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Insurance Blog

How to get 8% interest rates on your investment post demonetization?


Demonetization brought forth a challenge for all the investors. The share market went down drastically and the interest rates of banks are expected to go down due to the huge inflow of money into the banks. Is there any investment in the near by future where the interest rates are not volatile to the changing economy?

The investment plans like FD and RD gives us the opportunity for getting returns at the interest rates during the time of our deposit. Let’s look into the interest rates provided by the SBI on Term deposits.

In the year 2012 we can see the interest rates provided by SBI in the below table.

 Likewise we can see the rates for the year 2015. From these tables we can say that the interest rates are not constant and are liable to change at any period of a month.



Currently the interest rates provided by SBI are given in the above table. This was updated in November 2016. From these tables we can say that the rates are decreasing year by year. Is there a way to get interest rates above 8% by investing now? Yes.

LIC provides an investment plan where you can get higher returns. Hurry! Now is the time to apply or enquire about the NEW ENDOWMENT POLICY. Let’s see what is this Endowment policy? What are the benefits of the policy?

NEW ENDOWMENT PLAN is a pure investment plan with high bonus and liquidity facility incorporated. The Sum Assured along with accrued Bonus and Final Additional bonus (if any) will be paid at the end of the policy term. The policy term is from 12 years to 35 years. You can choose term for investment say 16 years or 20 years. The policy term depends on the age of the person taking the policy.

Let’s say you are planning an investment of Rs. 10,00,000 over a span of 16 years. For this plan, you will be required to pay a premium of approximately 65,000 (inclusive of tax) per year or a half yearly premium of Rs. 33,000 or you can pay quarterly or monthly payment also. Now at the end of 16 years you will be paid a lump sum of around 17,32,000 to 20,04,000.

The perks of this policy apart from yielding high interest are

1.     Tax exemption for the premium paid.

2.     Tax free Maturity benefit: Basic sum with bonus + Final addition bonus (for policies with term above 15)

3.     Loan facility

4.     Accidental death and disability benefit rider available.

Factors to be considered before purchasing Investment Plans

Investment policies need a lot of study before purchase unlike term insurance products where we shall arrive at the purchase decision by just taking a few factors into consideration. Any investment policy has to be selected based on our requirement. This requirement can be identified by profiling. Profiling is listing out the financial details such as annual income, investment, other sources of income and loans. These details need to be kept side by side with the financial goals for the next 15 - 20 years. Now, a conclusion can be drawn on how much investment to be made and what is the required corpus.

After deciding the premium and corpus required, we can start browsing for investment plans which will fit our requirement.

Key elements to be considered, while purchasing investment Plans
1. Premium payment term:
Premium payment term, will decide the maturity returns that we would receive at the end of the investment period. Longer payment period is advised for people looking for high returns with low premiums. Otherwise, lower premium payment term with high premium rate is recommended for short term investors.

2. Policy term:
Policy term is to be aligned with the future goals. A 35 year old person who wants to retire at 55, needs to take a policy for 18 year only. This 2 years will give a chance to modify his plans or plan for next 10 years, if any contingency occurs.

 
3. Bonus rate/ Loyalty addition:
Bonus or loyalty addition will constitute the major chunk of returns. So, bonus/ loyalty addition should be high in order to yield better returns. These additions are generally announced every year, which will vary based on company’s performance. The bonus/ Loyalty history of the respective insurer have to be checked to get a fair idea of bonus rates further.

4. Money backs:
Some policies offer money backs, which will be given in regular interval of time till the policy term ends. Money back plans are good option if your financial status is instable. These plans will give less returns compared to other plans, as returns are being provided in multiple trenches before policy term ends. Still these policies are worth purchasing considering “Time value of money” (Value of money today is higher than value of money tomorrow).

 

5. Insurance cover:
All the investment plans from insurance companies will have life cover as their default feature. As the target is insurance, most people bat an eye for insurance part. But, insurance coverage part should be considerable enough to cover family financial security.

6. Lock in period:
Lock in period is the time the premium needs to be paid before the policy can be surrendered. This will be 3 years in most of the products, but will vary. Lock in period needs to be as low as possible, in order to close the policy if case of contingency.

7. Surrender value:

Policy when surrendered after lock in period needs to get high value rather than ending up with minimal returns. Agents won’t specify these details, because agents are not co-operating in surrendering policies, due to commission they are lose if a policy is surrendered. To check this issue policies can be purchased online from platforms like insurance web aggregators. This will simplify the process, make it transparent and provide hassle free customer service. 

By taking into account above factors, purchase decision of investment policy has to be done. This will ensure successful purchase and better returns.


ULIPs, the new way of investing

General population has a wrong perception about insurance. This wrong perception is – NOT to take an insurance policy until something seems life threatening. Insurance is a product which is sold mostly on word of mouth rather than expensive marketing. The benefits of an insurance product will be invisible till some mishap occurs. So, marketing would not create a compulsion to buy an insurance product. But the reference from relatives or friends will have a major impact on the purchase decision. This will lead to enquiry of products, but the inclination will be towards the product purchased by the friend or relative. This inclination will lead to purchase of a wrong insurance product, as the person ignores his requirements and go with a wrong product.

                To make the right purchase of insurance products, a better study of insurance products available in the market based on our requirements is a must. But with 54 life and non-life insurance companies available in India with 1000+ products, this decision making will be tedious and tiresome. The friend or relative who had referred you will be helping you handy in this situation. Contacting the insurance agent and explaining your requirements will boil down your decision to a specific insurance product. The segment indicated by the insurers like Investment, Children, Pension or Term insurance should be enquired in multiple companies. This might be time consuming but not an indefinite task and the result is worth the effort.

                ULIPs (unit Linked Insurance Products) are new breed of insurance products, which combine investment objective and insurance for high risk profile customers. Initially, customers will face issues in understanding these products, as it is a typical financial product. This is a mutual fund which gives an option of equity, debts in which a minimum of 1/8th of the premium needs to be invested. This investment decision of proportioning into equity, debt or balanced funds has to be decided by the customers. Fund managers will be available with all ULIP sellers to help the customer in making these decision. Customers will feel this investigation as time expensive. But the returns from most of the ULIPs are worth the time spent.

Why investing in insurance is a Smarter Choice?

Many youngsters after settling down in their late 20's or early 30's, start thinking over investment options. With increase in the upper middle class, the investment segment got a huge push in the last decade. This segment is set to grow multifold in the next 2 decades with India’s GDP growth rate expected to be at 8% for a minimum of atleast next 5 years. Our previous generation started evaluating their investment options only in late 40's because of their settlement age being the late 30's. But with raise in service sector, the settlement age of individuals got pushed down to late 20's of early 30’s. This early settlement gave extra buffer to carefully evaluate various available options before investing.

Buffer time gave raise to investing in riskier segments like stock markets which were handled only by full time investors earlier. Financial sector which used to be a rich class affair, now has become a middle class part time job due to hybrid financial products like mutual funds and ULIPs. The wider financial portfolio to park their income has led them to greater confusion. This needs to be solved by carefully examining the available funds, risk, target of investment and available investment options.  All the earning class need to invest in insurance not only to secure their family from financial instabilities but also to gain better returns based on their risk appetite. For a low risk taking customer, fixed deposits and recurring deposits would be luring. But insurance can provide them better returns with assured financial security for family. In a developing country like India, the GDP growth rate should be constantly clocking 7% plus to make it a developed nation. To attain this status, RBI needs to cut bank rate constantly so that economic activity gradually improves. To keep the growth rate intact, base rates will be reduced and Fixed Deposit (FD) rate may reach as low as 4% within 5 years. From January 2016 to October 2016, base rate of banks were down from 7.75% to 6.25%. This will be directly reflecting in banks’ lending and borrowing interest rates. This will also impact the FD and RD rates of customers who are opening new FD & RD accounts. Though the FD and RD rates won’t be changed for the existing customers, customers will face the heat during renewal. The reduction of interest rate by 1.5% within 10 months is just a starting point for rate cuts and it would continue. The customers who think of investing in FD’s or RD’s which are poised to provide you only 5.5% to 6.0% will be a concern even for the low risk customer segment. But most of the insurance products deliver 7% interest rate along with life cover. People who invest in FD’s have the money locked in it only for 5 years. Those who open new FD accounts in future would get less than 4%. This is only half of the returns provided by most of the traditional insurance products. Insurance has become a smarter choice over banking to investment due to base rate cuts which is being done every quarter since 2014.

 

To save or to invest



You begin your wealth management by setting financial goals.

Well, that’s the easy part.

Once you’ve got your goals listed down, you need to make sure that you choose between the saving and the investing strategy. We’ve shortlisted two of the major factors that help you decide which one to go for.

TIME

If you are in for a smaller and shorter term goals, that are nearer to three or four years down the line, then Savings is perhaps the best way to go for you, as you will have easy access to the cash. This can include saving a holiday, wedding or car.

It's also useful to have savings which you can get at quickly in the event of an emergency or if you need access to your money at a set time.

Savings act as a rainy day plan, and can work as a rescue mission to your wealth during times of crises.

However, if you are planning to  reach bigger long-term goals  that are at least four to five years away, and are willing to be patient to let the money stay in the market ( it’s not as easy to get your hands on it quickly as compared to a savings account) then you can surely go the investment route.

RISK

Your attitude towards risk will play a major role in making this decision. If your money is in a savings account, it’s at minimal or no risk.  An investment however, always involves risk. You may lose some or all of the money you invest. However, you will have a higher potential for profits, which comes as an added reward for your risk.

With the threat of inflation, and other risks involved, if you are looking into the big picture, considering an investment is a good option for you.

Other factors such as your salary and expenses, your attitude and your goals, your age and the other savings that you have in hand. 

Also remember, you need to save to invest. Not save to just save.

Written by: BALAKARTHIGA.M  

Get motivated to Save



No one ever says no to a bulky bank account. We all want to save, and we want to be a little more financially responsible.

Saving isn’t as hard as you think. Here are a few tricks that might help deceive yourself into saving.

1.       Go Tech

If you think you give in too quickly, or that it becomes difficult for you to save, get the help of technology! We live in a golden era where we are capable of spending so easily and at the same time in an era where we can save intelligently with the help of tools that the previous generations never had.

There are several budgeting and personal finance apps available that are creatively modelled to help you save more.

2.       Be Engaged

An idle mind is a Devil’s workshop. Make sure you have a dependable pastime or a hobby that you enjoy. Having an engaging hobby or a passion, might keep you away from turning into a spendthrift who spills bucket loads of money on entertainment and leisure.

3.       Have a Goal

Don’t just save up to a target amount. Save keeping in mind a target goal. If you want an expensive gadget or a piece of jewellery, tell yourself you will not buy it with your card or cash, but that you’ll save up to it. This way, you’ll stay motivated to save, because you have a reward waiting at the end of it for you! 

4.       Positivity

Keep your friends, family and well-wishers around, and make sure that you are being surrounded by positivity. Being around people who are smart with money, and are successful is a sure way to keep you motivated. Stick to your goal, and kick out the cynics and sceptics.    

5.       Quit Emotional Shopping.  

You’re feeling a little down because of the fight you had with your boyfriend, and you need new shoes......right? 

No!! Bad idea.

Turn around, get back inside the house, lock the doors, and ask someone to hide your keys right now.

Such spur-of-the-moment purchases may uplift your mood for an hour or two, but  you’ll be left feeling worse as you realise you’re left with nothing more than an empty bank account.  

Wanting to save your money is the first step towards being good at personal finance. You reading this article till the end is proof enough that you are on the right path!

WRITTEN BY: BALAKARTHIGA.M

How to set financial goals



‘If you do not know where you are going, any road will get you there.’

These are the wise words of Cheshire cat, and we cannot tell you how accurate this is when it comes to financial management. If you have no goals in your financial life, you will be randomly investing and using the money as and when it comes. It can so happen that you might not be prepared for an important goal that’s nearby because you failed to see it and plan for it in advance.

Knowing where you want to go, is the first step when it comes to setting financial goals.

Try to set S.M.A.R.T goals.  Your goals should be Specific, Measurable, Achievable, Relevant, and Trackable. 

SPECIFIC

Stay away from generalised statements in your goal. Instead of saying that ‘You want to buy a house’ say that ‘You want to buy a 3 BHK apartment in Chennai costing around fourty lakhs in the next five years.’ This gives you a clearer goal to look at and will also help you get a clearer picture.

MEASURABLE

Quantify your goals. As we have discussed in the point above, it is important that you set goals which are measurable in terms of the money or time. Stay as far away as possible from the rough picture. If you can’t figure out how much money you’d need to attain a particular, chances are that you won’t be able to save for the said goal as well.

Making your goal measurable makes it easier to track and achieve.

ACHIEVABLE      

Know your current financial status and your lifestyle. Design your goals in such a way that you are able to achieve your goals, even under your current situation. One of the major issues that most people face with financial goals is that they set very unrealistic goals.

Setting a lot of unrealistic goals, will only end up demotivating you.

RELEVANT

The financial goals that you have in your life, should match your aspirations and your dreams. It is essential to establish that connection so that you stay motivated. When your dreams and your goals suffer a mismatch, there are high chances that it would become tough to sustain the enthusiasm and energy, because that’s not what you really wish to and even if you someday achieve that goal which you planned, it would make no sense whatsoever because it’s not aligned with your life objectives. 

TIMELY

Setting a time line is very important because you need to know how much it takes to achieve that goal. You will need to know how much you need to save each month, so that you can achieve your goal on time. Setting a time limit to your goal will help you stay disciplined and within your budget.

Thus, financial planning is all about setting goals, and managing your wealth in such a way that you reach those goals in time. Planning for a goal gives you direction and you will be able to look ahead in your financial life from that direction.

POSTED BY: BALAKARTHIGA.M