MUMBAI: Even as the central bank is expected to hike rates one more time, banks have started offering discounts on home loans. Lenders say that this development is an indicator that demand for home loans is easing.
On Wednesday, IDBI Bank announced special rate home loans and auto loans for the festive season. In terms of the scheme, borrowers can avail of home loans up to Rs 25 lakh at 10.75%, Rs 25 lakh to Rs 30 lakh at 11% and loans between Rs 30 to Rs 75 lakh at 11.25%. The bank has also decided to offer concession of 100 bps in rate of interest for all segment of loans as well as 100% waiver of processing fee for auto loans. The offers are applicable to the new loans sanctioned between October 15, 2011 to December 31, 2011.
Last week, Dena Bank reduced its lending rate on home loans and auto loans by 25 basis points. The bank also reduced the processing fees on these loans by 50%. With the concession loans up to Rs 25 lakh are available at 11.15%. The bank also offers loans up to 5 years at 10.7%. "If there is a further increase in interest rates the demand for home loans will drop. Already there are not many people seeking home loans" said Amitabh Chaturvedi, CEO, Dhanlaxmi Bank.
Last week, SBI chairman Pratip Chaudhuri said that the bank had decided to hold lending rates even after the Reserve Bank of India's rate hike last month. He said that the bank took the decision as margins were robust and an increase in rates would make the bank uncompetitive. Last month, the National Housing Bank said that home loan growth had eased but attributed the slowdown to high property prices.
Thursday, October 13, 2011
Teach your kid value of money at an early age By Sumeet Vaid Oct 12 2011
On September 16, Malad resident and senior citizen, Sarla Patel, was found murdered at her residence. This time around, the perpetrators were not some drug addicts looking to steal money or thieves. In this case, it was the grandson, claim the police. The reason for this gruesome act was to get access to money to fund his lifestyle and buy a bike.
This is not the first solitary case of such a murder. In 2003, five teenage boys, all from well-to-do families were convicted of double murder of Leticia Mendes (52) and Dylan Lobo, her one-and-half-year old grandson. These five teenagers were tried in court and sentenced for this heinous act.
However, one common aspect between both these tragedies is the same — money. In both cases, the accused came from affluent families and yet resorted to taking innocent lives to steal money. These incidents got me thinking. Are we that desperate for money that we would resort to violence? Is the ‘new Gen-Y’ thinking to be blamed? Is there actually anyone to be blamed?
We can all start pointing fingers at their parents, society and even the mass media for creating this new lifestyle that the youth wants so badly. But, is that really the answer that we are looking for? Such incidents are bound to happen sometime. So where does the answer lie?
The answer lies in the fact that we need to create a stronger value system when it comes to wealth and resources. There is a dire to need not only to understand the value of money but also to know the importance of it.
So where does one start this process? Do you just start lecturing your kids about money or the value of it? Here are a few tips that can help:
Start young: There is no perfect time for parents to start teaching their kids about the value of wealth. The ideal time is to start when kids are young. Make it habit to teach them about money and provide them with basic information.
Help them differentiate between wants, needs and wishes: Children need to learn to differentiate between needs, wants and wishes. They need to understand that everything they wish for will not be turned into reality and every want is not a need. This will help them make informed and well thought out wealth-related decisions in the future.
Explain the concepts of borrowing and interest: I have seen parents fail miserably when it comes to explaining kids about the concept of borrowing. It is very important that they know the repercussion of borrowing money from lenders and how it could affect their financial standing in the future. These kinds of talks can get very technical for teenagers. Instead of giving a boring lecture, take them to someone like a certified financial planner who can explain these concepts better.
Have periodical talks and discussions about money: Open discussions about money will help in understanding a lot about money and spending patterns. One of the best possible times to have a talk is whenever there is a price hike by the government. Illustrate with examples how this will affect them and their dreams and wants. If you follow a financial plan, tell them how these changes will affect that plan and ask your planner to join in on the discussion.
Teach them how a credit card works: Most teenagers are still not sure how the credit system works and tend to abuse it. Small things like verification of charges, calculation of taxes will help them get a better idea of the system.
Make use of regular opportunities to teach kids value of money: To make kids understand the value of money and how you, as a parent, treat money. Take them along with you for grocery shopping. This opportunity can help you demonstrate how to work on a budget to not only fit your needs but also to save resources. Plan how to spend it and show them how you can waste money, if it is not handled with care.
Set an example: Kids will often imitate what their parents do. Set an example as to how you would budget and spend money and how you plan your finances. This will help them to understand the importance of it and create a value system when it comes to handling money.
(Sumeet Vaid is a CFPCM. The views expressed here are personal, and do
not necessarily represent that of the organisation. FPSB India is the sole marks licensing authority
for the CFPCM marks in India)
This is not the first solitary case of such a murder. In 2003, five teenage boys, all from well-to-do families were convicted of double murder of Leticia Mendes (52) and Dylan Lobo, her one-and-half-year old grandson. These five teenagers were tried in court and sentenced for this heinous act.
However, one common aspect between both these tragedies is the same — money. In both cases, the accused came from affluent families and yet resorted to taking innocent lives to steal money. These incidents got me thinking. Are we that desperate for money that we would resort to violence? Is the ‘new Gen-Y’ thinking to be blamed? Is there actually anyone to be blamed?
We can all start pointing fingers at their parents, society and even the mass media for creating this new lifestyle that the youth wants so badly. But, is that really the answer that we are looking for? Such incidents are bound to happen sometime. So where does the answer lie?
The answer lies in the fact that we need to create a stronger value system when it comes to wealth and resources. There is a dire to need not only to understand the value of money but also to know the importance of it.
So where does one start this process? Do you just start lecturing your kids about money or the value of it? Here are a few tips that can help:
Start young: There is no perfect time for parents to start teaching their kids about the value of wealth. The ideal time is to start when kids are young. Make it habit to teach them about money and provide them with basic information.
Help them differentiate between wants, needs and wishes: Children need to learn to differentiate between needs, wants and wishes. They need to understand that everything they wish for will not be turned into reality and every want is not a need. This will help them make informed and well thought out wealth-related decisions in the future.
Explain the concepts of borrowing and interest: I have seen parents fail miserably when it comes to explaining kids about the concept of borrowing. It is very important that they know the repercussion of borrowing money from lenders and how it could affect their financial standing in the future. These kinds of talks can get very technical for teenagers. Instead of giving a boring lecture, take them to someone like a certified financial planner who can explain these concepts better.
Have periodical talks and discussions about money: Open discussions about money will help in understanding a lot about money and spending patterns. One of the best possible times to have a talk is whenever there is a price hike by the government. Illustrate with examples how this will affect them and their dreams and wants. If you follow a financial plan, tell them how these changes will affect that plan and ask your planner to join in on the discussion.
Teach them how a credit card works: Most teenagers are still not sure how the credit system works and tend to abuse it. Small things like verification of charges, calculation of taxes will help them get a better idea of the system.
Make use of regular opportunities to teach kids value of money: To make kids understand the value of money and how you, as a parent, treat money. Take them along with you for grocery shopping. This opportunity can help you demonstrate how to work on a budget to not only fit your needs but also to save resources. Plan how to spend it and show them how you can waste money, if it is not handled with care.
Set an example: Kids will often imitate what their parents do. Set an example as to how you would budget and spend money and how you plan your finances. This will help them to understand the importance of it and create a value system when it comes to handling money.
(Sumeet Vaid is a CFPCM. The views expressed here are personal, and do
not necessarily represent that of the organisation. FPSB India is the sole marks licensing authority
for the CFPCM marks in India)
Tuesday, October 11, 2011
Floating or fixed: Choosing right loan option crucial- FE BUREAU
Raman was in a contemplative mood. He had identified a good flat, which was close to his place of work as well as his children’s school. He had picked up a good deal and it was a ready-to-move-in house.
Now, he had to decide on the loan provider and the type of loan — floating interest rate; fixed interest rate, reset at periodic intervals; or a fixed interest lifetime loan. With the market volatile and frequent revision in interest rates taking place , Raman was in a dilemma. Since he had a clean credit history, choosing the loan provider was easy, but deciding on the type of the home loan was another matter.
This is when he decided to check with his investment advisor, who asked him for details on the loan amount, period of the loan, possibility of prepaying it, either fully or partly (every year) and the prepayment penalty amount. The advisor also explained to Raman the current economic scenario and how the interest rates movement across different interest rate scenarios would affect his loan decision.
A floating rate interest loan would mean that, as the interest rates go up, the interest being charged also goes up. This would mean that either the monthly repayment is increased or the tenure of the loan goes up. The reverse is true for declining interest rates.
In a fixed interest loan, reset at periodic intervals, the interest rate is fixed for the first 3-5 years based on the economic situation prevailing at the end of the period. The interest rates are reset either upward or downward further as decided by the loan provider (teaser loans worked on this model). In a lifelong fixed interest rate scenario, your interest is fixed at the time of sanctioning the loan for the entire tenure of the loan.
There are periods of buoyant economic activity and those of a slowdown. Interest rates change accordingly. In a period of economic growth, loans are available at cheaper rates and vice verse. Taking the above logic, the third option— the lifelong fixed interest loan — works well if the interest rates are rising and the loan is for a shorter period, say, 3-5 years. However, the monthly repayment outflow will be higher if the quantum of loan is high, which would not be suitable to all.
Say, you need a loan for R13 lakh at 11% interest for a period of 20 years. The EMI works out to be R13,418 per month. At the end of the loan tenure, you would have repaid a total sum of R32.20 lakh, including interest of R19.20 lakh.
Now, let's say you go in for a floating rate loan wherein the interest rate for the first two years was 11%, for the next three years 8% and for the balance tenure, 10%. At the end of 20 years, you would have repaid a total sum of R29.81 lakh, including interest of R16.81 lakh. You notice that there is an overall saving of R2.40 lakh in a floating rate scenario, wherein, to begin with, you had a higher rate and, as the economic environment improved, you got lower rates. However, in a rising interest rate regime, the picture will be different and the outflow could be higher.
The obvious question is: Which option should you go for? It depends on your needs. Raman is a conservative super-saver, and he would prefer a fixed interest loan, reset at predetermined intervals, with loan prepayment option. This gives him the flexibility to settle his home loan at an earlier date and also ensures that his EMI outflow does not vary with the changing interest rate. The lifelong fixed rate interest loan would be most suitable for a shorter duration, as the economy goes through highs and the lows over a period of time. In a floating rate scenario, the EMI changes as per the prevailing rates. So, either your EMI goes up or down or the period of loan varies.
Ask your friends who had used this option in 2007 and how, now, the EMI or the loan period has changed, causing regular revisits on the monthly outflow. So, before choosing the option, know what you are comfortable with. Look at various scenarios and try to understand how it will impact your cash flow. Take your time and once you decide, act on it. Having one’s own nest is an exciting feeling.
The writer is founder and managing partner Zeus WealthWays LLP
Now, he had to decide on the loan provider and the type of loan — floating interest rate; fixed interest rate, reset at periodic intervals; or a fixed interest lifetime loan. With the market volatile and frequent revision in interest rates taking place , Raman was in a dilemma. Since he had a clean credit history, choosing the loan provider was easy, but deciding on the type of the home loan was another matter.
This is when he decided to check with his investment advisor, who asked him for details on the loan amount, period of the loan, possibility of prepaying it, either fully or partly (every year) and the prepayment penalty amount. The advisor also explained to Raman the current economic scenario and how the interest rates movement across different interest rate scenarios would affect his loan decision.
A floating rate interest loan would mean that, as the interest rates go up, the interest being charged also goes up. This would mean that either the monthly repayment is increased or the tenure of the loan goes up. The reverse is true for declining interest rates.
In a fixed interest loan, reset at periodic intervals, the interest rate is fixed for the first 3-5 years based on the economic situation prevailing at the end of the period. The interest rates are reset either upward or downward further as decided by the loan provider (teaser loans worked on this model). In a lifelong fixed interest rate scenario, your interest is fixed at the time of sanctioning the loan for the entire tenure of the loan.
There are periods of buoyant economic activity and those of a slowdown. Interest rates change accordingly. In a period of economic growth, loans are available at cheaper rates and vice verse. Taking the above logic, the third option— the lifelong fixed interest loan — works well if the interest rates are rising and the loan is for a shorter period, say, 3-5 years. However, the monthly repayment outflow will be higher if the quantum of loan is high, which would not be suitable to all.
Say, you need a loan for R13 lakh at 11% interest for a period of 20 years. The EMI works out to be R13,418 per month. At the end of the loan tenure, you would have repaid a total sum of R32.20 lakh, including interest of R19.20 lakh.
Now, let's say you go in for a floating rate loan wherein the interest rate for the first two years was 11%, for the next three years 8% and for the balance tenure, 10%. At the end of 20 years, you would have repaid a total sum of R29.81 lakh, including interest of R16.81 lakh. You notice that there is an overall saving of R2.40 lakh in a floating rate scenario, wherein, to begin with, you had a higher rate and, as the economic environment improved, you got lower rates. However, in a rising interest rate regime, the picture will be different and the outflow could be higher.
The obvious question is: Which option should you go for? It depends on your needs. Raman is a conservative super-saver, and he would prefer a fixed interest loan, reset at predetermined intervals, with loan prepayment option. This gives him the flexibility to settle his home loan at an earlier date and also ensures that his EMI outflow does not vary with the changing interest rate. The lifelong fixed rate interest loan would be most suitable for a shorter duration, as the economy goes through highs and the lows over a period of time. In a floating rate scenario, the EMI changes as per the prevailing rates. So, either your EMI goes up or down or the period of loan varies.
Ask your friends who had used this option in 2007 and how, now, the EMI or the loan period has changed, causing regular revisits on the monthly outflow. So, before choosing the option, know what you are comfortable with. Look at various scenarios and try to understand how it will impact your cash flow. Take your time and once you decide, act on it. Having one’s own nest is an exciting feeling.
The writer is founder and managing partner Zeus WealthWays LLP
MONTHLY INCOME - Insurance MIPs = high costs, poor returns B Y D EEPTI B HASKARAN
With uncertainty in the markets, investors are looking for avenues that can give them an as- surance of certainty. And the insurance industry seems to be catering to this sentiment.
With their focus already on traditional-cum-investment plans, life insurance compa- nies are increasingly getting innovative. A recent innova- tion in the stable of traditional products is monthly income insurance policies.
These are basically money- back policies that ride high on the element of guarantee, which is appealing in the present mar- ket environment. Says V. Viswa- nand, director and head (prod- ucts and persistency manage- ment), Max New York Life In- surance Co. Ltd: “We conducted a research in which a majority of customers preferred tradi- tional endowment and money- back plans because what they give and get are clearly spelt out. Customers don't under- stand the complicated features of a plan but can clearly under- stand the returns they get.
Hence, they prefer products with guaranteed returns.“
These monthly income plans (MIPs) offer a guaranteed monthly income for a fixed number of years along with a non-guaranteed topping of bo- nuses. All this packaged with an insurance cover looks an at- tractive proposition. But look beneath the layer of a guaran- tee and you will find poor re- turns and high costs. Read on to know why these MIPs may not work for you.
How do they work?
You go through two stages in these plans: the accumulation and the payout stages. During the accumulation stage, also known as the premium pay- ment term, you are required to pay an annual premium, which depends on the monthly in- come you choose. When the premium payment stage comes to an end, you start getting a monthly income, which is guar- anteed for a specified tenor.
Over and above these guaran- teed payouts, some insurers of- fer an additional income on maturity by way of bonuses.
For instance, MetLife India Insurance Co. Ltd's Met Monthly Income Plan, the policyholder gets a reversionary (accumulated) bonus on death or on maturity. Depending on the performance of the funds, every year the insurer declares a bonus, which gets credited to the account of the policyhold- er. A terminal bonus (declared when the tenor ends) is also paid on maturity or on death of the policyholder.
Max New York Life Insurance Co. Ltd's Max New York Life Guaranteed Monthly Income Plan has tailored its additional benefit differently. Instead of bunching up the bonuses at the end, this plan has spread the additional benefits over and above the monthly income. In- terestingly, the additional in- come is pegged to five-year government securities' (G- secs) yields. This is how it works: The policy has two pre- mium payment terms--six and 11 years. The premium that a policyholder pays gets pegged to G-sec rates to define the monthly top-up income during the payout stage. For instance, in case of an 11-year premium payment term, if in year two, the five-year G-sec yield is say 8%, then the policy will return an additional 53% of the monthly income in the first year of the payout term. Says Viswanand: “We have pegged the top-up benefit to G-sec rates to ensure transparency.
Bonuses are at the discretion of the insurers and since the his- f torical bonus rates or the per- formance of the funds are not readily available, it causes t some uncertainty. By pegging the top-up monthly income to G-sec rates, a policyholder will know what his monthly income will be 10 years from now.“
Star Union Dai-ichi Life In- surance Co. Ltd's Defined Ben- efit Endowment Plan, howev- er, has done away with bonus- t es. The plan returns a percent- age of the sum assured at the end of the policy term as addi- tional survival benefits. i t The insurance element Since these policies are pri- marily structured to provide a monthly income, the insurance component is not a lump sum benefit as is usually the case with insurance plans. These plans typically offer the guaran- tee of monthly income in the name of insurance.
For instance, Bharti AXA Life Insurance Co. Ltd's Bharti AXA Life Monthly Income Plan pays all the accrued bonuses as lump sum and starts the monthly pay- out immediately for the benefi- ciary if the policyholder dies during the premium payment stage. Star Union Dai-ichi's De- ined Endowment Plan, howev- er, offers a sum assured which is 180 times the monthly income hat you choose. But on death only 25% of the sum assured is paid and the monthly income starts immediately.
So if you are looking to pro- vide for a lump sum for your nominee, these plans won't work for you. Says Viswanand, “The insurance element in hese plans ensures that the monthly income is not inter- rupted in any way. MIPs are particularly good for customers n their late 40s because by the ime they retire they will ensure a guaranteed monthly income.“ The investment element The guaranteed monthly in- come that MIPs provide are nothing to write home about.
Sample this: A 30-year-old wanting a monthly income of `10,000 for a period of 15 years needs to pay a premium of about `90,432 for 15 years in Bharti AXA's Monthly Income Plan. At the end of the premium payment term, the policy- holder gets a monthly income of `10,000 for 15 years. This is a return of around 1.82%. How- ever, if you build in the non- guaranteed benefits or the re- versionary bonus, then assum- ing a gross return of 6%, your net return comes to 3.62%; on a 10% gross return, the net re- turn comes to 6.45%. The two gross rates of return have been permitted by the regulator for illustrative purposes only. Here the cost works out to around 2.38-3.55 percentage points.
And it is not the cost alone that hurts; the non-guaranteed bo- nuses are subject to the discre- tion of the insurer.
Max New York's MIP works differently, but even here the cost hurts. In this plan, the non-guaranteed benefit which is a monthly income over and above the guaranteed income is pegged to G-sec rates as ex- plained earlier in the story.
Sample this: A 35-year-old buying this plan for an 11-year premium paying period for a monthly income of `5,000 for 10 years needs to pay `52,560 per year for 11 years. The re- turn here works out to 1.71%.
Assuming the average rate of the G-sec yields is 6%, the policy would return 4.15% and 7.22% if the assumed G-sec yield is 10%.
But the death benefit in this plan is much better than other plans. Upon the death of the policyholder during the premi- um payment term, the policy will pay back all the premiums paid till then as lump sum. The monthly income will start im- mediately and continues to pay the guaranteed monthly income till the end of the premium pay- ing term. From the beginning of the payout period, the guaran- teed monthly income for the specified term along with the additional payout commences.
In the last year, it pays a termi- nal benefit equal to twice the annual premium.
What should you do?
For a young investor whose retirement is at least 20-30 years away, taking an MIP would make little sense. These plans come with a limited premium payment tenor and such inves- tors may not need periodic in- come so soon. Their financial goals would be staggered over the years and their focus should be on wealth accumulation rather than periodic income in the not-so-far future. However, these plans pro- vide a solution to customers looking for products struc- tured to save for retirement and to provide a guaranteed monthly income thereafter.
But the trade off for this guar- antee income is high costs and poor returns.
A better strategy would be to buy a pure term plan, the simpl- est and cheapest form of insur- ance, to provide a cover to your family during your working life.
Simultaneously, you can save regularly to build a retirement nest egg. At the time of retire- ment, you could look at fixed- income products such as Senior Citizens' Savings Scheme and fixed deposits to ensure a peri- odic flow of income. Says Pan- kaj Mathpal, a Mumbai-based financial planner: “Keep the two goals of accumulation and dis- tribution separate. Look at equi- ty products or long-term debt products such as the Public Provident Fund for the accumu- lation stage and structure your periodic income through fixed- income products.“
MIPs are revamped money- back plans that offer customi- zation at the cost of returns.
Invest only if customization appeals to you.
With their focus already on traditional-cum-investment plans, life insurance compa- nies are increasingly getting innovative. A recent innova- tion in the stable of traditional products is monthly income insurance policies.
These are basically money- back policies that ride high on the element of guarantee, which is appealing in the present mar- ket environment. Says V. Viswa- nand, director and head (prod- ucts and persistency manage- ment), Max New York Life In- surance Co. Ltd: “We conducted a research in which a majority of customers preferred tradi- tional endowment and money- back plans because what they give and get are clearly spelt out. Customers don't under- stand the complicated features of a plan but can clearly under- stand the returns they get.
Hence, they prefer products with guaranteed returns.“
These monthly income plans (MIPs) offer a guaranteed monthly income for a fixed number of years along with a non-guaranteed topping of bo- nuses. All this packaged with an insurance cover looks an at- tractive proposition. But look beneath the layer of a guaran- tee and you will find poor re- turns and high costs. Read on to know why these MIPs may not work for you.
How do they work?
You go through two stages in these plans: the accumulation and the payout stages. During the accumulation stage, also known as the premium pay- ment term, you are required to pay an annual premium, which depends on the monthly in- come you choose. When the premium payment stage comes to an end, you start getting a monthly income, which is guar- anteed for a specified tenor.
Over and above these guaran- teed payouts, some insurers of- fer an additional income on maturity by way of bonuses.
For instance, MetLife India Insurance Co. Ltd's Met Monthly Income Plan, the policyholder gets a reversionary (accumulated) bonus on death or on maturity. Depending on the performance of the funds, every year the insurer declares a bonus, which gets credited to the account of the policyhold- er. A terminal bonus (declared when the tenor ends) is also paid on maturity or on death of the policyholder.
Max New York Life Insurance Co. Ltd's Max New York Life Guaranteed Monthly Income Plan has tailored its additional benefit differently. Instead of bunching up the bonuses at the end, this plan has spread the additional benefits over and above the monthly income. In- terestingly, the additional in- come is pegged to five-year government securities' (G- secs) yields. This is how it works: The policy has two pre- mium payment terms--six and 11 years. The premium that a policyholder pays gets pegged to G-sec rates to define the monthly top-up income during the payout stage. For instance, in case of an 11-year premium payment term, if in year two, the five-year G-sec yield is say 8%, then the policy will return an additional 53% of the monthly income in the first year of the payout term. Says Viswanand: “We have pegged the top-up benefit to G-sec rates to ensure transparency.
Bonuses are at the discretion of the insurers and since the his- f torical bonus rates or the per- formance of the funds are not readily available, it causes t some uncertainty. By pegging the top-up monthly income to G-sec rates, a policyholder will know what his monthly income will be 10 years from now.“
Star Union Dai-ichi Life In- surance Co. Ltd's Defined Ben- efit Endowment Plan, howev- er, has done away with bonus- t es. The plan returns a percent- age of the sum assured at the end of the policy term as addi- tional survival benefits. i t The insurance element Since these policies are pri- marily structured to provide a monthly income, the insurance component is not a lump sum benefit as is usually the case with insurance plans. These plans typically offer the guaran- tee of monthly income in the name of insurance.
For instance, Bharti AXA Life Insurance Co. Ltd's Bharti AXA Life Monthly Income Plan pays all the accrued bonuses as lump sum and starts the monthly pay- out immediately for the benefi- ciary if the policyholder dies during the premium payment stage. Star Union Dai-ichi's De- ined Endowment Plan, howev- er, offers a sum assured which is 180 times the monthly income hat you choose. But on death only 25% of the sum assured is paid and the monthly income starts immediately.
So if you are looking to pro- vide for a lump sum for your nominee, these plans won't work for you. Says Viswanand, “The insurance element in hese plans ensures that the monthly income is not inter- rupted in any way. MIPs are particularly good for customers n their late 40s because by the ime they retire they will ensure a guaranteed monthly income.“ The investment element The guaranteed monthly in- come that MIPs provide are nothing to write home about.
Sample this: A 30-year-old wanting a monthly income of `10,000 for a period of 15 years needs to pay a premium of about `90,432 for 15 years in Bharti AXA's Monthly Income Plan. At the end of the premium payment term, the policy- holder gets a monthly income of `10,000 for 15 years. This is a return of around 1.82%. How- ever, if you build in the non- guaranteed benefits or the re- versionary bonus, then assum- ing a gross return of 6%, your net return comes to 3.62%; on a 10% gross return, the net re- turn comes to 6.45%. The two gross rates of return have been permitted by the regulator for illustrative purposes only. Here the cost works out to around 2.38-3.55 percentage points.
And it is not the cost alone that hurts; the non-guaranteed bo- nuses are subject to the discre- tion of the insurer.
Max New York's MIP works differently, but even here the cost hurts. In this plan, the non-guaranteed benefit which is a monthly income over and above the guaranteed income is pegged to G-sec rates as ex- plained earlier in the story.
Sample this: A 35-year-old buying this plan for an 11-year premium paying period for a monthly income of `5,000 for 10 years needs to pay `52,560 per year for 11 years. The re- turn here works out to 1.71%.
Assuming the average rate of the G-sec yields is 6%, the policy would return 4.15% and 7.22% if the assumed G-sec yield is 10%.
But the death benefit in this plan is much better than other plans. Upon the death of the policyholder during the premi- um payment term, the policy will pay back all the premiums paid till then as lump sum. The monthly income will start im- mediately and continues to pay the guaranteed monthly income till the end of the premium pay- ing term. From the beginning of the payout period, the guaran- teed monthly income for the specified term along with the additional payout commences.
In the last year, it pays a termi- nal benefit equal to twice the annual premium.
What should you do?
For a young investor whose retirement is at least 20-30 years away, taking an MIP would make little sense. These plans come with a limited premium payment tenor and such inves- tors may not need periodic in- come so soon. Their financial goals would be staggered over the years and their focus should be on wealth accumulation rather than periodic income in the not-so-far future. However, these plans pro- vide a solution to customers looking for products struc- tured to save for retirement and to provide a guaranteed monthly income thereafter.
But the trade off for this guar- antee income is high costs and poor returns.
A better strategy would be to buy a pure term plan, the simpl- est and cheapest form of insur- ance, to provide a cover to your family during your working life.
Simultaneously, you can save regularly to build a retirement nest egg. At the time of retire- ment, you could look at fixed- income products such as Senior Citizens' Savings Scheme and fixed deposits to ensure a peri- odic flow of income. Says Pan- kaj Mathpal, a Mumbai-based financial planner: “Keep the two goals of accumulation and dis- tribution separate. Look at equi- ty products or long-term debt products such as the Public Provident Fund for the accumu- lation stage and structure your periodic income through fixed- income products.“
MIPs are revamped money- back plans that offer customi- zation at the cost of returns.
Invest only if customization appeals to you.
Friday, October 7, 2011
Apple's Steve Jobs , visionary leader, dead at 56- On Thursday 6 October 2011, 7:13 AM By Poornima Gupta and Edwin Chan
SAN FRANCISCO (Reuters) - Steve Jobs , who transformed the worlds of personal computing, music and mobile phones, died on Wednesday at the age of 56 after a years-long battle with pancreatic cancer.
The co-founder of Apple Inc, one of the world's great entrepreneurs, was surrounded by his wife and immediate family when he died in Palo Alto, California. Other details were not immediately available.
His death was announced by Apple and sparked an immediate outpouring of sadness and sympathy from world leaders, competitors and other businessmen including Microsoft co-founder Bill Gates and Facebook CEO Mark Zuckerberg.
The Silicon Valley icon who gave the world the iPod , iPhone and iPad had stepped down as chief executive of the world's largest technology company in August, handing the reins to long-time lieutenant Tim Cook.
He was deemed the heart and soul of a company that rivals Exxon Mobil as the most valuable in America.
"Steve's brilliance, passion and energy were the source of countless innovations that enrich and improve all of our lives. The world is immeasurably better because of Steve," Apple said in a statement.
"His greatest love was for his wife, Laurene, and his family. Our hearts go out to them and to all who were touched by his extraordinary gifts."
Apple paid homage to their visionary leader by changing their website to a big black-and-white photograph of him with the caption " Steve Jobs : 1955-2011." The flags outside the company's headquarters at 1 Infinite Loop flew at half mast.
Jobs' health had been a controversial topic for years and his battle with a rare form of pancreatic cancer a deep concern to Apple fans and investors.
In past years, even board members have confided to friends their concern that Jobs, in his quest for privacy, was not being forthcoming enough with directors about the true condition of his health.
Now, despite much investor confidence in Cook, who has stood in for his boss during three leaves of absence, there remain concerns about whether Apple would stay a creative force to be reckoned with in the longer term without its visionary.
Jobs died one day after the consumer electronics powerhouse unveiled its latest iPhone , the gadget that transformed mobile communications and catapulted Apple to the highest echelons of the tech world.
His death triggered an immediate outpouring of sympathy.
"The world rarely sees someone who has had the profound impact Steve has had, the effects of which will be felt for many generations to come," Gates said. "For those of us lucky enough to get to work with him, it's been an insanely great honor. I will miss Steve immensely."
Outside an Apple store in New York, mourners laid candles, bouquets of flowers, an apple and an iPod Touch in a makeshift memorial.
"I think half the world found out about his death on an Apple device," said Robbie Sokolowsky, 32, an employee for an online marketing company, who lit a candle outside the store.
Cook said in a statement that Apple planned to hold a celebration of Jobs' life for employees "soon".
APPLE, NEXT, IPHONE
A college dropout, Buddhist and son of adoptive parents, Jobs started Apple Computer with friend Steve Wozniak in 1976. The company soon introduced the Apple 1 computer.
But it was the Apple II that became a huge success and gave Apple its position as a critical player in the then-nascent PC industry, culminating in a 1980 initial public offering that made Jobs a multimillionaire.
Despite the subsequent success of the Macintosh computer, Jobs' relationship with top management and the board soured. The company removed most of his powers and then in 1985 he was fired.
Apple's fortunes waned after that. However, its purchase of NeXT -- the computer company Jobs founded after leaving Apple -- in 1997 brought him back into the fold. Later that year, he became interim CEO and in 2000, the company dropped "interim" from his title.
Along the way Jobs also had managed to revolutionize computer animation with his other company, Pixar, but it was the iPhone in 2007 that secured his legacy in the annals of modern technology history.
Forbes estimates Jobs' net worth at $6.1 billion in 2010, placing him in 42nd place on the list of America's richest. It was not immediately known how his estate would be handled.
Six years ago, Jobs had talked about how a sense of his mortality was a major driver behind that vision.
"Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life," Jobs said during a Stanford commencement ceremony in 2005.
"Because almost everything -- all external expectations, all pride, all fear of embarrassment or failure -- these things just fall away in the face of death, leaving only what is truly important."
"Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart."
(Reporting by Poornima Gupta, Edwin Chan, Andrew Longstreith, Sarah McBride; Editing by Gary Hill and Tiffany Wu)
The co-founder of Apple Inc, one of the world's great entrepreneurs, was surrounded by his wife and immediate family when he died in Palo Alto, California. Other details were not immediately available.
His death was announced by Apple and sparked an immediate outpouring of sadness and sympathy from world leaders, competitors and other businessmen including Microsoft co-founder Bill Gates and Facebook CEO Mark Zuckerberg.
The Silicon Valley icon who gave the world the iPod , iPhone and iPad had stepped down as chief executive of the world's largest technology company in August, handing the reins to long-time lieutenant Tim Cook.
He was deemed the heart and soul of a company that rivals Exxon Mobil as the most valuable in America.
"Steve's brilliance, passion and energy were the source of countless innovations that enrich and improve all of our lives. The world is immeasurably better because of Steve," Apple said in a statement.
"His greatest love was for his wife, Laurene, and his family. Our hearts go out to them and to all who were touched by his extraordinary gifts."
Apple paid homage to their visionary leader by changing their website to a big black-and-white photograph of him with the caption " Steve Jobs : 1955-2011." The flags outside the company's headquarters at 1 Infinite Loop flew at half mast.
Jobs' health had been a controversial topic for years and his battle with a rare form of pancreatic cancer a deep concern to Apple fans and investors.
In past years, even board members have confided to friends their concern that Jobs, in his quest for privacy, was not being forthcoming enough with directors about the true condition of his health.
Now, despite much investor confidence in Cook, who has stood in for his boss during three leaves of absence, there remain concerns about whether Apple would stay a creative force to be reckoned with in the longer term without its visionary.
Jobs died one day after the consumer electronics powerhouse unveiled its latest iPhone , the gadget that transformed mobile communications and catapulted Apple to the highest echelons of the tech world.
His death triggered an immediate outpouring of sympathy.
"The world rarely sees someone who has had the profound impact Steve has had, the effects of which will be felt for many generations to come," Gates said. "For those of us lucky enough to get to work with him, it's been an insanely great honor. I will miss Steve immensely."
Outside an Apple store in New York, mourners laid candles, bouquets of flowers, an apple and an iPod Touch in a makeshift memorial.
"I think half the world found out about his death on an Apple device," said Robbie Sokolowsky, 32, an employee for an online marketing company, who lit a candle outside the store.
Cook said in a statement that Apple planned to hold a celebration of Jobs' life for employees "soon".
APPLE, NEXT, IPHONE
A college dropout, Buddhist and son of adoptive parents, Jobs started Apple Computer with friend Steve Wozniak in 1976. The company soon introduced the Apple 1 computer.
But it was the Apple II that became a huge success and gave Apple its position as a critical player in the then-nascent PC industry, culminating in a 1980 initial public offering that made Jobs a multimillionaire.
Despite the subsequent success of the Macintosh computer, Jobs' relationship with top management and the board soured. The company removed most of his powers and then in 1985 he was fired.
Apple's fortunes waned after that. However, its purchase of NeXT -- the computer company Jobs founded after leaving Apple -- in 1997 brought him back into the fold. Later that year, he became interim CEO and in 2000, the company dropped "interim" from his title.
Along the way Jobs also had managed to revolutionize computer animation with his other company, Pixar, but it was the iPhone in 2007 that secured his legacy in the annals of modern technology history.
Forbes estimates Jobs' net worth at $6.1 billion in 2010, placing him in 42nd place on the list of America's richest. It was not immediately known how his estate would be handled.
Six years ago, Jobs had talked about how a sense of his mortality was a major driver behind that vision.
"Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life," Jobs said during a Stanford commencement ceremony in 2005.
"Because almost everything -- all external expectations, all pride, all fear of embarrassment or failure -- these things just fall away in the face of death, leaving only what is truly important."
"Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart."
(Reporting by Poornima Gupta, Edwin Chan, Andrew Longstreith, Sarah McBride; Editing by Gary Hill and Tiffany Wu)
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