CANARA HSBC Oriental Bank of Commerce Life has come up with three unit-linked products — Stay Smart Plan, Retire Smart Plan and Saral Bima Plus. These products conform to IRDA’s strictures capping ULIP charges at 3% of the gross yield for 10-year policies, and 2.25% for those with a term of over 10 years. Fund management charges cannot exceed 1.35% for all policies. The Stay Smart Plan, which offers life cover till the age of 99 years, specifies a minimum premium of Rs 25,000, while the death benefit will be higher of the fund value or the sum assured. The second plan, catering to retirement needs, comes with two options – pure pension or pension with life cover. Under the Saral Bima Plus, targeted at the semi-urban and rural segment, life cover is offered on the basis of a ‘Declaration of Good Health’. The minimum premium payable is Rs 6,000, while the maximum is Rs 1 lakh p.a. The sum assured is five times the annual premium.
What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
