Need Insurance and Investment advice

POSTED BY rajesh ON August 24, 2012 8:37 pm COMMENTS (17)

Hi

My name is rajesh. As my search yields over the internet i came to know i am just another software engineer who knows nothing about personal finanace or how to manage my finances .They should have taught me these things in school 🙁

Anyway I have just started my career (just 2 months ago) . My current age is 25. The CTC i’ve have been offered is between 6-7LPA . My parents are government employees and will be retiring next year . Now i’ve got a lot of queries about tax deduction,savings,investments,insurance so i’ll be listing them one by one. Hope you guys will be able to clear my confusions and help me out in making wise decisions regarding my future. 

1. I am thinking of buying a term insurance of around 1Cr. With which comany do you guys suggest i should go for and how many terms ? Should i divide the amount among different companies ? I shortlisted aegon,aviva,bharti axa and HDFC . My parents are not in favour of private players and want me to go for some LIC plan which will offer me some returns as it ends(but huge premiums :O ) . PS : Genetics say average life expectancy in my family is 70-80yrs.

2. I already have a ULIP policy called sbi unit plus-2 regular bought in 2008 and paying a premium 0f 24k annualy since then. What to do with this ? I haven’t read good things about ULIP over the internet ?

 

3. After buying insurance what other options i have got to invest ? Mutual funds,SIP,stock trading ? Do you suggest a personal finance advisor or will i be able to manage these things on my own ? I do not know anything about these as of now.

Please consider the fact that hiring a personal financial advisor cost anywhere between 5k-30k . Will he be able to help me out in making descions which will reap me enough profits to justify his/her fee ? and if yes please advice me some good finance advisors.

 

Note :- I might go for further education before i reach 30.

 – Getting married around the age of 28-29.

 – Can hop jobs in future.

 – Parents are very strictly against private players in insurance and other          sectors. They want me to go for LIC and keep my money safe in bank                  which i am not in favour of.

 – All advices,books,sites articles regarding these you can suggest are                  welcome.

17 replies on this article “Need Insurance and Investment advice”

  1. rajesh says:

    @Ashal : haha thanks 🙂

    I am trying to improve my level and would soon start to constantly irritate you guys with my queries 😉

    Thank you all of you 🙂

    1. Dear Rajesh, you are always welcome & we ‘ll wait for that irritating day. All the best to you. 🙂 🙂

      Thanks

      Ashal

  2. rajesh says:

    @Ashal : Ha ha aapne to sabhi kuch mei mana kar diya 😉

    My job timings : I leave home at 8:30 in the morning and comes back by 9 usually in the night.

    And somehow i have just started reading about these things…from last one week i was reading about insurance and that’s how i decided upon term insurance and shortlisted a few companies.

    Now i was thinking of going for insurance by the end of next week and then moving on to other things following the policy of learning and doing one thing at a time 🙂

    Now do you still suggest that i should wait and learn ? or would you like to change your advice a bit.

    PS : i am getting the feeling that now i am making this thing irritating for you guys . Sorry in advance 🙂

    1. Dear Rajesh, Please do not go for that Term cover now. there are more financial reasons also apart from that learning & understanding thing.

      Are you married now? No.
      Do you have dependent family members now? No
      Do you have some financial liabilities in terms of home loan or vehicle loan or education loan now? No

      When the answer is no for all the 3 things above, you do not need insurance at all at current juncture.

      Regarding to allocate time to read, I already wrote ” From busy schedule” 🙂

      So it’s up to you, how slow or fast you can move ahead to increase your financial knowledge.

      Thanks

      Ashal

    2. Dear Rajesh, To add on that irritation thing – No not at all. You are not irritating. you are far below that level. Please work hard to reach those level of irritation. A lot of work awaits you. 🙂

      We w’d like to be irritated by your constant postings. 🙂 😛

      Thanks

      Ashal

  3. rajesh says:

    @The ZionView : as of right now i do not know anything about finances 😉 . But still will come up soon with details of my ULIP plan for you guys to evaluate.

    @Manish and Lokesh : Hmm thanks for such detailed replies seems like now i should start reading and getting as much knowledge as i can about these things .

    Just last one considering my age(25) please suggest me the no. of terms for which i should go for insurance like till 60 yrs,70yrs or 75yrs(Only aegon is the option here).

    1. Dear Rajesh, a lot has been discussed by others & you. Let me put my foot in to this discussion. Here are my views.

      1. Please do not purchase any term plan.
      2. Do nothing to your ULIP.
      3. Do not invest for that tax saving based 1L Rs. investment.
      4. Do not pay any person the fee for financial planning/advisory.
      5. Do not think for health insurance or any other things.
      6. Do not invest in any MF or other investment oriented product.

      Please read the above 6 points again. Yes I’m offering the counter view from others. Now as you have read the above 6 points twice, here comes the 7th point.

      7. Please devote 2 Hrs. on daily basis from your busy schedule & start reading from the discussion no. 1 in this forum. Till date some 4500+ queries has been posted.

      So your task is cut out for next 2-3 months, do nothing in terms of action for your finance but start reading. By the time you ‘ll finish your journey in jagoinvestor forum for past discussions, more ‘ll already be there for you due to continuous postings. Finish all these & return back to this forum & by that time either you ‘ll be confident enough to start on your own or be confident enough to pay fee & let the adviser/planner do the planning for you. Of course Implementation ‘ll be in your hands.

      Thanks

      Ashal

  4. Lokesh Jain says:

    @ Rajesh –

    I already told you about term insurance – split it up in 50-50 in LIC and HDFC/ICICI. There are many other insurance plans available in market in form of endowment and ULIPS. These can also be considered. Jeevan Anand of LIC is most sought out after plan. There are many others from private insurers. Keep simple plans – dont go in for much complex plans.

    Read on and you will get to know more about insurance plans, features, charges, maturity benefit, death benefit and so on.

    Coming to advisor part – Justification only comes with customer satisfaction. After a year when you see your financial plan going through, you will come to know how is it performing and if you feel satisfied, you will justify it. And I will emphasize a point, its a long term relationship with your financial advisor. Not a year or two. So give him time to understand you, your financial behaviour, etc. And then I feel he will definitely help you out in giving you good advisory services.

    Jagoinvestor also provides financial planning and advisory services. Even I provide these services. You will find many. But its you who will have to start by getting knowledge and learn the basics of finance and investing.

  5. rajesh says:

    @Manish Chauhan : Thanks for giving me an idea about financial advisors and how is he going to be helpful but i am still doubtful and in the last part of your reply you mentioned about portfolio planning and portfolio manager….now is it a different service from what a financial advisor would offer ? And again may be i am repeating unnecessarily but is paying 12k-25k a justified amount ?

    @Lokesh : yeah i’ll start reading soon as i have to show a minimum investment of 1Lac by the end of this financial year. Still have to get details about ULIP.

    Important : among all the discussion we missed the point about term insurance or some other form of insurance which you guys consider will be better for me.Next month i’ll be 25 and premium will increase. So, i need advice regarding this. Also please suggest the number of terms and the companies i should go for while taking insurance .

    1. Rajesh

      Portfolio managers are generally reffered to those people who just look at your investments , nothing else .. Only investments , they help you design a portfolio of investment products , where the focus is on maximizing returns and minimizing risk . However the sad part is there is nothing like that in real life , Most of the time’s , the so called portfolio managers just keep on buying and selling and your bear the brokerage costs . You search on net and you will find horror stories on this.

      Financial Planner or an advisor , is mainly going to touch all the parts of your financial life , the more focus is on organising your financial life for best results , the focus is on simplicity and keeping things simple , focus is more on planning your investments in relation to your financial goals ,. In the process investment planning also happens , but its not the sole focus. The returns are never guaranteed , just like a doctor cant guarantee a cure, but give his best .

      I think you are too early starter right now , any topic is very new to you , I would suggest not rush into anything , give some time in learning things . you still have many weeks and months.

      And regarding the cost of financial planner , I want you do an exercice , after reading more things about investments and everyting , write down 5 points on what it would cost you , if you do not hire a planner in your life , What can go wrong without hiring a financial planner . the list you get with this exercise will see you on your face and make a decision for you , if you want to hire a financial planner or not .

      Manish

  6. TheZionView says:

    I am just gonna answer the Ulip part.

    If your premium is below 50K per annum even in case of outperformance of your fund you will loose out a lot.

    This is because of the combination of Policy administration charge(fixed amount which will increase evey year based on a % like 5%) and Fund Management Charges.

    When premium is way above 50K this Policy administration charges become small % hence it will work out if your fund performs better.

    If you dont understand its best to close down the policy even if it means to book some loss on it.

  7. Lokesh Jain says:

    @ Rajesh

    I am sure Manish has answered your Advisor part appropriately. Regarding other queries your fund value of SBI Unit plus – You check your latest premium paid statement. There would be total no, of units. Taking today’s NAV we can calculate the approx fund value.

    As I have mentioned the website, start reading about them and you will surely get into basics of investing.

  8. For other questions of yours , I would strongly suggest you read my book – “Jagoinvestor – Change your relationship with money” – http://www.flipkart.com/books/9380200415?affid=INManish2

    1. Lakshmipathy G says:

      Hey Rajesh,

      As manish suggested you can check the jago investor book Which will give you a lot more answers to your questions. Even if you hire a financial advisor you will doubt yourself and the advisor (unless you feel comfortable with your knowledge) which will ultimately ruin your goals. “Think Before you Act and not the viceversa.”

  9. Rajesh

    1. I will answer Financial Advisor part first. Your understanding of “what a financial advisor will do exactly when I pay him fees” has to be very very clear, because the biggest disappointments comes from this expectations .

    Financial Advisors dont do very different things which you can do given you have lot of dedicated and time to work on your financial life . This is something most of the financial advisors wont tell you. We are also into advice business, We dont claim that we will do something which you cant do on your own . Its upto you to decide if you have enough time, energy, patience, and commitment to do it yourself. You can read things up , learn things and work on each area of your financial life and would do very good, I can assure you , many are doing it .

    So dont link the performance of portfolio with financial advisor . Let me give you an example , people want to exercice and get good health , what does a gym do here ? Does it give them good health ?

    No , it only facilitates them , it only gives him an environment to make good health , the person can do his exercise at home, but does it happen ? Hardly ! .. When you pay in gym, you are not paying for the gym, you are paying for the environment and the structure it will give to you , the trainer and equipments are supplimentary , and they will help , but still its not what you exactly pay for . Think for it a moment .

    If you are hiring a financial advisor so that you can be free from thinking about your financial life and he can take over, I suggest not do it , its strongly against the principle’s of personal finance, only you have to deal with it.
    There are two scenario’s now .

    a) Scenario 1 – You can expect things from financial advisor , not get the best one , keep searching him , ask on this forum or other places, and keep your financial life moving the way you are doing right now . You can then after 1 yr or so , feel that you will work on it because you are not getting someone right. You can save the fees and do it yourself. You might always have a self doubt about your decisions. In this process, you might take good decisions , but might not be the best , because of lack of experience and because you lack deep understanding of few things .

    b) Scenario 2 – You can pay a financial advisor “knowing” that he will help you speed up the process of decision making and you will be more confident on what you are doing exactly. You can look at the fees as the investment you are making for this. This is exactly what a financial planner’s role in your life is , nothing else. For portfolio planning and taking over the monitoring part , you are then looking for a portfolio manager or a wealth manager .

    Just break up the fees of a advisor into months and next 2-3 yrs, you will see you are paying him less than many other people like your mobile and internet bill, but people dont look at it that way , the big one time outgo of money stops them.

    You need to pick your scenario – there is no right choice, its always your choice .

    Manish

  10. rajesh says:

    Hi Lokesh,

    Thanks for taking out time for such a deatiled and well explained reply. 🙂

    Coming back to the topic

    1. Yes i am confused about financial advisor thing.Lets say if i pay Mr.x his fee does it become his responsibility to manage my finances and i am free of all this. Does a financial advisor ensures profit given the fact that’s what i’ll be paying him for ?

    2. The insurance amount of 1Cr is totally an emotional decision which was supported by low premium in term plans. So practical advice is welcome 🙂

    3. About fund value(What does it stand for)…i’ll able to get back to you with details in the morning.

    4. a) Tax Saving Mutual Funds – Will have to read abut them.
    b) Diversified Equity Mutual Funds – Will have to read about them.
    c) PPF – Again i do not know much except that it is long term investment. I have got one PPF account and am considering the investment of around 25000 annualy in this.
    d) Real Estate – Yes investing in real estate is on the cards so you can consider a home loan by mid 2013.
    e) Health Insurace – my company is offering it.

    A very big thank you for giving a notional investment plan but i am very naive at these things and don’t even know to whom money should be given to invest in MF,EMF,debt funds but will start reading about these from now on 🙂

    More advices are welcome 🙂

  11. Lokesh Jain says:

    Hi Rajesh,

    Considering whatever you have written above, I assume you are a moderate risk taker and its really good you have taken a look on your personal finance earlier in life. Earlier, the better. Financial Advisor , I presume is a must, unless he is biased and looks for his own individual motives of making money. That nobody can tell, that Mr. X is a good advisor or Mr. Y is a good advisor. Nowadays there is a lot of financial information available on the net which in turn also confuses the customer what is right and what is not. In this case I am happy to say Manish Chauhan ( Jagoinvestor) is definitely doing a great job by providing necessary information regarding investments and finance at one place.

    Coming to your queries:
    1. How much insurance you need. how have u derived 1 cr.? In any case u plan to go ahead with term insurance of 1 Cr., as ur parents say divide it 50-50 in LIC and HDFC / ICICI.

    2. ULIPS are long term investment. I do believe in short term ULIPS have not been able to generate returns due to tough market, but in the long run I feel it should work good. The scheme seems to be good, but i havent analysed its returns as of now. I also do not know your fund value so cannot comment on it.

    3. There are various options available in market. I am enumerating some options you could go for:
    a) Tax Saving Mutual Funds
    b) Diversified Equity Mutual Funds
    c) PPF
    d) Real Estate
    e) Health Insurance (for you and family) (if not from company)

    There are various other options, but this are you could look for to start with.

    I am not suggesting stock trading or investing at this stage, as i presume you do not have much stock market knowledge and also you are looking for education also before age 30. So money should not be in risky assets.

    I presume your salary to be in range of Rs.45k take home out which your expenses monthly considering to be Rs.20k, you should have atleast 25k to invest.

    A notional investment plan:
    2000 – SBI Unit Plus (your existing ULIP)
    3000 – Tax Saver Mutual Fund
    2000 – Term insurance of 1 crore (approx)
    5000 – Diversifed Equity Mutual Funds
    5000 – PPF
    8000 – Debt Funds / Short term Fixed Deposits

    By this investment, you also cover your Sec 80C Tax saving limit of Rs.1 Lakh.

    In case you have any query, do ask. You also start reading about personal finances. Many websites are available –

    jagoinvestor.com (personal finance)
    valueresearchonline.com (mutual funds)
    personalfn.com (personal finance)
    investmentyogi.com (personal finance)
    moneycontrol.com (stocks and economy)

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