Skip to main content

Financial Life Pyramid

The pyramid of financial life can be divided broadly in three parts. The foundation is protection or risk management, in the middle is wealth accumulation and on top is wealth distribution.

INSURANCE

There are things beyond our control and we should be prepared for such untoward incidents and always be ready with a plan B. By the way, most people don't even have a plan A. But let me explain both.

Plan A: Everything goes well and one is able to fulfil his financial goals out of his regular income and investment.

Plan B: If something goes wrong, something that we can't foresee today, insurance takes care of our plan A.

So, insurance builds the foundation of financial planning for any family. Three of the most important policies that anyone should have are term plan, health insurance and accident insurance.

Term plan: Term policy is insurance in its purest and simplest form. You pay premiums because there is a guarantee that if something happens to you, your family will be paid out the pre-decided amount. Hence, you have peace of mind that even if you are not there, those loved ones you leave behind will not have to bear any financial loss. Term insurance is protection against risk of life.

Premium rises with age, so if you delay it for some years, your premium will be substantially higher. In case, you are diagnosed with some critical illness, either you will be denied insurance or your premium rate will be higher by 25 - 50 per cent. In case something happens to the bread winner in this period, the consequences are beyond any explanation.

Health insurance: Today, one of the world's biggest problems is health care. This is getting expensive by the day. Even Indian doctors want to use the latest available technology and the downside of that is the huge associated cost. So, a health insurance policy can be really helpful.

The biggest problem is if you develop a disease in this period and then approach an insurance company. You will either be denied a policy or that disease will be excluded. Even it is included, this would be done only after three to four years. You will have to keep praying the disease does not reoccur during the interim period.

Ask any friend whose family member was recently admitted in hospital - "what was the total cost?" There is a high probability the answer will give you a heart attack. If you survive, buy a health insurance policy the next day.

Accident insurance: Sometimes, life plays strange games. Think of someone in the 30s, who loses legs or hands in an accident. From being the biggest asset of the family, he suddenly becomes an economic liability. A comprehensive accident policy can be really helpful at such times.

WEALTH ACCUMULATION

Now, moving to the second level, which every one appreciates is the most important part of their life. Let us assume you are 30 and have planned for retirement at 60 and would like to invest monthly. At 15 per cent annual return that one expects from equity mutual funds, you will come up with some astonishing numbers.

You have three options - invest `5,000 a month starting now or 10,000 a month when you turn 40 or save `30,000 a month in the last 10 years of your working life. The total investment in the final option will be double of first one. And the retirement corpus - in the first case, it will be 2.82 crore. In the second case, it will be `1.33 crore. In the last case, the accumulated amount will be just `79 lakh.

Say you calculate the amount the other way. Say you need `2crore at the time of your retirement. Once again you have three options, starting at 30, 40 or 50. The monthly investment when you start at 30 will be `3,551and total investment will be `12.7 lakh. In the second case, the monthly investment needed will be `15,071 and total investment will be `36.26 lakh. And, if you start at 50, the figures are shocking - monthly investment will be 76,040 and total investment will be 91.2 lakh. You can clearly see the cost of delay is huge. Due to the power of compounding, investments made in the initial years are the main chunk of your final corpus. The amounts required to compensate time delays are huge.

ESTATE PLANNING

Division of assets is a sensitive matter and people keep delaying it but there is again a huge cost of delay. People fail to write a will or even check the basic things like nominations and so on for investments. A sudden demise makes the lives of their families miserable. Smooth succession planning is a very important part of one's life.

So, don't delay important financial decisions and consult a good financial advisor now. Being casual about finances now will spell trouble in future.

So act now. Like the NIKE slogan, ' Just do it '.
 

Happy Investing!!

We can help. Call 0 94 8300 8300 (India)

Leave your comment with mail ID and we will answer them

OR

You can write back to us at PrajnaCapital [at] Gmail [dot] Com

 

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver Mutual  Funds  Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

Popular posts from this blog

Birla SunLife Manufacturing Equity Fund

The Make in India program was launched by Prime Minister Naredra Modi in September 2014 as part of a wider set of nation-building initiatives. It was devised to transform India into a global design and manufacturing hub. The primary motive of the campaign is to encourage multinational as well domestic companies to manufacture their products in India. This would create more job opportunities, bring high-quality standards and attract capital along with technological investment to bring more foreign direct investment (FDI) in the country.   Why India as the next manufacturing destination?   The rising demand in India along with the multinational's desire to diversify their production to include low-cost plants in countries other than China, can help India's manufacturing sector to grow and create millions of jobs. In the words of our Honourable Prime Minister- Mr. Narendra Modi, India offers the 3 'Ds' for business to thrive— democracy,...
Read more

Total Returns Index brings out real Equity Funds Performers

From February, equity mutual funds have to change their benchmarks to account for dividend payments. Until now, funds used price-based benchmarks alone. TRI or total return indices assume that dividend payouts are reinvested back into the index. What this does is lift the overall index returns, because dividends get compounded. For example, the Sensex TRI index will consider dividend payouts of its constituent companies while the Nifty50 TRI index will consider dividends of its constituents. Using TRI indices as benchmarks comes on the argument that an equity funds earn dividends on the stocks in its portfolio, which they use to buy more stocks. Therefore, using an index that also considers dividend reinvestment would be a more appropriate benchmark. Shrinking outperformance With a stiffer benchmark, it is obvious that the margin by which an equity fund outperforms the benchmark would shrink. Rolling one-year returns from 2013 onwards, the average margin by which largecap funds out...
Read more

Stock Review: Havells

HAVELLS India's stock performance has been muted in the past three months, in line with the weak broader market. But, given the turnaround in its overseas subsidiary and the launch of new products in its consumer durable business, the company's stock may undergo a re-rating.    Havells is India's leading consumer electrical goods company, with consolidated sales of . 5,527 crore in the past four quarters. Its wholly-owned subsidiary Sylvania, which makes lighting and fixtures, has established brands in European, Latin American and Asian markets. Sylvania repre sented nearly half of the company's consolidated revenues in the first half of FY11.    Sylvania's poor financials hit Havells' consolidated performance in FY10. But, this has changed in the cur rent fiscal. Havells has reduced fixed costs of Sylvania by exiting from unprofitable businesses and outsourcing manufacturing to low-cost locations such as India and China. In the September 2010 quarter, Sylv...
Read more

Kisan Vikas Patra - KVP

  Kisan Vikas Patra (KVP) First launched in 1988, the Kisan Vikas Patra (KVP) is one of the premier and popular saving scheme offering from the Indian Postal Department. This product has had a very chequered history- initially successful, deemed a product that could be misused and thus terminated in 2011, followed by a triumphant return to prominence and popular consumption in 2014. The salient features of KVP are as follows- The grand USP- Money invested by the applicant doubles in 100 months (8 years, 4 months). KVPs are available in the following denominations- Rs.1000, Rs.5000, Rs.10,000 and Rs.50,000. The minimum purchase value for the KVP is Rs.1000. There is no maximum limit. KVPs are available at all departmental post offices across India. These certificates can be prematurely encashed after 2 ½ years from the point of issue. KVPs can be transferred from one individual to another and from one post office to another. ----------------------------------------------------- Inve...
Read more

Mutual Fund Review: Reliance Regular Savings Equity

    Despite high churn, Reliance Regular Savings Equity has managed to fetch good returns   In its short history, this one has made its mark. Though its annual and trailing returns are amazing, the fund started off on a lousy note (last two quarters of 2005). It managed to impress in 2006 and was turning out to be pretty average in 2007, till Omprakash Kuckian took over in November 2007 and wasted no time in changing the complexion of the portfolio. Exposure to Construction shot up to 28 per cent with almost 21 per cent cornered by Pratibha Industries and Madhucon Projects . Exposure to Engineering was yanked up (18.50%) while Financial Services lost its prime slot (dropped to 6.69%) and Auto was dumped. That quarter (December 2007), he delivered 54.66 per cent (category average: 25.70%).   When the market collapsed in 2008, thankfully the fund did not plummet abysmally. But even its high cash allocations could not cushion the fall which hovered around the category average. ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now