Being A financial planner I see that there are many mistakes my clients make with their money. Before you make a mistake I thought I should inform you on this. In case you have already committed this mistake then at least after reading this you will not make it again and help other avoid it too.
To start off with, Investing and insurance cannot go hand in hand. in fact using the words investing and insurance in the same sentence is 'Wrong English'.
Though it has been preached and practiced in our families that insurance is a very good way for saving for future financial requirements and that too through LIC only, It has been proved with substantial evidence that it's a big mistake to mix the two concepts of Insurance and Investing which have a completely different background, framework and application in your financial lives.
Insurance is only meant to cover the risk any unforeseen happening that can temporarily or permanently incapacitate a person from earning the expected income over his/her working life.
Insurance is an expense and not an investment, but due to the nature of humans that asks for returns on every penny that they spend, manufacturers make such products that portray to satisfy the persons need of getting returns. But these products don't come cheap, they have a high amount of admin expenses. Most of them have no guarantee of future returns too. Though the agent trying to sell you that product says that there is a guarantee, as there is on written evidence of the same it is not true.
The maximum capacity of that non guaranteed return is not even sufficient to beat baseline inflation. but only as it satisfies people's mindset of generating some return, even if its meaningless, it is largely sold to almost every urban household.
Being a planner I advice you not to buy any form of insurance except term insurance as it is the cheapest product in the market and does a fantastic job of reducing the financial risk on your family in case of an unfortunate event to the family's earner.
Term insurance can help you save money while not compromising on covering the risk on your family and also save enough money on your premiums so that they can be invested separately in a way that ensures the achievement of your goals and dreams
The following example should explain the difference very clearly
Mr. Narayan is 35 years
His annual expense is Rs. 10,00,000/-
His insurance requirement is Rs. 1,00,00,000/-
Term of life insured should be till retirement, which in this case is at age 60 years. so its 25 years of term
An Endowment will cost him Rs. 2,00,000/- and give him a return of Rs. 1,27,00,000/- assuming a rate of 7% return which is not guaranteed
On the other hand a term insurance cover of the same amount will cost him Rs. 20,000/- on an online term insurance from any leading insurer.
This saves him Rs. 1,80,000/- per year for 25 years. As the horizon is so long an Aggressive portfolio with an equity to Debt exposure of 80:20 should be created. Assuming the Equity and Debt to generate an after tax returns of 14% and 7% respectively. The return on this portfolio will be 12.6% p.a.
This portfolio will generate a value of Rs. 2,64,00,000/-
So now you need to decide whether you want to stay with the old, outdated and mundane endowment policies where your agent earns more than you and you get only Rs. 1,27,00,000/- or do you want to accept the new modern and planned ways of managing risks and generating wealth for you and your family by earning Rs. 2,64,00,000/- as in this example
The power is yours.
Happy Planning
Think before you Act
It's All in the Mind
Monday, November 28, 2011
Saturday, November 19, 2011
Can't go far without the smarts- Anil Thakkar |
Rishad Premji's take on the primacy of hard work isn't surprising. Picture him coming out and saying that hard work isn't the be all and end all. You either have it or you don't. And if you don't, not all the hard work in the world can make up for it. Supremely demoti-vating for Wipro employees, isn't it? There is a fetishisation of hard work in our culture; to take an opposing point of view is seen as uncomfortably elitist. It isn't confined to Indian society either. The fabled Protestant work ethic in the US also condemns innate ability as frippery rather than necessity. It's a convenient but ultimately false position.
As Margaret Thatcher once said, everyone has the right to be unequal. And that is how it is. Some people are gifted with innate ability that enables them to succeed. No amount of toil by less gifted plodders can help them reach the same heights. Sports is a good arena to judge the truth of this. Take pace bowling in cricket. Today's bowlers live far more strictly regimented lives than bowlers of past decades; they put in hours in the gym as their predecessors never did. But for the most part, pace bowlers today are an embarrassment compared to the fearsomely talented West Indian quicks; to Lillee and Thomson, Imran Khan and Ian Botham - most of whom never saw the inside of a gym.
Or take intellectual achievement. This is a particular problem in India where the education system prizes numbing amounts of hard work over intellectual ability. But men who changed the world, like Albert Einstein and Steve Jobs, have had little time for these formal systems. Many of them have been rejected or rejected the system themselves. Hard work is much oversold. To go far, you need the inner spark.
As Margaret Thatcher once said, everyone has the right to be unequal. And that is how it is. Some people are gifted with innate ability that enables them to succeed. No amount of toil by less gifted plodders can help them reach the same heights. Sports is a good arena to judge the truth of this. Take pace bowling in cricket. Today's bowlers live far more strictly regimented lives than bowlers of past decades; they put in hours in the gym as their predecessors never did. But for the most part, pace bowlers today are an embarrassment compared to the fearsomely talented West Indian quicks; to Lillee and Thomson, Imran Khan and Ian Botham - most of whom never saw the inside of a gym.
Or take intellectual achievement. This is a particular problem in India where the education system prizes numbing amounts of hard work over intellectual ability. But men who changed the world, like Albert Einstein and Steve Jobs, have had little time for these formal systems. Many of them have been rejected or rejected the system themselves. Hard work is much oversold. To go far, you need the inner spark.
Wednesday, November 2, 2011
$1 million jackpot: Should Sushil Kumar rejoice or worry?-
Sushil Kumar from Bihar just won the Rs 5 crores jackpot (Rs. 50 Million) on the fifth season of Kaun Banega Crorepati. (For those who do not know KBC, this is the Indian version of Who wants to be a Millionaire)
Sushil Kumar will not receive the entire Rs. 5 crores, the tax department will eat up about one third of his jackpot leaving him with about Rs. 3.5 crores; that's still a sizeable amount.
Let us see how it can help Mr. Sushil Kumar - a post graduate in philosophy and an IAS aspirant - in his life. He is currently a school teacher earning a meager Rs. 6000 per month.
In an interview Sushil Kumar revealed that he has some obligations that need to met first before he invests the rest of his money
An elder brother who wants to set up his own business
A younger brother wanting to quit his 'piddly' Rs. 1500 per month job and also wants to start a new business.
His parents will want a nice big house - befitting the 'crorepati' son's status
Sushil Kumar himself plans to quit his job in order to concentrate on his IAS exam.
Sadly, along with a big amount of money God does not gift one with 'financial wisdom' - not even the wisdom of knowing that he needs unbiased financial advice. I can see a tomorrow and, therefore, find it difficult to rejoice in his success.
Why you ask? Here's why
Even in his small village there will be a lot of people chasing him — "investment consultants" There will be greedy hands pulling from all sides:
Namely, LIC agents, mutual fund agents, bank managers, other life insurance companies, pension providers, brokerage houses and bankers.
It would be really interesting to track his life over the next 10 years on a year to year basis to see how much this money is scaring him, helping him, torturing him and helping him to meet his goals.
by P V Subramanyam, On Tuesday 1 November 2011, 10:32 PM
Sushil Kumar will not receive the entire Rs. 5 crores, the tax department will eat up about one third of his jackpot leaving him with about Rs. 3.5 crores; that's still a sizeable amount.
Let us see how it can help Mr. Sushil Kumar - a post graduate in philosophy and an IAS aspirant - in his life. He is currently a school teacher earning a meager Rs. 6000 per month.
In an interview Sushil Kumar revealed that he has some obligations that need to met first before he invests the rest of his money
An elder brother who wants to set up his own business
A younger brother wanting to quit his 'piddly' Rs. 1500 per month job and also wants to start a new business.
His parents will want a nice big house - befitting the 'crorepati' son's status
Sushil Kumar himself plans to quit his job in order to concentrate on his IAS exam.
Sadly, along with a big amount of money God does not gift one with 'financial wisdom' - not even the wisdom of knowing that he needs unbiased financial advice. I can see a tomorrow and, therefore, find it difficult to rejoice in his success.
Why you ask? Here's why
Even in his small village there will be a lot of people chasing him — "investment consultants" There will be greedy hands pulling from all sides:
Namely, LIC agents, mutual fund agents, bank managers, other life insurance companies, pension providers, brokerage houses and bankers.
It would be really interesting to track his life over the next 10 years on a year to year basis to see how much this money is scaring him, helping him, torturing him and helping him to meet his goals.
by P V Subramanyam, On Tuesday 1 November 2011, 10:32 PM
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