of times, but have you ever thought, why I say so? Or what is the logic behind that? What is the authenticity of what I say? Why should you believe me?
Hence, I came up with the most time consuming article of this blog till date. Lets explore the world of Equity today and I will show you some amazing numbers and graphs which will change your perception about Equity.
To make this article Crisp and short, I will show you 4 charts and explain each of them that will show you Power of Equity. Mainly the idea of this post is to show you the return potential of Equity in Different time frames and to find out what is the kind of return we should expect from equity in Long run like 15-20-25 yrs.
For the sake of calculations and source of reference, for almost all of the article I have used value of Sensex Index, but it should be almost similar for any Index Fund, ETF, or a Equity Diversified Mutual fund.
All the below study is based on historical 30 yrs of Sensex data from the year 1979.
1#Sensex Return Chart
Sensex has returns close to 18% CAGR in the long term till date for One time investment and SIP investment.
This chart shows you the CAGR (Compounded Annual Growth Rate) return of Equity after each passing Month. I have manually noted down the Index value for each month starting from Mar 1979 – Sept 2009 (total 350 months approx) and then did some number crunching (actually a lot) and came up with the CAGR returns the index has given for that time frame.
For example: for the month 36, the Index value was 218.82 and my starting Index value was 122.23 (Sensexactually started from 100, but I had a little late data). So the actual return was 23.16% for SIP investment and 20.78% return for one time investment.
So this chart shows that if you had Invested your money in the start and then hold it for a particular time frame then what will be your CAGR return till that point.
The chart shows the return for two kinds of Investment modes: SIP and One time investment. So Blue line shows the CAGR return if you did SIP investment and the RED one shows the CAGR return if you had invested in Start and sold after ‘n’ number of months.
In the Short term, returns have Wild Swings which is the basic nature of Equity
In the long run, returns were in the range to 18-23%, where it goes up and down because of Bull and Bear markets. See Nifty PE Analysis
SIP performed better than One time for starting 4-5 yrs and then SIP and One time investment were close enough.
2# Nifty Return Chart
Nifty has given returns close to 18% for SIP investment and close to 12% in 12 yrs from 1997-2009 .
This one is similar to the above chart just that it is for Nifty 12 yrs data. This chart shows you the CAGR return of Nifty after each passing Month. I noted down the Index value for each month starting from 1979 – 2009 (total 146 months approx) and came up with the CAGR return the index has returned up to that point.
For example: for month 120, the actual return was 23.33% for SIP investment and 13.17% return for One Time investment. So this chart shows that if you invested your money in the start and then hold it for that particular time frame then what will be your CAGR return till that point?
You can clearly see that the returns kept increasing with Tenure and there were less wild swings up and down with Returns.
SIP performed better than One time Investment in all the time frames. See that blue line was always higher than Red one for any given month.
Do you like the articles on this blog, Fill Fan book
3# Absolute Average Return for Each month (Sensex Data)
This shows you how much of absolute average return in percentage terms would you get if you hold your investment for X months.
This is an interesting Chart. It shows how much of absolute return can you expect when you hold your Equity investments for 1 month, 5 months, 50 months or 200 months. I will tell you how each duration is calculated.
Let’s say duration is 12 months, so what I did was that I took all the 12 months time periods like Apr 1979-Apr-1980, Mar 1979-Mar-1980, June-1979-June-1980 and like this the last 12 months time duration Sept-2008-Sept-2009, total of 113 different values, then calculated the Returns for each time frame and calculated the average of those 113 time frames.
I finally got average returns of 12 months Investment horizon (total 113 values for 1-13, 2-14, 3-15 month Index value). So I got a single value of 25.60% for 12 month time frame. This is absolute Return and not CAGR return.
So, if I invest 100, I get 125.60 as return.
Please make sure that you understand that this 25.60% is the simple average of 113 values, there might be many values which may be negative, 0, or may be 100%. But we are more interested in what is the average of all such values.
In the same way the Absolute Average return for 120 months was 672.60%, which means that 100 invested would have become 772.60 in 5 yrs. Please understand that we are just trying to show this as the time frame increase the return potential of equity goes up and up.
Don’t interpret it as the return guarantee for any time frame. It’s Equity, Respect it else it will punish you badly for your Ignorance.
4# Number of Times the return from investment was Positive for some time Frame (Sensex Data)
This graph shows that how many times an investment has returned positive for some particular time frame, for example for 4 yrs time frame (48 months). There would be many 48 months time frame like Mar-1979-Mar-1983 OR Jan-1994-Jan-1998 or any other date, out of all those 48 month time period, the investment gave positive returns for 87.36% times.
So this graph shows how the number of times went up and up as the time duration was more and more. For a particular time frame like 50 months, I calculated returns for all possible 50 month window and then saw how many number to times it gave positive return and then divided it with total number of times to get the percentage of times, the return was positive.
So if there were total of 200, “50-month” period and 180 times the return was positive. The result would be 90%. I did this same thing for every time duration from 1-300 months and plotted the graph.
One an average the chart was rising, which kind of proves that Risk of losing in Equity decreases as time duration increases.
After 11 yrs, there was no instance when equity return was negative, which means that you invest any time in Sensex index and take your money out after 11 yrs, you will not lose. The return would be positive always.
For smallest time frame of 1 month, the percentage was around 55%, which shows that for smaller time frame the equity returns are random like coin toss which is 50%-50% possibility. But as time horizon increases its more of power of Equity, rather than randomness.
Get Free updates on your Mobile
Conclusion
Many people are afraid of Equity because it can give negative returns, which is 100% true and possible, but people do not understand that its not a short term wealth building asset class. Its some thing for long term.
When you invest in Equity for Long term, you are bound to get excellent returns given that you have faith on Statistics, Historical performance and the concept of Equity in general. You can also maximize your investment performance by active participation in your investment and honoring Asset-allocation and portfolio re balancing from time to time.
Time spend and tools used to this article
You might have spent 20-30 min to read this article, but I spend close to 25-30 hours on
Finding data
Doing calculations
Making Computer program in Python: See the Python Code written by me for this article
Making Charts in Excel, See Chandoo.org for excellent Tips
Actually Writing this article
Comments Please, I would like to hear your views on this article and your views on Power of Equity. Is there something to be added? And Did this article succeed in changing your views about Equity or not?
Note : I will be on vacation now and will keep posting some articles whenever I get time .=”
“Don’t judge a person by their Sunday appearance” applies to Mutual funds also. Best Mutual funds are the best over most the time frame and Worst mutual funds are the worst performers in most of the time frame.
What I mean by this is that the best performers return wise in 5 yrs, 3 yr and 1 yr are almost at the top and worst performers are always in the bottom for 5 yr, 3 yr and 1 yr time frame. Let us look at the Chart of mutual funds performance
I compiled a list of 78 top mutual funds on the basis of 5 yrs Return and plotted a graph of returns for 5 yrs, 3 yrs and 1 yrs for them accordingly. To smooth out the data, I took a 10 period moving average (i.e. I took an average of Top 10, then an average of 1-11, then 2-12…) Just want to see what is the pattern of Mutual funds list. Have a look below:
Source: Valuereserchonline.com
If you look at the chart above, you will see that the Best performers (Top 10) were in the best performers list for 3 yrs and 1 yr time frame also. And at the same time, the worst performers in 5 yrs time frame were the worst performers in 3 yrs and 1 yr time frame, whereas the opposite was not true… See this video post on how to choose a good mutual fund for yourself?
Here are the Learning’s and conclusions:
Do not judge a mutual fund by it’s short-term Performance like 1 yr
There were many mutual funds who gave top returns in 1 yr time frame (See the orange line, see all the top positions) but not all of them were the best in 5 yrs time frame. The same thing happened with 3 yrs time frame: there were 2-3 mutual funds at the top in 3 yrs time frame but they were not best in 5 yrs time frame. See why SIP works well in long-term
Short-term performance does not give enough indication of Long-term
This is common sense, just like meeting a person for few hrs or days cannot tell us about his/her nature or behaviour, the same way a mutual fund cannot give a good indication of its long-term perspective from short-term performance.
In the above chart you can see that if I gave you just one year performance chart and it was sorted by returns, you could never tell which amongst the top would also be at top in 5 yrs time frame.
Bad performance in short-term should not be taken too seriously.
This is kind of same thing which I said above, but let’s see it with a different perspective. Short-term performance should not be the only reason for selling your mutual fund or Shares. We generally take our decisions based on short term performance, that is true for Life also.
We need patience and give time to our investments to show its true colors. Good investments happen by giving time to your investments and Early Investing, not just by choosing one.
Comments please, your 4-5 kind words will help me know if you liked it 🙂
Markets are at their 15 months high. Retail investors are back and I am sure you must have got the left out feeling by now, as stock market have gained more than 100% in last 6 months.
What shall one do now, Shall we invest for long term now, Will markets go up or down. Trading is Probability and hence we shall take our decisions based on probability only. Lets see what are my views on current market conditions.
Markets have crossed important levels of 4850 before some days and have been stable there for some days .. Once it crosses 5300, which is another important level, I would be very much bullish then and will be willing to agree that markets can again see the all time high of 6000+ in another 1 yr.
See the chart below.
Source : icharts.in
Above is a 3 yrs weekly chart of Nifty. If you see the chart below you will see that another important resistance is at 5300 and you can also see some good negative divergence on ADX . This gives an indication that we must be cautious at the moment .. The upside might be limited to 5300, from where it can take a reverse turn.
But, As you must be knowing, markets are supreme and hence if it sustains that level. We will have to obey its order and remain bullish. You should have a look at Deepak Shenoy article on Nifty P/E and EPS growth some days back.
What about Nifty PE?
As of 21st sept 2009, current Nifty PE is at 22.40. Now this kind of number is not show very attractive valuation for long term. Below is the chart of nifty PE for last 3 yrs .. you can see how its has crossed important zone of 20+ and now heading to 25 which I personally consider as “SELL at any cost” level at the moment.
Even though High nifty PE of 22 does not reflect great valuations, it can be used as short term indicator for catching some momentum move . So I would love to buy right now to get out at 10%-15% profit in another 1 month or so, or till market reverses heavily . But I would not like to make some long term commitments right now at this level, Better wait than never.
So what are the Possibilities
Markets can reverse now anytime before touching 5300 levels
Markets can sustain 5300 levels and then see 6000+ levels from where it will crash again
Conclusion
This post is just trying to see where we are and not trying to entice you to do trading, trading is a personal activity and can be done in many different ways. Where is will market go is a trivial question, the more important thing is “what will you do when market moves in any direction”
If you have any doubt you can leave your query in our comment section.
The response to the second article was more than expected and I had a very good learning experience with some of the readers on those blogs, I would like to share some of the comments with you so that you learn from them and share your ideas about it.
Read more Below.
I am putting some comments I got from the second article, They were very long, fruitful discussion on the separation between “Using a Financial Calculator” and “Influencing your Thoughts”. You can read the comments and actual discussion at the guest blog post itself which would be better for understanding.
Comment from Reader
Still I feel, some where the essence of reality is missing. Not getting convinced with the proportion of earnings and savings.
Eg:- (following the values to be entered in the fields in the tool)
Car – 2015 – 3L needs Rs. 4139 to be saved per month
holiday – 0 – 0 needs Rs. 0 to be saved per month
D’ Education – 2025 – 5L needs Rs. 1909 to be saved per month
Sons Marriage – 0 – 0 needs Rs. 0 to be saved per month
Retirement – 2040 – 10L needs Rs. 864 to be saved per month
Closely, the total amount to be saved per month comes to Rs. 7000.
For a guy earning 30K, to save Rupees 7K with all other expenditure, is not a small thing. To meet his requirements, should be a miser then – no movies (it costs around Rs. 1000 for a family – dad, mom & son to watch a movie ), no luxuries to wife (shopping) and children (say pocket money).
One thing I want to clearly tell you is my intention is not to find the tool as wrong calculator. My intention is to project the scope of the tool to be used by a common man. How a common man will really take the inputs based on the result from the tool and get influenced with.
Yes, it is the person’s personal problem – how to save and how not to; whether to go for saving or not. But it’s the tools responsibility to sustain the thought of saving in the users mind. It just should not be an analyzer or calculator.
It should be more than that. Of course, final decision is left to the user. But my view is, how is that, the tool is going to influence the users thoughts. That influence can lead to change the definition of savings for the user. See GFactor
When a person uses any tool, apart from the direct result, the impact of the tool on the usage also matters. Here, in this case, if the tool scares the user about the saving and if he stops planning for saving (lets just think this can happen for a while) then what is the scope of the usability of this tool.
Once again I am telling, I am not criticizing the tool and its functionality, I was just wondering about the kind of impact it can have on a common man. Coz, Common man never thinks about the logic behind the tool. He and his thoughts will be just carried away with the values. He definitely feels that the tool is misleading him.
Reply from Me
As I said … The tool is a just a giving you values based on the date you provide ..
I saw the numbers you have put in and to achieve these goals comfortably , 7k per month investment is required at any cost . Now if a person earns 30k , then no one can do anything .. Either he forgets some of the goals or earns more ..
There may be many 30k earners and many might be able to save 10k also , and some may not be able to save 1k also .. Now for them Its there personal problem of how to cut their expenses in such a way or optimize the expenses in such a way that their Future goals are also met .See an article on “Can you live with 90% of your Salary ? ”
Let me know your views on this .. this is an important aspect . Also let me know how is the tool responsible for . As I said earlier the biggest problem is not early investing .. if a person starts investing Earlier , then most of the problems which arise later can be minimized .
Personal Note :
The example you have given
Car – 2015 – 3L needs Rs. 4139 to be saved per month
holiday – 0 – 0 needs Rs. 0 to be saved per month
D’ Education – 2025 – 5L needs Rs. 1909 to be saved per month
Sons Marriage – 0 – 0 needs Rs. 0 to be saved per month
Retirement – 2040 – 10L needs Rs. 864 to be saved per month
1. This example has all the Target dates same as what is was there by default .. I hope you are changing it to your personal Target dates ..
2. Why is Retirement Corpus 10L ? Is it really you think is your Retirement Corpus in 2040 ? By then your Monthly expenses would have increased to 7 times to today .
I understood that its not your intention to find fault with calculator, you are trying to say that the tools must have more than what it has right now .. Which is a personal view I think ..
My personal views are different which you may not agree and that’s totally fine ..
I accept that the calculator could have been made more detailed and “influential” with more data in it , putting a “auto0-generated” Suggestions form .. That would be some “work” on my side. . which I will do some day .
However , coming to “Influencing” the thoughts , That is not a small task which will be very easy with a calculator . It takes lots of reading to develop it .. My readers who have been actively reading my articles or other sources are now fully influenced with the idea and now getting good feel of how to develop an attitude towards “;how to save and invest” .
you said “if the tool scares the user about the saving and if he stops planning for saving (lets just think this can happen for a while) then what is the scope of the usability of this tool.”
My views are different .
If a personal can not accept that he needs to save a certain amount based on the numbers he himself gave in the calculator , then he is not accepting the fact that there is some “problem”.
He has to accept this and find solutions for that rather than stop planning for saving altogether .. I agree than it can be disappointing for some one saving just 5k per month and seeing that he needs to invest (not only save) 15k if he wants to achieve his Financial goals (based on whatever info he gave in the calculator) .
He either has to increase his earnings or decrease his expenses or lower his expectations.
Now this reason why he is in this situation is because “most probably”, he is too late in his life planning for things.
At the end, all kind of tools have been made for people who know/can use it. I would like to mention that I assumed that everyone who is reading the article or taking a calculator has that minimal amount of understanding of Financial planning. I guess it was mistake to assume that. I should have mentioned that. Apologies for that.
I would love to hear your views on this. I am not sure if we are on the same ground when putting your ideas, maybe you are trying to say something and I am replying without understanding that thing and hence triggering another “I don’t agree with you” reply.
It may be a communication issue on my part, Let me know if that’s the case. Thanks for this wonderful conversation. at least I have learned too much. Thanks to you.
Manish
Special Thanks
Thanks to Barel Karsan and Mohan for letting me blog on their wonderful blogs, The biggest thanks to readers of Mohan who have made this conversation so enriching with their disagreements, Disagreements are the best things in the world, if its missing, there is no learning.
Note: Please no personal Attacks over comments by taking the name of anyone.
Why should you read answers of other questions? The reason is that there are many questions asked to me which can relate to you also, if not today, maybe later. Hence, Here are a set of 4 questions and answers asked to me on “Ask a question section”.
These questions are on the topics on ULIPs, General Investing and Achieving Financial Goals. You can also look at other Questions and sections part here at Part 1, Part 2 and Part 3
Question 1# [ULIPS] – by Shivang Desai
I had invested rs. 1 lakh in sbi ULIP (as wrongly advised by my uncle)in march 2006 when sensex was 12000 now after 4 years worth of it is just 96000 should i withdraw the money or wait longer since the damage of allocation charges and all is already done…or by withdrawing i can allocate this sum in equities or mfs…..what is the right time to withdraw this money
Answer
Well ..weather you sell your ULIP right now or later does not depend on its current value , You can always buy something else which is going to give you better performance , the fact that you want to sell it at higher price than your buy price is a psychological issue , which every one faces . If the ULIP is bad just sell it and if its good then continue 🙂
I think it would be wise to sell the ULIP and use the proceeds to buy simple mutual funds . One can not guess the right time, but a wise thing would be to wait for a jump in stock markets when you sell it and then buy mutual funds on a drop . Doing this is tough and not easy in itself
I am 30. Blessed with daughter 4 months back. Now as the time passing, I am worrying how to secure future of my baby. Where and how to invest. Though I am aware of market fundas.. Still as I am planning for long term, I need an advice.
From research on your site and other places, I concluded that all ULIP scheme are worthless… Rather MF would be a good idea to invest for long term… & what abt equity.. If I rather keep investing in equity and booking profit whenever get chance… What do u suggest ?
Also I wish to use this as tax exemption tool.
Answer
Sudeep, you have to understand one thing that you have ample time in your hand, like 20 years, and the savings you have to do is linked to very important thing, your Daughter’s Future, may be Education or Marriage, whatever, now the first thing you have to know is how much you want to generate, 10 lacs, 20 lacs or 50 lacs, this is something you need to do.
After you know how much to generate, the next question is How, Answering it is not tough, its its 20 years, means its long term, and its important too .. so you can mix up Mutual funds and PPF.
So the best thing you can do is to start a SIP in 3-4 good mutual funds and also start a PPF in your and your Daugther name. Keep investing in these instruments and thats it.
I think this should be enough for your requirement. Dont try equity too much unless you really have interest in that and you have enough knowledge to make some thing there. And dont try to time market and find out when to sell and when to buy, its a tough thing.
Just stick to SIP and make sure you review your investments atleast a year and see that its on track, this simple roadmap should easily take u to your destination. If its not simple, its not worth !!
Question 3# [General Invsting] – by Sugeet Arora
Sir, I want to invest 10000-15000 for my newly born daughter. What do you suggest for the same? I am little bit confused in Fixed deposits, RBI relief bonds and Kisan Vikas Patra
Answer
Sugeet, I dont approve your decision of investing any money in FD, Bonds or KVP for your daughter. Its totally incorrect.
Why, you must be thinking, the reason is that Its a long term investment for you daughter, If you just invest 15,000 one time for you daughter in these instruments, after 20 yrs, its value will not be more than 40k.
It has no ability to fight inflation and its just eating away the purchasing power. For long term you should be using Equities, like Mutual funds, start a SIP in mutual funds, take a SIP of 1,000 per month in a good Mutual funds and keep on investing in it for next 20 yrs.
SIP in mutual funds is the right decision for you, I am sure you must be concerned with the safety of investments, may be thats the reason why you choose FD and Bonds etc. Equity is risky in short term and in long term its risk decrease over time, for 20 years, I dont think you should be at all worried about it.
Question 4# [Achieving Financial Goals] – by Satya Vyas
I have a question. My monthly take home salary is 2.5lacs. I am 24 years old. I want to invest and invest majorly in equities. My goals are :
1)buy a flat with the max. budget of 18lacs.
2)plan for retirement (age 50)
3)buy a sedan with a budget of 20lacs.
The first and the foremost goal is to buy a house, simultaneously planning for retirement. I need to send around 75k to my parents and another 75k to support my lifestyle per month.
The left 1lac I am planning to invest 70% in equities through MFs and Shares etc and the remaining 30% towards my planning of retirement i.e pension plans SIP, insurance SIPs and other fixed and more stable instruments like gold etc. Also I don’t like to take mortgage for too long maximum 4-5 years for any of the goals.
Please advice me when is the ideal time for me to buy my own house and also is this financial planning in sync with my own objectives or not.
Answer
2.5 lacs is great per month salary 🙂 . All your financial goals can be easily met with that kind of money . Let see your goals one by one
a) Your Home: shall not be tough at all .. If you save 1 lac each month , you can buy it in 1.5 yrs . thats the way you should save it.
Don’t put money in mutual funds or shares for this, have a RD for this , or if you can really take some risk, then try some balanced fund for 10-20% part of the money . Also my question is why home for 18 lacs, you can actually take a big enough home for 60-70 lacs and clear the loan in 10 years max. go for that .
b) Plan for retirement (age 50):Â This is a big enough question and cant be explained in isolation , read my article on 6 steps of Retirement planning . you will get idea on this .. investing 20k per month in SIP would do the job i guess .
c) Sedan:Â This will depend on when you want to do it , if its a priority , then save more per month , target it in 4-5 years. At last , I must say , if you manage your money well, you can take care of all your financial goals easily soon, I am afraid if you have not taken a 2+ crore term insurance till now, go for it, cover your parents.
At the end, its none of my business, but You should bring down your expenses and lifestyle may be. I am only talking about the part which is unnecessary and can be taken care of. Save now and earn all life.
Some days back I wrote Review of BankBazaar.com . One of the readers NKanani tried there Home Loan section to find out best Bank for him and he didn’t get satisfactory results and commented to me
“I checked out the home loan section – it gives me three options – axis bank, ing vysya and deutsche bank… all having interest rates higher than sbi… The calculations are all good, but it would have been better if we could add banks of our interest.”
I contacted BankBazaar.com personally and got a reply from Chief Product Officer . Read Below
Reply from Chief Product Officer , BankBazaar
“Your reader is right in saying that we do not have SBI on our list. Unlike lead generators who list generic rack-rates of all banks, the way BankBazaar.com works is that we integrate deeply with our partners to enable instant, real time, custom rate quotes from them.
This means BankBazaar users will be able to see offers only from our partners. Right now SBI is not on our partner list. We are however working very hard to onboard them to our marketplace.
Right now Axis is the 2nd largest private sector bank and HDFC Ltd, which is the largest private sector bank for home loans, with over 50% market share will soon be joining our marketplace. We are constantly working on improving our offering and adding more banks to our suite.
Coming to the point on SBI offering the lowest rate, this however is not entirely true. This is a commonly misunderstood rate. Home loan buyers must be completely aware of the long term implications of this teaser rate before taking the decision.
Axis Bank’s home loans are actually cheaper than SBI for loans below Rs. 30 lakhs, and for loans above Rs. 50 lakhs, when you actually calculate the total interest that will be paid out over the course of the loan. To reference this, the calculations of a number of scenarios comparing Axis and SBI’s offers are provided below.
You will notice that SBI’s 8% rate is only valid for the first one year. In the 2nd year, the rate is 8.50% and from the 3rd year on, the rate is 9%. At this point, Axis Bank (8.75% for entire term) is a cheaper option to go with for loans <30l>50L.
Note: All of the above calculations assume that floating index rates will remain unchanged, as it is not possible to predict how they will change. Even if floating rates were to change, the calculations of relative cost above would continue to have value as the floating rates of Axis and SBI would more or less move in concert.
All the results from websites which gives you best result or compare two company work on this Model. So you must do your own finding in detail before taking the result as final Truth.
Some times back I gave my Interview to Ranjan Varma, where I discussed My views on Financial Planning. I also read his views on Why Personal Finance Articles and Advice is Useless?
Personal finance web has increased to a big size in last some years and most of them give useless information. I decided to Find out what do Readers think about this themselves and here are the results.
Results Of Poll
This is the result of the Poll I conducted some time back at this blog with question “Are Personal Finance Articles and Advice Useless”? The results are based on just 74 votes but its quite an ok sample and the results suggest that only 21% people thinks that its of no use but majority (54%) thinks that’s its useful and rest of all thinks that it depends on the person.
I agree with Ranjan Varma on the fact that Personal Finance articles can give you sense of Direction, but its you who have to take Action at the end. This is totally true. Here at Jagoinvestor that’s the reason why I talk on two things HOW and WHY?
HOW
These are the articles which tell you how you do something, How to judge something etc etc . These are Process oriented articles which are important to know but they are not the Key !! . You can get this information from many places . Examples are
See List of other “How to” Articles on Archives Page
Why
There are other Categories of articles which are Psychology oriented articles which make you think which actually answer your question of Why Financial Planning is important .
These are thought provoking articles which will open your mind and make you feel what you are missing from so many years… I hope I am doing it successfully on this blog. These are the type of articles which you can use to do your Free Financial planning but remember that it needs a lot of efforts and time.
My take on the subject is that Personal Finance articles will be useful to someone only when he thinks about his Finance with a Responsible Attitude. You need to ask lots of “Why” questions, you need to know a few “How’s” and a fraction of “Interest” to take care of your Financial Planning.
Lots of Readers have mailed me and told me how they are changing there views about Financial Planning by reading this blog and how there Finances have taken a better shape now… I feel good hearing this.
Please comment on wheather articles on Financial planning helps you and if yes in which manner, which was teh recent action you took, or which changed your mindset about something? I thank all the people who participated in the Poll… 🙂
We will discuss about LIC’s Jeevan Tarang Policy today, One of the readers asked me my review about Jeevan Tarang in “Ask a Question” Section.
I thought it would be a good idea to discuss it with every one here. So lets see Whats the policy and lets evaluate and answer the question “Is Jeevan Tarang worth consideration or Not”? Also see How can we beat this Policy by huge margin.
Jeevan Tarang Policy Highlights
Jeevan Tarang is a Whole Life Plan from LIC, Whole life plan means that you are insured for whole life (max age 100) The plan offers three Accumulation periods – 10, 15 and 20 years. A proposer may choose any of them. This is the Tenure by when your Policy Matures.
Whenever you die, you will ge the Sum assured and then the Policy Expires. This policy will expire if you are at age 100.
If you Die before the Maturity, you will get the Sum Assured + All the Bonus Accumulated till date.
The yearly Premimum will depends on two things, your Tenure and your Age. It can range from 11% (Policy for 10 yrs), 7-8% (Policy for 15 yrs) or 5-5.5% (policy for 20 yrs).
For exact numbers see here. The percentages are with respect to your Sum Assured, 5.5% premium means 5.5% of your Sum assured. so Rs 10,00,000 of Sum assured means 55,000 of Premium each Year .
Incase you surviuve till your Policy Tenure, then at the end of your Tenure, you will get Bonus accumulated (not the Sum assured) and an annuity of exact 5.5% each year after the Policy Matures. One will get 5.5% of the Sum Assured each year till his death or upto age 100 whichever is earliar.
If you can not pay the Premiums and want to stop the policy (only after 3 yrs), you have two choices, either make it a Paidup policy or take back the Surrender Value. This is explained in detail later, so move on.
These are the main basic and approximate points of the Policy, for exact detials see the policy page at LIC website.
Let us now see an example with different Scenario. This will help you understand it better. Read Important of Life Insurance
Now let take Scenario’s
Ajay’s age is 30 and he takes Jeevan Tarang Policy for a tenure for 15 yrs with Sum Assured of Rs.10,00,000 (10 Lacs). His Yearly Premiums will be 71.40 for every 1000 sum assured, which is 7.14%. Which comes to 71,400 per year.
If Ajay dies before 15 yrs
In this case he will get Sum Assured + Bonus Accumulated till date. The Bonus amount is not fixed and we can not tell how much it will be now , But on LIC webpage its mentioned in range of Rs 20-88 .
Lets take a good figure of Rs 30 . In that case Per year it would be 30,000 more . So If he dies in 8th year , it would be 10 lacs (Sum Assured) + 2.4 lacs (bonus for 8 yrs) = 12.4 Lacs and the policy Expires .
If Ajay survives the Policy and does not die at all
In this case, Ajay will pay his premium upto 15 yrs and then in 15th yr, he will get back the Bonus accumulated (not sum assured), so may be it would be 4.5-5 lacs assuming Rs 30 as Bonus for every 1000 SA. Also he will get 55,000 per year(remeber 5.5% of Sum Assured) as annuity till he dies or upto age 100 .
He will also get Loyality additions , this will again be a very small amount just like Bonus , but this is not assured at all. Read this for same concept : Term Insurance with Return of Premium
If Ajay survives the Policy and Dies Later.
Its almost the same case as above, in this, Ajay will get Bonus at the end of 15 yrs and then He will start recieving 55,000 ever year. And suppose he dies before age 100, he will receive the Sum Assured of Rs.10 lacs and thats it .. The game is over and then LIC doesnt recognise him there after.
Ajay is not able to pay premiums because of some problem and wants to stop.
This is possible only after 3 yrs of taking the Policy, If he wants to stop it before 3 yrs, then sorry buddy, just forget your Money and go home cry. If its after 3 yrs, then He has two choices
Make the Policy Paid up : In this case, you stop the Premium payments and you will get your Premiums and Bonus Accumulated will date at the end of the Maturity. You Sum assured will also reduce in Proportion to Premiums Paid, so if you stop the policy in 6th year, your Sum assured will reduce from 10 lacs to 4 lacs (40%), as you have paid the premium only for 40% of the tenure (15 yrs), thats 6 yrs.
Take your Money Back : After 3 yrs of completion, the Policy acquires a Surrender value, generally its the Net Present Value of money in todays term what you are going to get at the end. See this post on Net Asset Value. So if you are going to get 5 lacs at the end of 15 yrs and todays worth of that money is 2 lacs, you will get 2 lacs today.
Watch this video to know about other features of this policy:
What is the Return of Jeevan Tarang Policy overall ?
Even if you receive all the annuity upto your age of 100 , the CAGR return for this policy using IRR Analysis comes to mere 4.72% .
I have taken the above example and assumed 5 lacs of Bonus and no loyality additions , even if we consider 7-8 lacs of Bonus and Some loyality additions, the CAGR return Does not cross 6% CAGR .
Why this Policy excites people and general people get fooled?
These kind of Endowment policies make sure that you concentrate too much on numbers and it traps your mindset in the present moment , One who is able to forsee beyond “now” can understand the real value of these Policies .
We concentrate on numbers, If we get something for a long time and we pay for less time, it appeals to us, and hence this policy takes care of that very beautifully, You pay for 10, 15 or 20 yrs and you get back till you are Age 100, Sounds great !!0
Psychologically our mind is programmed by nature to think about the best case for ourself, but how many of us will survive upto 100 yrs to get annuity back, The average person thinks emotionally , Insurance Companies work on Data, Statistics, probability Theory and complex calculations, which tell them that average person will die at 60-70, and only 1-2 will survive till 100 years of their age.
Most of the people see Numbers and Present, The policy will demonstrate how much You will get at the end of the Maturity but it never tells you how much will it be worth then and how much will it help you in your Financial goals. We never think that Rs.100 today can buy much more than Rs.100 after 15 or 30 yrs.
We know this somewhere inside us, but out mind just doesn’t feel everytime the same way, that’s the reason you need to calculate things by hand, on paper or computer and do some small analysis like I did on this article. Then you get the clarity
Trust and Blind Faith, We trust companies because they have been in existence from long time and our parents were made to believe that these are the best friends in our life, they will protect our Future. Love and “Taking Endowment Policies” in India has similarity.
I grew up hearing Love is Blind and experienced it too, and I feel that its same with Taking Endowment Polices. People just take it blindly, some new Policy comes up and bang !! It has to be great, no matter what, because it comes from the GOD company !!
Why age 100? How many people are going to live upto age 100 , why putting that number at 100, why not increase it to 500, even though life expectancy is just 60-70. Not more than 1-2 in 100 live upto 100.
In case of Ajay, if his monthly expeses is 30,000 (considering married, even though I doubt he will ever get any one), after the accumulation period of 15 yrs, he will start receiving yearly pension of 55,000 per year, read it again, 55,000 per year, but now after 15 yrs, even with 6% of inflation his monthly expenses has gone upto 72,000 . And his policy pays him 55,000 which cannot even take care of his 1 month of expenses . Now i can see him pulling all his hairs .
If he is dead at age 70 , His family would get back the Sum assured of 10 lacs and at that time , it can only pay for his family’s 3-4 months of expenses and his Funeral cost , thats it .. Aha .. atleast something , so one this is confirmed , There will be no financial burden , pun intended .
This is the question which we should always ask in every situation of our life, not just Financial planning. Lets take care of Ajay’s situation in Jagoinvestor’s way and plan him something better than Jeevan Tarang.
With Rs.71,600 per year to pay for 15 yrs, lets see what can we do.
First thing First, Lets cover his Family first from the Mis-happenings of life an secure his dependents, Lets take a Term Insurance of 50 lacs for maximum tenure of 30 yrs, Premium would be close to 13k or 14k approx, lets assume 14k. So out of 71,600, 14k is gone and we are left with 57,600.
Now lets put 21,600 each year in PPF for 15 yrs. We are now left with 36,000 to invest, we will start Rs.3,000 SIP per month (Rs 1000 each in 3 different Equity funds) for 15 yrs . See list of some good Equity Mutual funds for 2009 .
PPF will accumulate to 6.3 lacs in 15 yrs and Mutual funds will accumulate to 15 lacs in 15 yrs assuming a pessimistic return of just 12% (Historical return has been more than 17% and last 5 yrs return are more than 25%). Lets assume just 12% and not 18-20% even though its possible because our aim is to do better than Jeevan Tarang and achieve our goals and not compete with some one.
So total amount will be around 21.3 lacs at the end of 15 yrs. Now lets visit and see our Scenario’s again and hows does it compare now.
If Ajay dies before 15 yrs :
Gets 50 lacs from Term Insurance and also the money from PPF and mutual funds, which will be more than 50 lacs 🙂 . We beat Jeevan Tarang by huge margin in this case.
If Ajay survives and Does not Die at all :
In this case he already has 21.3 lacs accumulated and now he can use this amount to buy an Annuity which will pay him more than 1.6 lacs Per year, much more than what he was getting in LIC policy.
As a toppings, he also has a 50 lac cover for another 15 years. We can generate 3 times more annuity than Jeevan Astha here, again beat by huge margin.
If Ajay survives the Policy and Dies Later :
In this case if he dies in next 15 yrs , his family would get 50 lacs from Insurance (10 lacs in LIC), apart from this he will have his 21.3 lacs growing every year.
If he dies after 15 more year, There will be no Insurance money, but his money would have grown a lot by now .. If he dies after 15 yrs (total 30 yrs from starting), his money would have grown to 1.17 crores assuming 12% return per year (no annuity every year). and if he dies after 25 years (total 40 yrs from starting , means at age 70), his money would have grown to 6 crores.
Now incase you don’t want to faint, don’t ask me how much would have he had if he lived till age 100 and left his money to grow, Its 13 crores 🙂 . I have not assumed any annual annuity here, we can do that but the result would remain almost same. We beat Jeevan Tarang by hugest margin in this case. See how we can create Wealth using Equity in Long term.
Ajay is not able to pay premiums because of some problem and wants to stop.
His money will still be in PPF and Mutual funds and keep growing, there is no liquiditity issue with Mutual funds, he can withdraw from mutual funds anytime, even from PPF he can withdraw partially.
If he has limited money, he can at least pay his Insurance premiums and still get covered for 50 lacs, no big deal there. In every aspect it beats Jeevan Tarang
Note : For doing better than Jeevan tarang we have invested in Mutual funds which are risky instruments , but anyways we are not in great position with Jeevan Tarang .. so taking risk is worth it . If one is too concerned about risk , then even plain PPF will be better .
Conclusion :
Think Logical , Think mathematical , Think smartly and at last THINK !! .
Note : The figures have not considered the rebate provided by LIC, and hence the actual figures can deviate a bit from the actual numbers used here, but it wont be significant and the review still holds . ahh .. tired now !!
.
