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Showing posts from April, 2008

Insurance Basics Part V: Child Plan

This article explains the basic concept of a child plan, as is available in the market today. What is a Child Plan? It has typically two components to it: A life insurance on the parent An investment vehicle that accumulates your savings on a regular basis and pays it back around the time the child reaches college (typically when he/she turns 18-21) These two components are thus very different in what they achieve to secure the child’s future, and any analysis must keep this distinction in mind at all times. The Insurance Component Life insurance in the child plan ensures that the monies payable to the child for higher education are protected against untimely death of the earning parent. I cannot overplay the importance of this insurance – in fact, my observation has been that most people underinsure their life in these policies. By mandate, the minimum life cover that you have to opt for in a child plan is Sum Assured = Term * Annual premium / 2 Thus, if you take an 18-year plan, p

Insurance Basics Part IV : Unit Linked Insurance Plan ( ULIP )

ULIP Understanding the cost structure of Unit Linked Insurance Plan is necessary before taking the leap A person, 40-year-old investor, was disgruntled with his investments in Unit-Linked Insurance Plan ( ULIP ). While the equity markets have been rolling, he realized after some research that he was yet to recover the money he had invested three years ago. This, he realized, was not on account of poor fund performance but because of higher initial fund costs. While the people crib is about the non intimation of such expenses by his/her broker, insurance regulator IRDA has come to his rescue, making it mandatory to disclose all charges upfront to the buyers. Basic rules have to understand the cost structure of a fund before buying into ULIPs. And a basic understanding would save them from heartburn. So how are the cost structured for an ULIP? COSTS OF OWNING A ULIP: 1) Premium Allocation Charge The cost structure of ULIPs is such that it starts working to your benefit only after 5-8 ye

How to trawl for dividend stocks in a troubled Market

Stocks offering healthy dividends can pay off in tough economic times. But be careful of high yields in the financial and utility sectors EVEN if stocks go nowhere this year—a distinct possibility as US recession looms—investors can get returns by hunting for companies that pay healthy dividends. You receive the company’s quarterly payouts even if its stock, and the entire market, heads south. While this is a popular and often successful strategy during bear markets, it also entails some dangers. Watch out for stocks that offer an especially high dividend yield. That could signal that a company might not pay its dividend. For example, since the credit crisis began in July, financial firms have been disappointing investors by slashing dividends. At the other end of the spectrum, profitable companies with airtight balance sheets often offer pitifully low dividend yields. The other traditional dividend play is the safe, boring utility sector. Heavily regulated, utilities offer slow growth

Stock Market: Some signs of an impending crash

After stock market correction since Jan'08 there are many learnings for new/first time investors to protect their investment and minimize losses. How do you predict a fall in the markets? Tell-tale signs you need to look out for. The domestic Indian markets as well as global markets are going through a long-term bull run that started in the year 2003. We have seen many phases of rallies making new highs and consolidation thereafter in this long-term bull market. This phase of the market can be attributed to several factors including globalisation that resulted in work from abroad (outsourcing) and funds, opening up of the economy, and relative isolation of the domestic markets from the slowdown in developed markets. However, this phenomenal growth in the market has made it quite volatile. We see markets react very quickly and sharply to any news and events. Last few months were some of the most volatile months for the domestic/International markets. We have seen panic selling on t

Portfolio: Say “Buy Buy Buy” to Stocks

The market has fallen, leading investors to think of safer havens to invest. But here’s why you may still bet on the equity market. Here we bring some of the strategies. WONDERING whether to stay put in your stocks that may have been hit in the recent market crash or to liquidate and shift investments in other asset classes. Here are 10 reasons why it still makes sense to remain invested. Markets have come down from their recent highs in the past few weeks. While some of us might be thinking of cutting losses and putting money in safer havens, there are more than one reason still favoring the equity markets. Let’s check them out: a) Long-term plan, lest we forget: The basic principle that often gets buried in a bull market situation is that one should make investments with a long-term perspective. Any serious investor should remain invested in stocks, no matter what the current market situation is, for a couple of years but if the idea is to make quick bucks, probably he should sell an

New Indices: Mini Contracts

New Indices The New Year has set in and is bringing with it a lot of new things. Amongst many events in the financial sector - like the Reliance Power IPO and the market crash - 2008 may well see the launch of two new indices. They will not be sector indices like the recent Power Sector index. We are talking of a Volatility Index and the Dharma Index . Volatility Index The Volatility Index will be launched by the Bombay and National Stock Exchanges ( NSE ). The exchanges have been given a green signal by the market regulator, Securities & Exchange Board of India ( SEBI ), to go ahead and launch the index. At the same time, SEBI has also given the exchanges a free hand to decide whether they want to adopt a global model for this index or develop their own model. The Volatility Index, along with Futures and Options on it, was a recommendation by the SEBI-appointed Derivatives Market Review Committee (DMRC). The Volatility Index will measure market expectations of near-term volatilit

Portfolio: Long term strategy good in correction phase

Go for value stocks when the market is in a correction mode The last few years have been remarkable in the history of the domestic stock markets. They have given 40 to 50 percent returns year-on-year in the last 3-4 years. Investments in market instruments have given more than the expected returns from the last five years. But a correction phase has started from the beginning of this calendar year - 2008. This correction in the markets - all over the world in fact - was triggered by news related to the global economic slowdown triggered by the US recession. Also, there has been a tremendous amount of intraday and short-term volatility in the domestic markets. Volatility indicates the amount of price fluctuations in the market movements. The higher the volatility, the riskier it is to invest in the short term. However, medium to long term investors should not worry much about volatility as the economic and corporate fundamentals matter over the long term. Fundamentals of the Indian cor

Union Budget: Promising Sectors after Budget

Some sectors that hold promise, with excise cuts in this fiscal budget making them more profitable Post-budget, some sectors look good from an investment perspective. This is by virtue of the exceptional budget allocations and provisions shown towards these sectors. The focus of the budget has been to boost consumption coupled with keeping inflation under control. The reduction in excise duty for several sectors/products will give a boost to consumption. The sectors which will benefit include education, healthcare, hotels and pharma. However, long-term investment decisions need not be a hasty reaction to the budget recommendations. The investment approach should be proactive rather than being reactive. Investors can wait for markets to stabilize before investing. Pharma This will be a sector to watch out for, as it is already a beaten down sector and there is no reason for a further downfall in this sector. Also, the budget is favorable to this sector as the FM has cut the customs duty
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