Question and Answers , Part 1

Posted on August 4, 2009July 25, 2018 by Jagoinvestor

You might have noticed that I started “Ask a Question” Section on my blog where anyone can ask any query to me, I will try my best to answer the questions, but please don’t expect instant reply. I am sharing the answers here for some questions asked by readers, this will help others to gain more knowledge about stuff.

ask a question

Question 1:

Hi,
I am new learner in derivatives trading !
any good web site to understand in detail , and my very specific question is when to be in Futures and when to trade in Options !
many thanks,
Umesh

Answer

There is no single website for understanding this. You have to search different sites for different things. What I would suggest is clear your basics by reading some books and some articles on web. and then trade your self. Download my ebook: https://manish.pucsd.googlepages.com/A_Small_Guide_For_Newcomers_In_Stock.pdf and follow it.

Regarding choosing between Futures and Options, The best answer what excites you? Futures or Options? I like Options, so i trade options (not doing it from some weeks). Basically Options are more leveraged products than futures. Options are more difficult than futures.

There are different strategies in Options which can be applied at different times. Don’t trade derivatives if you are not able to trade equities successfully. move gradually from Equities to Derivatives. Don’t jump directly to Derivatives.

Question 2 :

If I have to choose ONLY ONE equity mutual fund for a time horizon of 10 years – which ONLY ONE fund should I choose ? What about DSP TOP 100 EQUITY FUND ? Is there any better than this fund? – RAJIV

Answer

Ok, this is tricky. The one i would suggest is “Sundaram Tax Saver”. Now comes the best part. If you had asked me this question before 5 yrs, The answer would have been “SBI Magnum or HDFC taxsaver” and answer will keep on changing, There are different cycles in mutual funds life cycle, The best mutual fund today may not be the best all life.

So the best time frame you should look at is 3-4 yrs and then evaluate back and shift money in another mutual fund as per the situation.

For now take Sundaram, invest through SIP and maintain your asset allocation. Look at the comparison I did between SBI and Sundaram here : https://www.jagoinvestor.com/2009/01/95-of-salaried-people-are-rushing-to.html

DSP top 100 equity is an excellent fund , This should be good enough to invest in , Don’t look for the best mutual fund, there is nothing like that. It depends on your risk profile and other factors if it suits you or not.

Question 3 :

Me and my wife both are working in MNC’s. We both are in the age of 27 and don’t have any kid yet. We both also don’t have any dependent. We both are getting cumulative 8 lakhs medical cover from our company. I read a lot of places that it is good to have your own medical policy. Can you please suggest that should I buy and medical policy for me ? and if Yes ..what should be the criteria. – Manu

Answer

8 lack is a good cover . But i think it would be 4 lacks each , not 8 lacks for one person . even 4 lacs is good for one person . The reason why extra health cover is advised is because

– You can loose job or move to another job and may be “without Health cover” for the gap which is not a good thing.

– Health cover does not mean “everything you can think of related to health”, There are many things which group health cover wont cover, dig out more on that. See what is the most important thing for you and your wife and if your Company covers that or not. It wont hurt to take a good Family Floater cover for 4-5 lacs for you people, it would be 8-9k per year . Cover your self well..

There is nothing like the best policy, its not “the policy which suits your requirement”, the policy which is best for me, can not be best for you.

You may also want to look at a term cover for a small amount (20-30 lacs), I know you people are not financially dependent, but i am sure it would help if there is loss of income because of some unfortunate event.

Question 4 :

My question are

1) If I have invested in a ULIP for more than 3 years as of now, is it better to continue on that ULIP? I think the commission, other charges etc are negligibly small after three years of policy . Any amount I invest from now on will be invested in equity markets. Please let me know your thoughts
2) In case of term insurance policies, money that my dependents get is taxable or not ?(of course if I die during policy tenure) 🙁
3) I read in one of your blog post that it is better to split life insurance into two or three companies to that it will give us a flexibility to stop one or two later at some point of time. In case of my death , will my dependents get claims/money from all my policy ?
4) If I have health policy in different company , can i claim the refund from all policy or just one . Will those be taxable?

– Aby

Answer

Find the answers in line.

1) If I have invested in a ULIP for more than 3 years as of now, is it better to continue on that ULIP? I think the commission, other charges etc are negligibly small after three years of policy. Any amount I invest from now on will be invested in equity markets. Please let me know your thoughts

For this you need to see what is the current situation of your total fund value . For last 1.5 yrs markets have done very badly , so there would be significant change in fund value compared to normal years . Other charges are not always negligible after 3 yrs of policy . I think you can either link your ULIP with your long term goals , or start a SIP from now onwards .

2) In case of term insurance policies, money that my dependents get is taxable or not?(of course if I die during policy tenure) 🙁

Its not Taxable , however when they invest that money somewhere and when they start getting yearly income from that , then that yearly income will be taxable .

3) I read in one of your blog post that it is better to split life insurance into two or three companies to that it will give us a flexibility to stop one or two later at some point of time. In case of my death, will my dependents get claims/money from all my policy?

Yes, your family will, get money from all your policy, If you take Insurance of 30 lacs , 20 lacs and 25 lacs from different insurers, they will get it from everyone , so total will be 75 lacs .

However , you can not use this to your advantage and take crores of policies, because insurers ask for your previous policies and if they think that your insurance has crossed the limit which you should have , then they will refuse the insurance to you .

4) If I have health policy in different company, can i claim the refund from all policy or just one. Will those be taxable?

No, You can only get the refund upto the expenses occurred. So if you have taken Health insurance from more than 1 insurers , they will share the cost between themselves in the ratio of sum assured (this is basic rule , there can be some different rule here and there) .

So if you take Health insurance for 5 lacs and 10 lacs , and your expenses are 3 lacs which you want to claim , you will get 1 lac from 1st insurer and 2 lacs from 2nd. The amount is not taxable , because its not something extra you are getting, its just the same amount you have spent and getting it back . So for you its 0 profit 0 loss .

Question 5 :

Sir.,

Thanks for this service.i am working as a agent for mutual funds. From today onwards there is no ENTRY LOAD so no commission. yesterdays conclusion from our trade is to request(!) the same amount from the customers.
Is it possible to receive cash favor directly from clients?

Some clients are happy with our service, and some were not at all !!!

– Srinivas

Answer

So what if 2.25% entry load is scrapped. Clients are ready to pay for quality advice and good service. If you advice them well and help them take good decisions for there investments, I am sure clients wont mind paying you 2.25% commission (even more than that) . You should take this in positive way .

I hope you are AMFI registered and have good grip on Mutual funds and how to choose best one which suits your clients needs. I hope you are not just choosing the “top 5′ from some rating website (though its fine sometimes) . Research your clients needs and suggest them good mutual funds and let them understand why it suits them .

Trust is what they should have with you. Once they trust you and your advice, this IRDA rule of 2.25% thing will make no sense to you and other agents.

As I said earlier, This may look like a Disaster to you, but its your chance to start all over again and make things work for you , adapt to changes 🙂 .

Do let me know if you like this section or not.

Please note, that the question and answer are made public only after confirming it with the requester, If you want that your question and answer are not shared, that’s fine with me.

If you want to ask a question to me, Click here

Liked the post , Subscribe to Get Posts in Email or RSS Reader

Why people don’t buy Term Insurance?- Analysis of a case study on Indian people’s mindset

Posted on August 3, 2009September 9, 2019 by Jagoinvestor

“We have no desire to make anybody look like a blithering idiot, but we do love it when they do. “– Stephen Colbert. One of the reasons why most people do not take Term Insurance is because “They don’t get anything back at the end”.

In this article, I will show you why this is a psychological issue. Even if you get your money back at the end of the tenure it won’t make much difference. In this article I will prove that the argument “Term Insurance is waste of money because you don’t get anything back” is amazingly idiotic.

term insurance

What is the main Issue with People not liking Term Insurance

Why people don’t like Term Insurance is the question. The answer is simple: because you don’t get anything if you survive the whole tenure and hence the amount paid as premium is wasted – this is claimed by millions. Fair enough!

The first thing is, these people do not understand or appreciate the Importance of Life Insurance. Now let’s see this situation from a different angle. Assume you get the money at the end in your Term Insurance.

Let’s see a case study of a general Family. How does a family look like:

Manish is 28 yrs old and got recently married (oops!!). He earns close to 40,000 per month. His monthly expenses are around Rs.25,000 overall and he saves 15,000 per month (hehe). He also has his parents as financially dependent on him.

He is 30 yrs away from his retirement. He calculated his Insurance Requirement and it was close to 50-60 lacs minimum. Let’s take it as 50 lacs for simplicity for now. (Get more of Insurance Articles from Archives section.)

Analysis of Case Study

Now is the fun part: his current monthly Expenses are close to 25k. Now what will it be when he retires after 30 yrs?

So the average inflation for last 30 yrs was 6.5% (based on past data). Let’s assume it will be 6.5% for next 30 yrs on an average. Then the monthly expenses after 30 yrs would be 25,000 X (1.065)^30 = 1,65,359 (1.65 lacs). If he takes a Term Insurance at the start, his yearly premium per year for 50 lacs cover would be Rs.11802 for 30 yrs tenure from Aegon Religare.

Do you know how you can do your Retirement Planning in 6 steps ?

Click on image to Enlarge

Which means, he is going to pay total premium of 3.54 lacs in his entire life. How even if he gets this money back at the end, how much will it benefit him? How many months can he survive on this money? 2 months is the answer!!

With expenses of 1.65 lacs per month, the money he gets back from term insurance is enough for not more than 2 months. Let’s take maximum 3 months. That’s it!!! Are you confused with Calculations, See this Video presentation by me where I explain how to do important Calculations in Personal Finance.

So Following are the questions needed to be asked

Do you want to put your Family at Financial Risk because you are not getting 2 months’ worth of expenses back?
For a small amount you “don’t get” at the end are you not being childish to Secure your family?
Don’t you think you are seeing Term Insurance from a wrong attitude?
Are you not concentrating on “what you are not getting” rather than “what you are getting”?

We already have “Return of Premium Term Policies”, but they are themselves idiotic because they are again designed to just exploit the weakness of people who feel that term insurance is waste of money because they don’t get their money back.

Read this to understand why Plain Term Insurance is better than “Return of Premium Term Insurance policy”.

Watch this video to learn why Term insurance is better than regular insurance policies:

Reason why Indians don’t like Term Insurance’

Reason 1#: Most of the people concentrate on number and explicit data, like the money they are not getting back or it’s a waste of premium if nothing happens to them. They fail to look internal advantage which term Insurance provides.

Reason 2#: We are emotional with Money, we are more concentrated with Growing money and getting money back rather than what value it provides in our life.

Reason 3#: Most of the people think that the probability of dying is much lower than an average person which is again totally idiotic. We just don’t want to visualize a bad situation and hence do not concentrate on that situation.

Conclusion

In life we don’t appreciate things like Health, small moments of happiness, nature, time spent with our loved ones which are most wonderful and real things in life. Term Insurance is one of the similar things in personal finance domain.

You just need to shift your focus of view from “what you are losing” to “what you are getting” once you do this with Term Insurance and your Life, both will become wonderful.

Please comment on what do you think about this and do you agree with it. Are you victim of such mindset?

ULIP charges restricted to 3% by IRDA

Posted on July 27, 2009August 19, 2019 by Jagoinvestor

Does God Exist? I don’t know, but IRDA surely does!!! And hence finally it has acted as GOD to the investors 🙂 . On 22nd July, IRDA capped the ULIP charges at 3%.

Let us see in this article how this will affect Investors and the implications on Investments and Insurance Sector as a whole. The decision will be effective from Oct 1 2009.

ULIP

IRDA rules for ULIPS

Gross yield: This is the yield generated by the ULIP before all charges are deducted.
Net yield: This is the yield generated by the ULIP after all charges are deducted.

1. “ULIP charges” here would include allocation charge, administration charge, mortality charge and all such charges by any other name.

2. For Products whose Maturity is less than 10 years

“The difference between gross yield and net yield cannot exceed more than 300 basis points” (100 basis points = 1%)
“In this case, fund management charge cannot exceed 150 basis points”

3. For Products whose Maturity is more than 10 years

“The difference between gross yield and net yield cannot exceed more than 225 basis points” (100 basis points = 1%).
“In this case, fund management charge cannot exceed 125 basis points”

4. The IRDA has made PAN card mandatory for all policies where annual premium is more than Rs 1 lakh OR there is investment in Capital Markets. IRDA said this norm is to be implemented with immediate effect and all insurers are to comply not later than August 1.

What will be the Implications

ULIP products will surely see a decline in commission paid to agents. It’s very logical, IRDA is giving nightmares to Agents for some time. First it was abolistion on Entry load from mutual funds and now its capping the charges on ULIP. Agents are now going to get commissions which will be very very less compared to what they used to get earlier (like upto 35-40% in first year). It’s a bad month for Agents in India.

Now Agents would be really confused on whether to work hard on Selling Mutual Funds OR ULIPS as both are going to provide them almost the same kind of Commissions!

This move will help in investments in ULIPS as the hardcore Mutual fund investors can think of Investing in ULIPS too. But still dont forget to ask him the most important questions before buying the ULIP

Miss-selling will be reduced in ULIPS as the primary motive of “High Commission” is crushed by IRDA.

Though ULIPs are still long term Products, I don’t recommend common man for short term investments in ULIP. Investors who think they are smarter than average investor can invest in ULIPs for short term, considering you know how to manage ULIPS well and reap the potential of switches (this mainly to churn the portfolio fast and save the short term capital gains tax). Read how to use losses to save your tax.

This Rule does not apply to traditional Policies, so its not a very good news for all considering Traditional Policies from LIC still dominate the Insurance Market :(.

What will happen to Existing Polices?

As per IRDA, all existing products that do not meet the requirements of this circular should be withdrawn or modified by December 31, 2009. I can only imagine the state of Agents and Insurance companies which created ULIP mess all these years. IRDA really nailed them hard this time.

Many agents which were getting fat commissions from so many months will be sad on this.

How much will this help Investors in reaping benefits from ULIPS

This is a good move from IRDA and investors will be benefited. But how much?

Earlier most of the ULIPS charged heavily in First and Second year and then reduced the charges to NIL or very very less in later years. Because of which the charges were heavily skewed in Initial Years, but the long term average charges were still in range of 3-5%.

Now after this new Rule from IRDA, almost all the ULIPS will charge for every financial year (that what i think). Hence the long term charges will now be evenly distributed over long term, but still the average charge over long term wont come down drastically!!

Read a nice article from Deepak Shenoy on “Tactics used by ULIPS to hide the charges”

Can you Invest in ULIPS now?

ULIPS for me has changed its status from “Ugly” to “Average” product after this announcement. For long term Investors, ULIPs can now serve as a good product.

Charges wise its much better in long term now ( 2.25% max) and the best thing is if you need immediate money and want to close the policy you will not be hit hard like earlier. Take the policy after Oct 1.

Some Internal Information

Just before writing this Article, I was chatting with Pradeep (name changed), an internal source who is himself an ULIP agent. See what he has to say

Guest_7FF767C0: attened a sales talk by XXX for their new ulip … XXX which guarantees highest nav for the next 10 years !!!!
Guest_7FF767C0: all ptvt. life companies are worried about mandatory PAN for annual premiums of rs one lac. and above.today smart money(black) is routed through ulip cash payments on binami names.

Guest_7FF767C0: but sir! IRDA may kindly look at the very very high incentives to the sales team(policy expences).sebi from aug 1 st declared no entry load for mutual funds so no early commissions to agents which is only 2.25% where as 40% plus in life!

So according to him, Due to the mandatory PAN for more than 1 lac premium. Lots of black money is coming through Benami Accounts now.

See The Benami Transactions (Prohibition) Act, 1988 High Net worth Clients do not want to share there investments with Govt to save tax, but because of the “mandatory PAN” rule, the money is being diverted through “Benami Accounts”. This is totally unethical and unprofessional, but this happens at the top ladder, Looks like IRDA still has some more work on this plate.

Conclusion

This move will help investors and it will check the mis-selling going on for last many years. It will also help in making Insurance sector more mature in India. IRDA is coming up with solutions now and Jagoinvestor sees this move as a friendly move which will help in achieving the goals of “Making each Indian an Informed Investor” Thanks IRDA.

Readers, what are your views on this Rule by IRDA, How do you think investors will take this ? And Is it helping you in any way. Please leave your Comments on this .

Liked the post , Subscribe to Get Posts in Email or RSS Reader

A Perfect Example of ULIP misselling

Posted on July 10, 2009August 19, 2019 by Jagoinvestor

Recently I saw a perfect example of ULIP misselling. One of my friend’s parents gave their money to a close friend who was working for some Investment firm and assured them of doing great investments on their behalf.

The total money involved was more than 10 Lacs. I don’t know what else he did, but he bought a ULIP from their money and its the perfect example of miss-selling here. Lets see it in details.

ULIP misseling

So this agent buys a Canara HSBC ULIP.

The total premium yearly was around Rs 3 Lacs.
Premium Allocation charges are 48% in the first year.
The policy was stopped after 1 yr by the Family.
The Allocation chosen in the start was 70:30 (Equity : Debt).
Charges were not communicated while taking the policy.
No statement was sent them for next 8-9 months.

So may be they were not aware of important questions they should have asked a ULIP Agent.

Some Points

Now 48% goes in Premium Allocation charges, rest of the money will grow at moderate return because it was mix of bear and bull market which the money was invested.
Why was it invested in ULIP first of all and that too Rs 3 lacs as premium!! This is one of the costliest ULIPS in market and has to track record. Why was family financial needs not considered before investing? Why was their risk-appetite not considered?
What kind of agent is this? He takes advantage of trust and invests in something which gives him maximum commission. There was no proper communication about charges and no statements reached them on time.

What is miss-selling here?

Giving “Wrong-Information” is not a big issue, the bigger issue is not giving “any information”. One of the reasons why this kind of things happen is lack of accountability on agents side. You take the product and sign the documents means you are responsible for your decision. While that is true legally, its totally unacceptable morally.

The only thing the investor can do here is make an issue out of it and tell the Insurance company that’s agent miss-sold the policy to him and did not tell him about the charges. Worst thing is investors don’t even know about the “Free Lookup Period”, which is 15 days from purchase of policy before which Investor can cancel the policy of they don’t like it or change their mind.

UPDATE

This is an update after my friend Rishi, whose case we are discussing commented on this article, I am putting up some more thoughts in this below. In case he takes some legal action on this matter. I can think of following things which will be useful and important to quote.

1. As everything was done legally, documentation and signatures taken from investor etc etc. The one thing which can make your case stronger is “explaination” from HSBC people that on what grounds “that Ulip” suited your needs.

How did they come up that this ULIP was the best choice for your family, I hope being the “trusted” and “portfolio managers” they think of your profits and hence they must have figured out why this ULIP was the best in the industry for you guys.

2. How do HSBC products best for you people (i hope 70-80 products they choose were HSBC products)?

3. as per IRDA “it is the moral obligation of the insurer to maintain the ethics and spirit of business across its workforce”. The mere fact that premiums were stopped after 1 yr and now your people are not happy with this shows that obviously you people were not informed well about the cost structure in the start.

Finally this is more of a matter of “Unprofessional Behaviour” than miss-selling per se. I am not sure how much HSBC will help you, as they generally pass the buck on “agent” and “investor who invested”.

You might have to take this case with IRDA. You must first talk to Bank, agent etc and then after you are not satisfied with them, you should go complain at the IRDA ombudsman: https://www.irdaindia.org/ins_ombusman.htm

The ground of plea should be based on “monetary + psychological loss”.

You can read here Confession of an Insurance agent in his own words

Please share if you think there is a good way for getting justice on this matter. Your comments are valuable? Should this is taken into court?

Liked the post , Subscribe here to get posts in email

Why it is mandatory file Income Tax Return even if your taxable income is below tax limit?

Posted on July 2, 2009September 8, 2019 by Jagoinvestor

Filing Income Tax Return is an important thing and as the date for filing ITR is approaching you should have a clear idea about how to file ITR. But is it mandatory to file Income Tax Return?

A lot of people are confused about this simple question of when to file your tax return, In this short article lets see what are the conditions under which you need to file your tax return.

Filing Income Tax Return is mandatory

Who should file Income Tax Return?

As per Indian Income Tax Act 139(1), it is mandatory to file Income Tax Return, for every individual who’s income exceeds the exemption level.

People say that if you don’t have to pay tax , you don’t have to file returns which is not true totally. Lets see the simple rules.

Rule : You have to file your tax returns if your Total Income for the year exceeds the exemptions limit. That’s it !! This is the only rule which applies.

Exemption limit can be different for male (1.5 lacs), female (1.8 lacs) or senior citizen (2.25 lacs). So if your Total income for the year exceeds your exemption limit, you have to file tax.

Do you know how to calculate your tax?

Should I file Income Tax Return even if I don’t have to pay any tax?

Didn’t you read what is said above :-). The only rule is already mentioned above. You don’t have to pay tax. This can happen in two cases.

Case 1 : Income itself is below exemption limit

In this case you don’t pay tax and don’t file your Returns.

Case 2 : Your Income exceeds, but not taxable income

Though your Income exceeds, but After all the exemptions and deductions like 80C investments, HRA, Home loan interest exemption etc etc, your taxable income is below your exemption limit. In this case you don’t have to pay tax, BUT !! you have to file tax returns because your income (not taxable income) was above the exemption limit.

What are the other cases when I have to file the returns?

There are other cases also when its more than paying tax. lets see those cases

If you have some form of losses carried forward in subsequent years to write off against profits in future, in that case its obvious, that you will have to file a return so that you can give this information.
If Govt itself gives you notice to file tax return, it may happen that you are cheating this nation and making black money , then tax department can ask you for details and you will have to file tax return.
If you want a Tax refund because of TDS (Tax deducted at Source by your company). This happens with people who do part time jobs for some months or with Interns in the company who are there for 3 months or 6 months and TDS is cut. So in order to get back the amount you have to file a tax return.

Watch the video given below to know why it is necessary to file ITR:

Why is it necessary to file Income Tax Return?

There are some reasons why should file income tax return, which may look simple but they have a major impact on your financial life. Lets see what are those reasons:

If you are planning to take loan in future, the lender may ask the proof of your ITR filing.
The ITR filing proof is also essential to get VISA if you want to travel abroad.
It is also important if you want to claim the adjustment against past losses.
ITR report is provided by Income Tax departments, so if you file Income Tax Return regularly on time, it will make your future transactions easier without any complications.
In some states, you can not but an immovable property if you don’t have the Income Tax Return filing proof.

Besides all these reasons, filing Income Tax Return on time makes you a responsible citizen.

Ask a question from Jagoinvestor

Posted on June 27, 2009August 21, 2019 by Jagoinvestor

Do you have any question or Doubt in Mind regarding Financial Planning , Insurance , Investing ? This form can be used to ask any question from Jagoinvestor . Make sure what you ask makes sense 🙂

Loading…

SEBI ends Entry Load on Mutual funds Schemes

Posted on June 19, 2009August 19, 2019 by Jagoinvestor

Cheers !! .. SEBI now says :

“Investors will not have to pay an entry load for investing in mutual fund schemes anymore. They will instead pay a commission to their distributor or advisor directly and the quantum of the upfront commission would be mutually agreed upon.”

Entry load on mutual funds

More Competition and hence little cheaper for Investors

Now agents will not be getting commissions from Mutual Funds companies which means that now there is direct competition among Agents. The agents can only ask for more if he really gives good service to buyers else they have to settle with a low commission which will be decided by customers.

This means now we can bargain with the agent on commission percentage and if he is not ready with what we offer him/her. We can look for someone else who is better and fits us.

Higher Quality of Service and more transparency in Market

Now agents will have to deliver much better quality of service and be more transparent with investors as their bread and butter is directly linked with Investors and not with the Mutual Fund Companies.

Lots of agents will now move to sell ULIPS rather than Mutual Funds

This move will also force lots of mutual funds agents to shift their focus on ULIPS and similar products which have commission linked with premium paid by customers rather than fee based model like we now have in case of mutual funds. This means more miss-selling in ULIPS is on the cards.

See the following New Video To understand
Update: thanks to income.portfolio for this.

AMC’s are allowed to use 1% of redemption in mutual funds for commission to agents and all the marketing costs. Its the money from exit loads which has to be utilized in commissions and other marketing costs. Most of the mutual funds have less than 0.5% of 1% of exit loads at this point and with this rule of SEBI, it can not go above 1% in future. Also it can be “up to 1%”. So this 1% will be used for every type of cost incurred by mutual funds.

Now most of the funds will have exit loads only if investor gets out in short term like 6 months or 1 yrs. Hopefully it will not be after 1 yr. So its a concern for those who are short term investors. Its not a matter of concern for long term investors as far as I think.

Also, now there is no need for PAN Card for investing in mutual funds up to Rs 50,000 through SIP as per SEBI new rules.

I am out for a 2 day weekend Trek to Kumaraparvata. So no article till Monday morning. I will post the 2nd article of “How a newcomer should start in Stock Markets?” Read Part 1 Here .

Liked the post , Subscribe here to get posts in email

Why do you need a Financial Planner ?

Posted on June 14, 2009July 5, 2018 by Jagoinvestor

In this post, we will discuss on why do you require a Financial Planner to do your financial planning? Each and every area has an expert who understand and has skills for that profession whether it be Doctors, Engineers, Lawyers etc!

Likewise, we have Financial Planners. Now, don’t confuse financial planners with Mutual Funds Agents or Insurance advisers! NO!

Let us see some Important Points on why we need a Financial Planner.

Financial Planner

They see your Financial situation as a whole and not just specific Parts:

One of the major issues with our country is, here each area is seen separately and not as a whole. An Insurance Adviser will randomly suggest you a policy without understanding what is your Insurance Requirement.

All that they will say is that your Insurance requirement is 8-10 times of your annual income, which is not the right way of calculating the actual Requirement. Mutual Funds advisers will just pick some Mutual fund for you without understanding your Risk-Appetite and your Future Goals.

They don’t take care of your Tax planning, Estate Planning (wills and Legal Documents) or your Cash Flow etc etc.

A Financial Planner on the contrary acts as a Doctor to your Personal Finance, who will very closely study each aspect of your Financial Life.

He will understand your Risk Appetite, your current outstanding liabilities, your Future Goals, your Future Needs and Requirements, your Insurance Requirement, your Investment needs and finally come up with a Financial Plan and Recommendations which will take care of each aspects in total.

Financial Planner will Educate you:

Financial Planners will make you logical reasoning behind every suggestion he makes. He will make sure that you agree and understand everything, so that in future you can take similar decisions yourself.

Has any Mutual funds adviser told you why SIP is better for you? Or Why You should expect great returns in long term from Equity?

Has any Insurance Adviser told you what are the important things you should be aware of before buying a ULIP? Or why you you should avoid Endowment Polices for Long term wealth Creation? I doubt that if many of them are giving any genuine information.

Financial Planner wants to make your Financial Life Better:

Financial Planner’s goal is not limited to Insurance planning or Investment Planning. In fact a Financial Planner is trying to make your overall Financial Life better and paves a smooth financial path for you, which you can start walking on.

Your overall Financial life is made up of different components Insurance Planning, Investment and Retirement planning, Estate Planning, Tax Planning etc etc. He will take care of all these aspects.

Financial Planners are Certified or they under Certification and have deep knowledge:

How many agents or any kind of Adviser you have seen is competent enough to advise you? What is their relevant experience in that field? Most of them are just under their respective company’s Training.

A Financial Planner should be a CFP or undergoing CFP qualification. CFP is the highest level of certification all over the world in the field of Financial Planning. You can also look for people who have deep understanding of Financial Planning and are undergoing the course.

As CFP is new in India, there are many students who are under the learning process and are very good Financial Advisers (You can count me one if you like).

They have good network base:

Good Financial planners will have excellent network of Agents and Other professionals who can be helpful to you in the best possible way. Like for example, if he recommends you to go for a Term Insurance, he may also recommend you some company’s Term Plan and may recommend you to some good and trusted Agents.

This will again be an important thing which you should consider. A Financial Planner may or may not have share in the Commissions.

Watch this video to know the importance of financial adviser:

What is the general Process Financial Planners Follow?

The first step they will follow is to get out each and every strand of information out of you that will help them to understand your situation correctly and in depth. They will try to capture each aspect of your Financial Life through a Questionnaire.

It’s like a Doctor trying to get every information about you to give you a prescription. Then they will analyse each aspect and come out with the Plan and recommendations.

They will not simply come to you and recommend you some mutual fund or insurance policy understanding if you need it or not. Infact they will do your Financial planning in the same way as you would have done yours if you were a Financial planner 🙂 .

They can also assist you in future in monitoring your Financial plan depending on your agreement with the financial planner. Just like you have your dedicated Family Doctor, see him as your Family Financial Planner.

See 8 steps of Financial Planning

I have enough knowledge about Products and Financial Planning, I constantly Read Financial Magazines and Blogs and keep updating my knowledge. Why should I hire a Financial Planner in that case?

Great!! If you are doing this, it’s much appreciated. You have to understand that
Financial planners are dedicated Professionals in the field. They have undergone tough training and may have much better detailed understanding of the nitty-grittes of Financial Planning which you may lack.

You may have good knowledge and understanding and you may your self take care of your Financial life to great extent. It’s you who have to answer how your Financial Life must be, “Not Bad” or “Excellent” & “Perfect”!

Also it may happen that its your un-true understanding that your understanding is very good. You may have good understanding in one field, but what about other fields?

A financial planner may also have good competence in understanding of Financial markets, Derivatives Markets, Law governing tax etc and these keep on changing and one needs to be updated with the information.

However if you have great interest in Personal Finance and already have great understanding and knowledge, you can enroll for CFP and start a new Career! Dont forget to keep in touch with me!! 🙂

What about the Cost?

Everything comes with the cost. Definitely and if you need Quality then you need to pay quality cost for it as well. But don’t be horrified by the fees you pay to Financial planners, you have to understand the difference between Price and Value.

Just seeing the numbers may make you feel over-charged, but when you concentrate on the value it adds to your life, you will be amazed. If you pay Rs X as fees to Financial Planners you will save many times of that because of the alterations and changes he has brought into your financial life.

Its like if you fall sick then you pay for medicines. No questions asked!! Either pay and save yourself and be happy OR just live in hope of it getting cured by itself, but it will actually get worse and one day kill you.

But my Financial life looks great to me, I don’t see any issues, my insurance cover is fine, my Investments are great…?

Baby, you don’t know a lot of things in that case… Life is waiting for you. There are many people who think they are totally fine and at last they are diagnosed by Cancer and most of the times its at the last stage, don’t wait so long get it checked now!!

My Family and Friends are forcing me to see a Financial Planner? what should I do?

No! You should only see a Financial Planner when you yourself realize that you need one. This is an issue with our country, most of the people do not know and do not realize that their Finances Stink!! Only when it goes out of control they will realise that time has come and by then its too late.

What is stopping you to at least get your financial checkup done by a Financial planner? He will make you realize first that you need it badly and once you agree you can hire him to fix it.

Conclusion

Majority of Indians are totally clueless about Financial planning and only it has happened that in recent years some awareness has been created about it. Most of us try to fix finances on our own without accepting that we are not competent enough to do it all!

WE need a professional. Don’t you pay to Doctor or Lawyer or any other Professional then why not hire a Financial Planner? Go for it!! Jago Investor!!

- Note: For people who need my Financial Planning services can mail me

Liked the post, Subscribe here to get posts in email

Why you should be careful while investing in NFO?

Posted on June 10, 2009September 9, 2019 by Jagoinvestor

Here comes a new NFO!!!

In this post we will discuss why one should really be cautious about NFOs and why in general its better not to invest in any NFO. Have you heard about NFOs and IPOs hitting the markets while markets are doing bad? Why is it so? this is a question we must answer to.

NFO

The reason why most of the NFOs and IPOs hit the markets when markets are doing extremely good is to exploit the emotional buying of investors. Its a common thing that investors tend to get in rising markets then falling markets.

So when markets are flying high and all kinds of NFOs with fancy names (some good funds and some junk funds) will hit the market claiming how different they are and how they are ought to be a huge success.

If you are a new reader , you may like to read some terms and terminologies

Understanding NFO’s

No Proven Track Record:

Every NFO will come with its own idea and logic, but investing is never easy and you can see true colors only after few years. They can be success or failure!

So why to go for something which can either fail or succeed, instead why not go for some existing fund which already has proven its mettle, which has given superb returns over long term and has excellent management. These funds have high probability to continue their performance.

Its like: what would you prefer? Take risk of marrying someone you don’t know or someone who is already a good friend and you know him/her over years?

Cheap NAV at Rs 10:

Most NFO offer comes with NAV of Rs 10 and the biggest myth of investors is that its a cheap fund and hence better than a fund with NAV of 20 or 100. NAV growth is nothing but growth of investments and it does not matter what NAV rate is! Rs 10 NAV mutual funds and Rs 100 NAV mutual fund will grow with same rate if their investment quality is the same. There is no reason to invest in a fund that has low NAV.

Myth of High Dividend from Low NAV Fund:

Majority of our “Educated” Agents will tell you that buying low NAV fund will help you in getting more Dividend (if you choose Dividend option) because Dividend is declared on number of Units held. So you will get more units of mutual funds if you invest in low NAV funds!

Whatever he says is true, but he himself does not know that it’s the investor’s money coming back to him and NAV value will again go down by that much value. So in real money terms, there is no benefit of dividend option. See difference between growth and Dividend options

Agents will market it very well and try to push the NFO’s for Sale:

Everyone wants to make money! What other product can be better for a mutual funds agent than an NFO!!! Agents get High commission on selling NFOs and hence they will do anything to sell it. They will spend money aggressively for Marketing as its taken back from Investors eventually and not the AMC. Caution, Be-aware!

Does that mean all NFO’s are Bad?

No! Every existing mutual funds was NFO once upon a time. You should go through the NFO Offer prospectus to find out whether the offer seems interesting and logical enough for you to invest in it. Only then you can go for it. But just understand that only a handful of all NFO’s become good funds.

So out of 1000 mutual funds only a few like 20-30 will be extremely outstanding funds. So the decision is yours! Do you want to take the chance? Or you want to wait and let it show its true colors before you get into it.

Which is the new hot NFO in the Market?

Reliance Infrastructure Fund is the new name in the market these days. All the things which I talked above applied to this too. Before Investing in it read about it in acute detail. I will provide my short view on this.

Reliance Infrastructure Fund is a Sectoral Fund (Infrastructure). This sector looks attractive over next few years. The picture would be more clear after the Budget is out because that’s when we exactly know what is Govt plan in this particular sector.

If its a bad news then the stocks in these sector will take a hit and suddenly it can become a reason for suicide for its investors. Why not wait till the budget and then 😉

We also have some good Infrastructure funds in the market with proven record like UTI Infrastructure Fund and TATA Infrastructure Fund. It depends on you now what you want to do? The Fund will also put money in derivatives segment, which can again make the fund more risky and rewarding. Read more about Reliance Infrastructure Fund NFO details.

Conclusion: Investing in NFOs can be like shooting in dark for retail investors! A better idea for them is to invest in something which has more probability of performing well. NFOs can be extremely successful because of their unique idea or investing style but its too tough to choose them successfully. Better to avoid them!

Here are my 2 day trek pics , Have a Look. I am putting the best Pic taken by me 🙂

Before anyone asks, I must tell that its taken by a normal point and shoot camera 🙂 Its just a result of Interest and Willingness to take some good pic + Macro Mode 🙂

Liked the post, Subscribe here to get posts in email