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 

What Teenagers really want - DNA (14th Sep 2011)

This a very interesting article for investors to identify companies for the long term.

HAVE SURPLUS, WILL PREPAY? BS Smart Investor (14th Sep 2011)

http://epaper.business-standard.com/bsepaper/svww_zoomart.php?Artname=20110914b_005101001&ileft=1&itop=55&zoomRatio=130&AN=20110914b_005101001