All that you want to know about Gilt Funds - Swapnil Suvarna

Gilt funds predominantly invest in government securities (G-Sec) issued by the RBI on behalf of the government of India. This variant of debt fund invests only in government bonds unlike other debt funds which invest in debt instruments across the board. Since, G-Sec market is primarily dominated by institutional investors, gilt funds gives an opportunity for retail investors to participate in the bond market. Gilt funds are available for short-, medium- and long-term.

Risk involved in gilt funds

Though sovereign papers do not expose investors to credit risk, gilt funds does not guarantee returns like bank fixed deposits, saving accounts and small savings fund. The performance of these funds is affected by events like RBI monetary policy, supply/maturity of government debts, inflation & inflationary outlook, economic growth outlook, deposit/credit growth and global bond yields. Moreover, these funds invests in G-Secs which are not actively traded i.e. highly illiquid.

Who can invest?

Gilt funds are ideal for those clients of yours who are risk averse and at the same time expect to generate reasonable returns on their investment amount.

When should one invest?

An ideal time to invest in these funds is when interest rates are expected to peak, because there is an inverse relationship between the price of the G-Sec and interest rates. Bond yields and interest rates move in the same direction whereas the bond prices move in the opposite track. A fall in the interest rate leads to a rise in the bond prices as well as the NAV of the gilt fund or vice-versa. Also, longer the duration of the securities/portfolio higher will be the capital appreciation or vice-versa.

Current Scenario

Now that the benchmark yield have peaked out of 8.97% in November to below 8.50% levels in December 2011 following signs of easing inflation and hopes of a pause to the RBI rate hike, one can consider investing in gilt funds. However, given that we are expecting an economic slowdown, the performance of the funds in the near term would depend on the fund manager’s ability to aggressively manage duration and generate reasonable capital gains. The benchmark 10-Year government bond yield have surged to 7.5% in the year 2009, 7.9% in the year 2010 finally touching 8.97% in November 2011 following RBI measures to curb rising inflation. 

Precautionary factors that need to be kept in mind before recommending gilt funds

• Lower expense ratio, exit load charges and period (shorter the better).
• Fund size (large fund size could be a disadvantage at a time of extreme volatility).
• Portfolio (quality and liquidity of the papers held).

How much should you save to build your Retirement Corpus?

We see a lot of advise floating around when it comes to retirement planning.

Many experts advise to save a fixed percentage of your salary every month in order to build your retirement corpus, usually ranges from 5% to 20%.

But is this approach of having a ball park percentage figure for investment right?

How much should you be saving for building your retirement corpus?

How much you need to save depends on how much you need when you retire – your retirement corpus.

The fact is, how much you need to save is unique to you – no two people need to save the same amount for ensuring a financially independent retirement.

This is because the retirement corpus needed for you depends on many different factors, and since these factors vary from person to person, the actual amount of saving required also naturally differs!

So let’s have a look at the things that determine how much you should be saving for your retirement.

1. Standard of Living

Your retirement corpus is used to generate a monthly income for you in your retirement. So, its size is directly proportional to the monthly amount that needs to be generated.

The higher your standard of living, the more you would need each month in your retirement. This means you would need a higher retirement corpus, which in turn means that you need to save more every month while you are earning.

You can roughly calculate how much you would need in your retirement from your current monthly expenses. Of course, you would have to factor in inflation, and it would give you a rough idea about your needs in your retirement.

If you think you would not maintain the same standard of living in your retirement – say foreign vacations or fancy gadgets, then your expenses would obviously be lower.

2. Inflation

Inflation is an important factor when extrapolating today’s monthly expenses to your post-retirement expenses.

For doing this, you would use the compound interest formula and the most important factor there is the expected rate of inflation between now and your retirement.

A higher rate of inflation means that you would need more money to maintain the same standard of living, resulting in a higher retirement corpus – which means you would need to save and invest more every month today!

3. Income Expected in Retirement

Of course, if you have any other income in your retirement, that would reduce the need to generate additional amount.

This can be anything, say pension or rental income from your second flat / apartment. Or even small earnings from your hobbies. Anything.

Basically, if you have income in any form during your retirement, your retirement corpus would be lower, which means less investment needed while you are earning.

4. Rate of Returns / Interest Rate

The rate of return comes into play at two stages – for building your retirement corpus, and for generating the monthly income from your retirement corpus.

This rate of return also directly depends upon the instruments you choose for investment while saving for your retirement, and the instruments you choose to park your retirement corpus in.

If the rate of return is high during your earning stage, you would need to invest less every month. This would be the case if you are investing in instruments like shares / equities.

On the other hand, if you are investing in safe avenues like bank FDs and endowment plans of life insurance companies, the amount you would need to save every month to generate the same retirement corpus would be higher.

The rate of interest post-retirement is crucial in calculating the actual retirement corpus. If you would be parking the retirement funds in safe avenues generating steady income (like most people should do), the retirement corpus needed for you would be higher, resulting in higher monthly investment requirements today.

But if you can invest even some portion of your retirement corpus into high yield avenues like stocks, you would need a smaller retirement corpus, thus needing lower monthly investments today.

5. Years Remaining to Retirement

This determines for how long you can save and invest to build your retirement corpus. The earlier you start, the lower you have to invest every month.

6. Life Expectancy

The retirement corpus has to provide for your entire retired life when you are not earning. Therefore, your life expectancy plays a big role in the calculation of the retirement corpus.

The higher the life expectancy, the higher is the number of years for which your retirement fund needs to last and provide for you. Therefore, the higher would be the retirement corpus, and higher would be the amount you would need to set aside for your retirement.

Conclusion on Retirement Planning

As you can see, calculation of the retirement corpus depends on a number of factors, and many of these are assumptions. So, retirement planning can’t just be limited to setting aside a fixed percentage of your income every month.

It is a complex exercise, and the above mentioned factors should help you get an idea about the amount of investment needed for building your retirement.

Happy retirement planning!

Gilt Funds

Greetings,

We are recommending investors to invest in Long Term Gilt Funds with a horizon of 1 to 2 years.

Following are the funds you can invest in for the same:

• Birla Sunlife GSF LT - Growth
• HDFC Gilt Long Term - Growth (Prefered)
• Motilal Oswal Gilt Fund NFO

For more details write Vivek on vivek@wealthcare.net.in or call on +919820737626

Income Tax isn't all, there is Wealth Tax, too - DNA (30th Nov 2011)

DID YOU KNOW? - Difference between liquid funds and ultra short-term funds (Live Mint 15th Nov 2011)

High interest rates and volatile equity markets make a good case for liquid and ultra short-term (ST) funds. Given that funds in both these categories are giving around 8.5-9.5% and are considered relatively less risky owing to the short maturity of the securities held by them, they are good instruments to park funds in the interim. But which should you choose--a liquid fund or an ultra ST fund?

LIQUIDITY PROFILE AND RISK

While liquid funds invest in securities with residual maturity up to 90 days, ultra ST funds can invest in securities with maturity higher than 90 days. At present, the average maturities for liquid funds are around 45-60 days; for ultra ST funds, they are about 150 days or lower.
At the time of purchasing liquid funds, if your funds are transferred before 2pm, you get the previous day's net asset value (NAV), else the same day's NAV. For ultra ST funds, there is no such provision; if you transfer funds before 3pm, you can get the same day's NAV, else the next day's NAV. At the time of redemption, the same day's NAV is applicable if the funds (both liquid and ultra ST) are redeemed before 3pm; the redemption pro- ceeds go to the investor the next day. Liquid funds are generally considered less risky as compared with ultra ST funds on account of the fund duration being lower. Moreover, there is no mark-to-market requirement in liquid funds and NAV valuation is done on accrual basis by adding the coupon accrued for the day. For ultra ST funds, the portions of securities with a maturity above 90 days have to be marked to market. In other words, the change in their market price as a result of change in yield has to be recorded on a daily basis, which may cause additional volatility in NAVs. Generally, the marked-to-market portion of the portfolio in ultra ST funds is not high, thereby minimizing the impact of price change.

TAX TREATMENT
The tax implication makes ultra ST funds attractive. Liquid funds are subject to a dividend distribution tax of 25% (effective rate after surcharge and cess is 27.04%). For ultra ST funds, the tax is 12.5% for individual investors (effective rate 13.52%). The short-term capital gains tax (for growth units) in case of both is as per your income-tax bracket; long-term capital gains tax is at 20% with indexation.

EXIT LOADS
Liquids funds usually don't have an exit load. Ultra ST funds charge exit load in the range of 0.1-1% if funds are redeemed before a specified time period, in the range of one week to six months. The exit load helps ultra ST funds maintain stability and manage fund outflows better. This is beneficial for small investors and reduces NAV volatility.

WHAT SHOULD YOU DO?
While liquid funds score better on liquidity, ultra ST funds give better returns. Currently, the category average pre-tax annualized return for ultra ST funds is around 9.5% and for liquid funds 8.25%. Remember to check the exit load and the credit quality of the portfolios.

Only 15% of private sector staff in India are investing for retirement

As low as 15 per cent of employees in the private sector have started investments for retirement so that they can maintain the level of living standard post the work period, says a study by Metlife International.


http://www.financialexpress.com/news/15-pvt-sector-staff-invest-for-retirement/875146/0

Now earn up to 16.53% returns from public provident fund

http://economictimes.indiatimes.com/personal-finance/savings-centre/savings-news/now-earn-up-to-16-53-returns-from-public-provident-fund/articleshow/10733486.cms

Impact of Direct Tax Code on Insurance - ET (8th Nov 2011)

It’s time for the annual taxsaving rigmarole to start – calls to your chartered accountant or financial planner, poring over documents, discussions on best-suited investment options, and so on. Things may not be much different this year from before, except for one key difference. You could see your planners considering the proposals in the Direct Tax Code (DTC) while drawing up the list of tax-saving instruments for you. Since many individuals prefer to (or are goaded into) buying life insurance policies merely to save tax – a tendency, say financial planners, that is not advisable at all – here’s what you need to know about tax breaks pertaining to life and health insurance policies under DTC. 

While DTC is yet to be formally legislated and, hence, is subject to change till it is implemented, it wouldn’t hurt to keep an eye on the proposals while planning for the current year. And the chief reason why you need to understand DTC’s provisions on insurance is because it will have retrospective effect, which means policies that you may buy this year keeping the current norms in mind (and even those bought in the past, if any) might see different tax treatment in future. Under the current laws, an individual can claim deduction on premium of up to . 1 lakh per annum paid as premium for life insurance. Life insurance is among the many tax-saving avenues under section 80 C of the Income-Tax Act. The section also offers tax breaks on investments in provident fund, pension fund, and ELSS (equity-linked saving schemes), besides home loan principal repayment and children’s tuition fees. If DTC is implemented in its existing form, the total savings-related deduction will be . 1.5 lakh. 
However, out of this, an aggregate deduction on life as well as health insurance premium and children tuition fees will be restricted to . 50,000. What’s more, you will not be entitled to deduction on life insurance premium if it exceeds 5% of the policy’s sum assured. That is, if your policy offers a cover of . 10 lakh, then your annual premium cannot be more than . 50,000. 
If your policy structure does not meet this condition in any of the years, you will also have to pay tax on the proceeds received upon completion of the tenure. This apart, the maturity proceeds will be exempt from tax only if they are received upon completion of the original period of contract of the insurance. 
Another change is that both forms of insurance – life and health – are clubbed together for calculating deductions unlike now, where health insurance-related concessions for premiums up to . 35,000 (or up to . 40,000 in some cases) fall under section 80D.

Buy Health Insurance as Early as Possible to Make the Most of it - ET (2nd Nov 2011)

Over the past decade, the entry of private players has managed to change customers’ perception about health insurance policies. With all the information about insurance being readily available and considering the fast-changing lifestyles, customers are waking up to the fact that it is an absolute necessity to insure their health. This rapidly changing state of affairs has also made insurers to drastically improve their levels of services and concentrate on customer satisfaction. Insurers now customise their products according to the needs of their customers, thereby improving the service levels in the market. 

With the ever-increasing medical costs, an unexpected illness/disease/accident leading to hospitalisation is likely to make a serious dent in the pocket of those hospitalised. It is, therefore, imperative for one to invest in good health insurance policies to guard against unexpected contingencies. 
Gone are the days when consumers bought insurance policies to just save tax. Now, many buy health insurance as a collective security tool for his/her family, as everyone is bound to go through unforeseen circumstances. However, there is still a sense of doubt in the customers’ mind on what product package suites them the best. 
There are various aspects one needs to look at while purchasing health insurance policies: 
    The right age to purchase the policy 
    The appropriate medical tests the customer needs to go through prior to purchasing the policy 
    Ways to maximise returns from the policy 
    The appropriate riders or addons that go hand-in-hand with the policy purchased 
    The ailments the policy covers 
    Family history of critical illnesses, when the customer is advised to go for a smart health critical illness cover 
When it comes to health insurance, the golden rule is ‘the earlier the better’. Insuring self and family from a relatively young age and ensuring that policies are renewed on time to ensure uninterrupted coverage will enable the policyholder to get the best possible coverage at the most competitive prices. Most companies have minimum and maximum entry ages for their policies and it is important to check these before opting for an insurance policy. Many companies also insist on mandatory medical tests once the proposer crosses a certain age (usually 40 to 45 years of age) and, hence, it is advisable to avail of insurance cover before this age. 
It is also advisable to get your insurance consultant to brief you thoroughly on the salient features and benefits of the insurance policy you intend to purchase and also obtain a comparison between various insurance policies on offer to decide which one best suits your needs. Medical insurance policies, like all others, have exclusions and it is equally important to understand what is not covered under a policy. Understanding the exclusions will go a long way in sparing you the frustration associated with the rejection of a claim. 
Many medical insurance policies provide add-on benefits either free or at nominal additional cost. It is always worthwhile to check out these benefits since they cover certain expenses, which would not otherwise be covered. Some prominent add-on benefits include: 
    Hospital cash allowance 
    Home nursing 
    Parent accommodation as a companion for children 
    Ambulance charges 
    Cover for charges on in-patient physiotherapy 
    Cover for expenses incurred by accompanying person 
    Children’s education fund 
It is also recommended that apart from investing in a basic medical policy that covers expenses incurred during hospitalisation, one should look at other policies that provide comprehensive medical coverage. Some of the important products to be considered include: 
    Critical illness policies 
    Hospital cash policies 
    High deductible policies 
Investing in medical insurance also entitles customers for tax deduction under section 80D of the Income-Tax Act. 
In short, purchasing a medical insurance policy is a serious, deliberate and long-term decision. It is imperative for one to opt for a custom-made product to suit their specific individual needs. Expending some time and effort to select policies with the most comprehensive coverage would be a very worthwhile investment that would guarantee piece of mind.

Amarnath Ananthanarayanan 
MD & CEO 
Bharti AXA General Insurance

Make your Insurance Portfolio DTC ready - ET (2nd Nov 2011)

Review your insurance portfolio now as the proposed Direct Tax Code won’t offer tax breaks for all your life plans

PREETI KULKARNI 

    Endowment plans (or traditional plans, in life insurance industry parlance) may see some changes soon. Always a crowd favourite, traditional plans — life insurance plans that give you insurance cover plus a bonus on maturity or the insured amount to your dependants on your death — have regained their lost glory after the recent changes in the guidelines on unitlinked insurance plans, or Ulips. Ulips had stolen the thunder from traditional plans, but that changed after the new guidelines were introduced. Insurance sellers have again started focussing on traditional plans for attractive commissions. However, the Insurance Regulatory and Development Authority, or Irda, chief J Hari Narayan has expressed concerns over the low protection component in these (traditional) products. He feels such products may not match the requirements of the Direct Tax Code (DTC) proposals, which would offer tax breaks only if the sum assured is at least 20 times the annual premium. As a result, the regulator is considering prescribing a minimum threshold in terms of the life cover to be offered by such traditional products. Even as the regulator carries on with its deliberations, it is time for you to assess the protection component of your endowment policy. 
THE TAX ANGLE In fact, this is the right time to do the exercise, as you will be giving finishing touches to your tax planning investments. You can also expect calls from insurance agents, who would try to sell you policies that offer the triple benefits of tax-saving, insurance and investment. And, most probably, the agent will try to sell you a traditional product. “Insurance policies entail recurring premium payments and, thus, the decision you make this year may have an impact in the future years, too, if the DTC takes effect in its current form,” says Rajesh Srinivasan, senior director - tax, Deloitte India. The DTC is likley to come into effect from April 2012. 
Ideally, it is best to address the objectives of insurance, investment and tax-saving separately. However, if you have decided to choose insurance this year to reduce your tax outgo, it would be wise to keep an eye on the annual premium payable and the other terms and conditions of the policy. Ensure that the premium does not exceed 5% of the sum assured. Also, see if the endowment plan comes with a decreasing cover option, and if it does, whether it’s likely to fall short of your requirements any time in future. 
SECURE YOUR FAMILY’S INTERESTS Apart from the tax implications, you need to remember that the primary purpose of taking a life insurance policy is to provide for your family financially on your death during the tenure of the policy. However, due to blind reliance on agents’ advice and lack of awareness or research, it is not rare to hear of policyholders being stuck with multiple policies — for instance Ulips, endowment, moneyback and pension policies — and yet being low on cover. 
The total premium payout may run into lakhs of rupees a year, but the amount that the policyholder’s dependants may get in his/her absence may not be enough to fulfil their needs. 
Therefore, the first step while buying insurance or reviewing your portfolio is to find out if the current policies add up to your ideal protection requirement. There are various methods of determining this figure, but as a thumb rule, financial planners suggest that the sum assured should be at least 100 times your current monthly income. 
WEEDING OUT THE UNDESIRABLES Now, after a review, if you feel that your portfolio is not overloaded with policies and that you need to boost the sum assured, you can simply go for a pure term life policy – the cheapest and the most-recommended form of insurance. Buying such policies online will reduce your premium further. However, if you find yourself in a situation where the protection element is minimal despite the presence of several policies, the solution could be a bit more complicated. For, it would necessitate ending some policies, and, if required, replacing them with requisite term cover. 
You need to take into account several factors, including the cost structure of your policies, returns, tenure, number of policy years completed and the cost of acquiring a new policy, before arriving at a decision. 
“Low-yield traditional policies can be converted into paid-up ones, if it does not make any sense to continue with them,” says Suresh Sadagopan, certified financial planner, Ladder7 Financial Advisories. “One of the things to look for is how much cash a policy is sucking in and what kind of returns one can expect if the policy is continued with. One can figure out based on conservative estimates what an endowment or moneyback policy has offered as bonus in the past.” An endowment policy acquires a surrender value after completing three policy years. “However, the decision to surrender or make a policy paid-up also depends on a person’s circumstances. There are certain people who may not be able to get new policies. In such cases, we take a call on keeping the policy on if it does not pose a cash-flow problem,” Sadagopan says. 
In case of Ulips, the lock-in period is five years for plans issued after September 1, 2010. The accumulated funds of the Ulips discontinued before five years will be locked in and paid out on the completion of this period. Here, you can look at the increase sum assured option, too, but you need to bear in mind that even if premiums do not go up, the amount allocated towards investments will go down, as the mortality charges will certainly see a rise. 
In short, you would do well to take a cue from the regulator and evaluate your insurance needs and the level of preparedness that your current policies offer, particularly if they are endowment products with low insurance component. 
TOMORROW It is the End of Advisors as You Know Them

Better pay your own rent - DNA (19th Sep 2011)

You can get loan against the rent you are yet to receive - Mint (12th Oct 2011)

Did you know this...

Chinks in portability armour - Mint (12th Oct 2011)

5 Mid & Small cap Funds for any season - Fund Analysis - Cafemutual.com

5 Mid & Small cap Funds for any season - Fund Analysis - Cafemutual.com

We have a overlapping recommendation on 2 of the funds suggested in the article mentioned, DSPBR Small & Midcap Fund and HDFC Mid-Cap Oppoutunities Fund.

Apart from these we recommend the following

• IDFC Premier Equity Plan A
• HDFC Equity Fund
• HDFC Top 200 Fund
• Reliance Growth Fund
• Sundaram Select Mic-Cap Fund
• HDFC Tax Saver Fund (ELSS)
• SBI Tax Saver Fund (ELSS)
• DSPBR Tax Saver Fund (ELSS)
• Sundaram Tax Saver (ELSS)
• Fidility Tax Saver (ELSS)

Insurers may have to Honour Delayed Claims - ET (05th Oct 2011)

Irda tells insurers to honour the spirit of the contract, reject claims only on 'valid grounds'

PREETI KULKARNI

   You land up in a hospital on a medical emergency. The treatment costs a bomb. Your only solace is your medical insurance policy, which you have kept alive for 10 years — that too, without even making a claim — by paying annual premiums without fail. You file a claim to get the reimbursement of the hospitalisation expenses. However, to your horror, the insurance company rejects the claim, citing technical reason. You feel you are watching Michael Moor's Sicko all over again, this time as a victim of an evil health insurance company. Such Kafkaesque scenario is not unheard of in the health insurance sector. Consumer activist Jehangir Gai narrates such an incident where a policyholder’s hospitalisation claim was rejected because the insurer was intimated after the stipulated deadline. The fact that the policyholder was not in a position to intimate within the timeframe as he was hospitalised on an emergency and remained indisposed for a while failed to convince the insurance firm.
Explains Gai: “Sometimes, a person is admitted to hospital in an emergency (such as in the case of sudden appendicitis or heart attack) and his priority then is not to trace the policy document and intimate the insurance company. If a person forgets to inform the insurance company within the prescribed period (maximum seven days), then the claim is rejected even if it is submitted in time, within 30 days of discharge.” Then, there are cases where the claim-settlement process is stalled on the grounds that the original documents like discharge card, pathological test reports, X-rays, etc, were not submitted. “The original bills have to be submitted but not the documents, as these are required for subsequent follow-up treatment. There is no condition in a policy that requires the original reports to be handed over; just the copies would suffice. Yet, claims are rejected for non-submission of the original reports,” he says.

REGULATOR STEPS IN
In fact, so commonplace are cases of policyholders being dissatisfied with the insurers’ claim-approval record that the Insurance Regulatory and Development Authority (Irda) has had to issue a circular to life as well as health insurance companies asking them to refrain from repudiating genuine claims on the grounds that they are time-barred.
“Insurers’ decision to reject a claim shall be based on sound logic and valid grounds. It may be noted that such limitation clause does not work in isolation and is not absolute. One needs to see the merits and good spirit of the clause, without compromising on bad claims. Rejection of claims purely on technical grounds in a mechanical fashion will result in policyholders losing confidence in the insurance industry, giving rise to excessive litigation,” the note warns.
It advises companies not to repudiate claims unless they are convinced that they wouldn’t have been admissible even if reported within the specified time frame. In addition, now, insurers may have to incorporate a clause in the policy document stating that the delay could be accommodated if it is proved to be “for reasons beyond the control of the insured”. “Irda is reinforcing the philosophy that the contract has to be honoured in spirit. Even now, many companies refrain from rejecting claims on technical grounds. Even the ones that do so have to face litigation and usually the courts rule in favour of the claimant. Such cases can be prevented now that insurers have been asked to incorporate the clause,” says Gaurav Garg, CEO, Tata-AIG General Insurance.
This comes close on the heels of the Bombay HC’s directive to the Irda to outline norms for claim settlement. The Irda, responding to the directive, had said it would formulate the guidelines soon. The latest circular, however, is more in the nature of an advisory note rather than diktats insisting on compliance by insurers. Still, insurance companies may not find it very easy to reject claims on such technical grounds anymore.
Gai feels the circular may not improve the current situation much, but, at the same time, could be of help. “The clarification that in case of delay in filing the claim, it should not be rejected outright but an explanation should be sought to consider the reason for the delay, and the delay should be condoned if a valid reason is given, is welcomed. This will assist other courts to rule in favour of the consumer.” So, the next time your insurer seems reluctant to entertain a delayed claim, you can fall back on this new norm for succour. But, what would constitute such ‘unavoidable’ circumstances? “For example, family members of the insured may be unaware of the policy’s existence or the insured may have travelled immediately after making the claim. Similarly, the claim could have been made out of a remote location or due to a period of mourning after death of the insured, the family may have been unable to submit the documents on time,” says Damien Marmion, CEO, Max Bupa.

WHAT POLICYHOLDERS SHOULD DO
While you may now have recourse if your submission or intimation is delayed due to unavoidable circumstances, it is best to follow the procedure mentioned in your policy docket to ensure a hassle-free claim process.

LIFE INSURANCE:
“Usually, life insurance claims are rejected only if there is blatant fraud or suppression of material facts. It could be an illness so serious that it has the capacity to affect the insured’s longevity and had the company been aware, life cover may not have been extended,” says Kamalji Sahay, CEO, Star-Union Dai-ichi Life Insurance. With life insurance, the time frame for making a claim is longer than with health insurance, but the emotional strings attached to it complicate matters, at times. “There could be a delay in making the claim as the nominee may not be aware of the existence of a life insurance policy. He/she may realise much later, after three-four years have elapsed. Now, the Supreme Court has ruled that a claim becomes time-barred three years after the insured’s death. So, insurance companies can, technically, repudiate such claims. However, circumstances need to be taken into account. In India, typically, policyholders hesitate to discuss such issues openly and, hence, family members may remain unaware of such policies for a long time. These issues are factored in while processing death benefit claims and are usually paid out,” says Sahay.
Ideally, however, you should keep your family members informed about the purchase of such covers and also where they are kept – be it in the house or bank lockers. If the insurance company asks for documents like police or hospital reports, ensure that you submit them on time. “If it is getting delayed, the nominees can always enlist the support of the life insurer,” he says.

HEALTH INSURANCE:
If you are
availing of the cashless facility, it is the hospital’s duty to complete the process and forward the preauthorisation form to the insurer on your behalf. However, simultaneously, you would do well to touch base with your insurer – through the call centre or the TPA (thirdparty administrator) directly. “This will eliminate delay in sanctioning the request due to any delay on the part of the hospital,” says Shreeraj Deshpande, head, health insurance, Future Generali. If it is a planned surgery or hospitalisation, you can submit the pre-authorisation form even before the procedure commences.
In case of reimbursement claims, the deadline for submitting the claim along with bills is 14-30 days, depending on the insurer and the policy. Also, keep an eye on the time frame for intimating the insurer – you can submit the required documents later, but the company could insist on being informed about the hospitalisation within seven days.
TOMORROW Why it’s not Good Idea to Alter Financial Plan When Markets are Depressed

How policy rates hikes impact you - DNA (29th Sep 2011)

Interpreting your Bankers Advice

This is the plain truth about the Banking Industry. There are many instances where clients have come to us saying that Banks have compelled them either to go for unattractive FD's or expensive Insurance Products, at the time to allotting Lockers, which are not suited to the clients needs.
http://in.finance.yahoo.com/news/Interpreting-banker-advise-yahoofinancein-3752453008.html

Cover your home against natural disasters - ET Wealth (26th Sep 2011)

As the recent earthquake in Sikkim shows, no one is immune to natural calamities. Insuring your house will not only protect this costly asset but, more importantly, assure peace of mind, says Neelesh Garg.

    Ahouse is often the most expensive asset that is owned by an individual. The average Indian spends a good part of his life’s savings on buying and furnishing his house. Unfortunately, he does not pay too much attention to protecting it against natural or man-made disasters. He will insure his car, which costs 3 lakh, but his 30 lakh house and its contents are usually not covered. 
    While it’s true that the probability of damage to a car is greater than that to the house, but as the recent earthquake in Sikkim has shown, nature is unpredictable and a calamity can strike anywhere. It could be a flood in Mumbai, a tsunami hitting the coast of Tamil Nadu, or an earthquake in Latur. 
    While you can’t avert natural calamities, you can certainly protect yourself against the financial implications of rebuilding your damaged property. For a small premium of less than 1,800 a year, a home insurance policy offers a cover of 24 lakh to secure the structure of the house against damage by natural disasters and man-made perils (see table). Here are a few things you should keep in mind while buying home insurance. 
Cost of structure, not property Your property may be worth 60-70 lakh, but you don’t need such a big cover. The insurance is only meant to cover the cost of rebuilding or repairing the damage to the building, not the market value of the property. The cost of rebuilding the structure is 1,500-2,000 per sq ft depending on the quality of construction. A 1,500 sq ft house built with the best material should be covered for at least 30 lakh (1,500 ft x 2,000 = 30 lakh). It is beneficial to opt for a multi-year policy, which offers peace of mind along with with attractive discounts. Remember, however, that the cost of construction keeps rising, so it may be wise to review the home insurance cover every few years. 
Cover the contents Besides the structure, you also need to insure the contents of the house against damage. Not doing so can prove expensive as the total value of the contents could be greater than imagined. A rough calculation shows that the contents of an urban middle-class house are worth almost 12-15 lakh. This would usually include furniture ( 3-4 lakh), gadgets ( 2-3 lakh), appliances ( 1 lakh), furnishings ( 2 lakh), clothes ( 2 lakh), utensils ( 50,000) and ornaments ( 2-3 lakh). 
    Besides natural disasters such as storms, floods, or earthquake, the contents also face the risk of burglary or damage due to fire and short circuiting. Therefore, it is important to include the contents while picking a home insurance policy. The best option is to go for a package deal. If you take a comprehensive householder’s policy, companies offer additional covers along with the home insurance. The personal accident cover is especially useful as it provides compensation if an injury sustained in an accident results in temporary or permanent disability and affects the livelihood. In case of death due to accident, the nominee is given a lump sum as compensation.months after the disaster. 
    As far as man-made threats are concerned, the two major risks are terrorism and riots. Any damage rendered to the house by these can also be 
    covered under the home insurance policy. 
    How does one make a claim? After the calamity, inform the insurance agent about the destruction. The surveyor will undertake the process of estimating the damage. As it is difficult to list out everything you own after it is lost, especially at the time of a crisis, it is important to prepare an inventory of the contents beforehand and 
Additional covers Besides this basic protection, insurance companies offer add-on covers, such as the cost of living in a rented accommodation while your house is being repaired. If the house is rented out, the owner can take cover against the loss of rent if a natural calamity renders it unfit for occupation. However, these covers are for a limited period of up to 12 keep it in a safe place. This will make it easy both for the policyholder and the surveyor. 
    Home insurance protects your house at a low cost. In fact, the daily cost of covering it for 25 lakh is not more than the price of a cup of tea. Even so, the benefits far outweigh the cost. 
The author is the executive director of ICICI Lombard Insurance.

Even a bad SIP is a good bet - ET Wealth (17th January 2011)

Long-term SIP returns of equity funds show that you can never go wrong if your mode of investment is correct.

PRASHANT MAHESH 

    Wouldn’t you pity someone who invested in the Taurus Discovery Fund 10 years ago? It has been the worstperforming equity fund since January 2001, moving lethargically when other equity funds have whizzed past and created wealth for investors. Well, save your pity for those who chose not to invest in equities 10 years ago. Despite being the worst-performing equity fund in the past 10 years, Taurus Discovery has churned out 8.99% returns, which is higher than what a debt instrument would have earned during the same period. 
    The difference becomes stark when we look at SIP returns. The 10-year SIP returns of Taurus Discovery are over 15% (see table), much higher than what a debt instrument can offer. We looked at 10-year SIP returns of equity funds during different time frames and found that except for one instance, even the worst-performing equity fund had given significantly higher returns than monthly investments in debt options (fixed deposits, NSCs, PPF).
    Most investors already know that in the long term, equities have the potential to churn out the best returns among all asset classes. But many don’t realise that in the long run, SIP investments work best for them. “SIPs are an excellent tool for investors starting off in the age group 21-35 years as that is a wealth creation period,” says Partha Iyengar, founder, Accretus Solutions. During the early phase, individuals do not have too much to invest. For them, SIP is the best way to build an equity portfolio. Reliance Growth has given the highest SIP returns in the past 10 years. A monthly investment of 1,000 started in January 2001 is now worth 13.15 lakh, an annualised return of 38.17%.
    To see how SIPs work over different market cycles, we also looked at 10-year SIP returns at the end of 2008 and 2009. The results were not surprising. SIPs do work across market cycles as well, which means that a systematic investor need not worry about missing the bus or catching the tide. “SIP is an all-time product. It scores over a lump-sum investment since you invest irrespective of the market condition,” says Sankaran Naren, Chief Investment Officer, Equities, ICICI Prudential Mutual Fund. 
    In other words, you can never go wrong while investing in equities if the method you choose is right. As our research shows, long-term SIP returns of equity funds have always been higher than those of debt instruments. This may not have been possible if the investments were made in lump sum. 
    What is important, however, is to keep an SIP running over the long term and especially during downturns. There is no point in running an SIP for only a year or stopping it when the market tanks. “We recommend investors to do SIPs in diversified equity funds for long periods of time, typically more than five years,” says Vishal Dhawan, founder, Plan Ahead Wealth Advisors. Another mistake which most small investors make is close their SIPs when markets fall. “Stopping SIPs in bad market conditions defeats the very purpose of systematic investing,” says Anup Bhaiya, MD and CEO, Money Honey Financial Services.
    SIPs have evolved significantly since they were first introduced by mutual fund houses more than a decade ago. Now you can have SIPs in different intervals (daily, monthly, fortnightly or quarterly). The minimum amount of the SIP has also come down to 500. But one basic feature of the SIP remains unchanged: For the small investor, it remains the best way to invest in equities for the long term.

Which Health cover suits you? - ET Wealth (27th Dec 2010)

When health claims can be rejected - ET Wealth (20th Dec 2010)

http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=pastissues2&BaseHref=ETM%2F2010%2F12%2F20&ViewMode=HTML&PageLabel=42&EntityId=Ar04200&AppName=2

Are you a "buy & forget" investor - ET Wealth (20th Dec 2010)

We believe that all good things come to an end. This article supports our view that it is definitely beneficial to take timely profits than simply hold your investments forever.

http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=pastissues2&BaseHref=ETM%2F2010%2F12%2F20&ViewMode=HTML&PageLabel=33&EntityId=Ar03200&DataChunk=Ar03300&AppName=2

Buy Insurance only from a Professional Agent

This article helps you understand how does a Professional Agent defers from a person dealing with a Part timer.

Health insurance Portability - DNA (17th Sep 2011)

In the article below there are some essential points which one should consider at the time of porting their Health Insurance Policies from one company to another. 

Know What Makes a Financial Plan Succeed - ET (15th SeP 2011)

Financial plan just lays roadmap to your goals. The key is in ensuring extraneous factors don’t affect it.

NIKHIL WALAVALKAR 

Most people consult their family physician when they have health problems. The physician diagnoses the problem and writes the prescription. The patient follows the medical prescription and regains health. 
The scenario is almost similar when individuals approach financial planners. A financial planner prepares a financial plan to help clients achieve their financial goals. 
A financial plan takes into account all possible cash flows, possible contingencies and needs of an individual. But is that enough to ensure that the clients realise their dreams? Not really. Clients must keep in mind some factors that can reduce the possibility of success. 
BEHAVIOURAL ISSUES “The client himself is the biggest factor coming in the way of the success of a financial plan,” says Ranjit Dani, a financial planner with Think Consultants. Individuals get swayed by environmental factors such as information flow, peer pressure, emotions, etc. 
“It has been observed that investors take irrational investment decisions based on emotions, which then become an obstacle in achieving their financial goals,” says Pankaj Mathpal, managing director, Optima Money Managers. 
A financial planner takes efforts to come out with a long-term financial plan, but the individual client need not have the longterm orientation. 
“There are instances where an investor tries to take advantage of some short-term movements in certain asset market and that leads to disastrous results,” says Ranjit Dani. 
In some cases, the financial plan goes for a toss. For example, in 2007, a financial plan made only 60% allocation to equity. But the individual for whom the plan was made was keen on taking advantage of the rising equity markets. He overshot the percentage of equity investments recommended by the financial planner. He made fresh investments in equities, and did not bother to rebalance the portfolio at the end of the year. He saw a short-term appreciation of his portfolio, but the subsequent fall in the stock markets drastically reduced the value of his investments. As the markets continued the downward journey in the first quarter of CY2009, fear took over and the client opted out of equities totally, thus missing the dream run till mid CY2010. Had the investor stuck to the original plan, he would not have suffered much. It, therefore, pays to control one's emotions. It pays to go with one strategy and one plan rather than changing it often. Secondguessing a well-made financial plan only adds to confusion and not to wealth. 
CONTINGENCIES Contingencies in real life may turn out to be much bigger than what was accounted for in a financial plan. Consider a situation. Most financial plans offer hospitalisation covers for the entire family. Some times, due to limited resources, one is forced to opt for a family floater or a lower sum assured for non-earning family members under individual policies. 
“In case of an accident where the entire family is hospitalised for a prolonged period of time, the provisions may not be adequate. It is better to maintain extra funds to take care of contingencies,” says Abhishek Gupta, chief executive officer and founder of Moat Wealth Advisors. 
It may not possible to assess exactly how much needs to be set, but the effort is worth taking. 
Consider the case of a young executive whose father will be retiring from service soon. Now, while he assesses his insurance requirements, he must take into account his father's medical insurance needs since his (father’s) company will stop taking care of them once he retires. 
“If you have a senior citizen in your house who may need hospitalisation, it is better to keep extra liquid investments such as fixed deposits in addition to normal emergency funds,” says Abhishek Gupta. 
Of course, you are walking a thin rope here. Too much provisions for contingencies and too much of liquid investments can affect a portfolio's returns. 
EXECUTION & REVIEW This is where many financial plans fail. Due to various behavioural issues, like those mentioned earlier, there may be a slip between the plan and its execution. Then there are issues associated with execution of transactions. 
Investments can be made online, but it is not the case with all investments. And not all investors may be comfortable investing online. 
There are also those, especially of the younger generation, who find it difficult to make ‘offline’ transactions, even something as basic as completing the ‘knowyour-client’ guidelines. If the financial planner does not follow up, it may never happen. 
The risk of non-execution is very high when the individual asks for a financial plan and does not involve the financial planner in executing it. 
“As financial planning is based on many assumptions, it is very important to monitor the plan and review the performance of your investment regularly,” says Mathpal. 
A lack of review at timely intervals, say at least once a year, can make the financial plan a paper tiger that does not deliver much. 
CHANGE IN LIFESTYLE AND 
SAVINGS All financial plans use assumptions about cash flows and future trends in asset classes. There is little control one can exercise over macro economic variables in the world. But one's own lifestyle can be controlled and modified. In a situation where individuals upgrade their lifestyles due to a short-term increase in income, it is difficult to go back to the old lifestyle as income falls back to original level. In that case, savings go down and the financial plan may get hit. 
“Stick to your budget. In case there is a change in your cash flow due to a change in your lifestyle or any other reason, you must re-work your financial plan and re-design the strategy to achieve your financial goals,” says Mathpal. 
STRUCTURAL CHANGES These include core changes in environment. Changes in taxation rules can change the post-tax returns of a product and that can lead to a gap between goals and reality in the long term. It is the duty of the financial planner to inform clients about such changes and rework the plan. But, in the case of such changes, clients themselves should approach their financial planner to serve their own interests. 
In case of a job change, the status of the individual for tax assessment may change. For example, the rules applicable to resident individuals and non-resident individuals are not the same. 
If you are taking a job overseas and are likely to get the status of a non-resident individual, you will be better off informing your financial planner about it. 
nikhil.walavalkar@timesgroup.com