Prajna Capital - An Investment Guide

FOR the first time, a general insurer has started covering ‘exclusions’ at a slightly higher premium after the Insurance Regulatory Development Authority ( IRDA ) allowed partial freedom of wordings. In insurance parlance, ‘exclusions’ relate to developments where insurers will not come up with a compensation. These are explicitly mentioned in the wordings of any policy. For one, till sometime ago, if there was a fire in a factory, insurers did not pay claims for the equipment that specifically triggered it. The policy only paid for damages caused to other equipment and premises as a result of the fire. From now on, the equipment that caused the fire is also being covered at an extra premium. In insurance parlance, the event of not covering the equipment that sparks off the fire is called the dynamo clause . We are doing away with the dynamo clause in any industrial policy at an extra premium. These are exclusions that have been part of the standard wordings for quite sometime. Howe...

EVERYONE talks about the importance of being insured. While the debate is pertinent, are we also being taken for a ride by some insurance agents? Today the insurers offer a suite of products which talk about covering every walk of your life. While many are nice to have, the relevant question would be to arrive at the must-haves. This article gives you a run down of the ideal mix of insurance policies that is the need of the hour. 1) Term insurance If you are young and unwilling to make big financial commitments -go in for a pure term cover. It would provide basic risk protection for a period ranging from five to 20 years or even more. The sum insured will be payable to dependants on death of the policyholder. But if the policyholder survives till the maturity of the policy, there are absolutely no monetary benefits. How to take a term cover? You can take a policy at a young age; it works to your advantage. Premium at this stage is lesser and it is fixed throughout the tenure of the po...

Some forms of home loan insurance available for borrowers With the changing times and increasing competition, banks have come out with new and innovative schemes. This has been further boosted by the upsurge of insurance companies in the private sector. They provide an important solution - security of repayment of loan in case of untimely demise of the borrower. Many people are a bit reluctant to go in for housing loans because of the risks involved. The risk of not being able to repay the loan, because of some unforseen event, deters them. The loan amounts are large. The loan tenures are long too - 10 to 20 years. Uncertainties in life tend to affect the decision. It makes sense to pay a little extra and be secure of the unforseen risks in the future. Many new products are entering the market. Innovative home loan insurance schemes have been devised. These offer a wide variety of options to protect the home loan. Many products are flexible and can be tailored to meet the req...

Here’s a ready reckoner on wedding insurance, why you should opt for it and major exclusions of the policy. Customised Convenience Wedding insurance is a customised event insurance plan that includes all specific risks related to marriage. The typical coverage includes the cancellation or postponement of wedding due to unforeseen circumstances, accident to bride/ groom, accident to blood relatives resulting in hospitalisation within seven days prior to the printed/ declared wedding date, damage to property and money in safe, burglary and public liability. For instance, if the marriage hall gets flooded or in occurrence of an earthquake, the irreversible cost of the wedding is reimbursed as per the policy terms and conditions. Further, the public liability cover safeguards you against legal liability arising towards third parties for accidents resulting in injury or damage occurring at the venue of the insured event. In India, most insurance companies such as Bajaj Allianz, ICICI Lom...

You need to choose your insurance based on need and not just to meet tax deduction needs. Life involves facing risks all the time. Everyone faces risks to life, health and belongings. The question you need to ask yourself is whether you have a back-up plan in the event of the unexpected happening to you. Insurance is the perfect answer. Insurance provides protection against the risk of financial loss. While there is growing acceptance that insurance is vital, often there is confusion on what kind of insurance one needs to take, and how much insurance is adequate. There are three broad categories of risks for which a person would require insurance. Personal risk - unemployment, death, disability, illness or accident which could affect the income-producing ability of an individual is one. Property risk - something that may result in loss or damage of an individual's personal property such as fire, theft, flood, earthquake etc is the second. Liability risk - something that exposes a p...

The insurance market is flooded with many policies and schemes. While each has its own benefit, not all are needed. Insurance is possibly the best financial tool to protect yourself as well as your valuables from unforeseen circumstances. In fact, you owe it to your family to get the best cover you can afford. However, while it pays to be smart about insuring your family and your valuables, it is even wiser to make out which policies are truly worthwhile, and which ones are redundant. You need to know that while each cover has its own benefits, not all of them are needed in normal circumstances. Also, there are lots of insurance policies that use scare tactics to lure you in, and have premiums that are overpriced. And paying too much for protection can be a financial strain in itself. Therefore, you need to be selective in choice. Insurance is the best known form of financial protection to guard against major uncertainties or vagaries of nature. As a thumb rule, a person needs to have ...

Here are some tips to help you choose the ideal insurance policy that meets your needs Numerous insurance products such as children's education plans, life insurance plans with huge death benefits, and accident insurance covers are marketed aggressively. Often, people aren't aware of the actual insurance coverage. They jump onto the bandwagon, without reading the fine print. Tax payers make hasty last-minute insurance purchases to avail tax benefits under Section 80C. Though you may be saving a small amount of tax money, you could be stuck to a worthless policy for long years. Here are a few points to ponder over while buying an insurance policy: Insurance is not investment Insurance products are designed to provide protection. A term cover usually offers insurance protection but no benefit in case the insured survives the term of the policy. A unit-linked insurance policy ( ULIP ) on the other hand provides dual benefits of insurance protection and a flexible inves...

A lot of parents in India postpone or neglect crucial decisions pertaining to their own futures. Throughout their working career, the focus is almost always on providing the best to their children at every level. This often leaves them high and dry and dependent on their children to deal with their needs post-retirement. Such financial mistakes are common and often perpetrated generation after generation. OVERSPENDING New parents are often the biggest spendthrifts. The spending sometimes begins even before your little bundle of joy makes his/ her arrival into the world. Your excitement levels are at their peak and when you enter a shop with baby supplies, almost everything on display seems like a necessity for the little one. But you need to return to ground reality and make the crucial distinction between a necessity and a luxury and incorporate this theory into the making of your budget. PUTTING OFF PLANNING Many people put off the idea of formally making a budget and allocating wha...

AVOID BIG GIFTS FROM FRIENDS If you are someone who’s used to friends showering you with expensive gifts, there’s some bad news. Postbudget, any gift – in cash or kind (including immovable property) – worth more than Rs 50,000 will attract tax. So, think twice before accepting such gifts. FACTOR IN PERKS If you’ve are rejoicing the increase in exemption limit across categories, here’s a dampener that could have escaped your attention: abolition of Fringe Benefit Tax ( FBT ). While the employers do not have to pay the tax, the tax burden has shifted to employees in case of certain perquisites, puffing up their taxable income. You would do well to take this into account when you undertake your annual tax-planning exercise. PAY LESS WEALTH TAX If you were paying 1% tax on your wealth exceeding Rs 15 lakh, you can afford to relax. Thanks to the Budget, now this limit stands enhanced to Rs 30 lakh. GOLD’S STILL SAFE The hike in customs duty on gold bars from Rs 100 to Rs 200 per 10 gram mea...

This blog post explains the difference between Investment and Insurance . Most of the time people confuses both savings and the insurance . Some times without proper knowledge investing in the insurance will eat your money. Here you will see a simple example explains all that. Insurance and Investments A lot of us confuse Investment and Insurance. Investment is something that we save up to use while we are alive . Insurance is something we save up for our family to use once we are gone. The goals of Investment and Insurance are totally different. A lot of us take Insurance policies as investments. This is the reason why there are a whole group of people running behind us telling us how great their new Insurance policies are. Let me explain with a simple arithmetic. Assuming you pay an Insurance policy premium of Rs. 25,000/- for a policy that would mature in 20 years The Insurance agent would have told you that the policy is worth Rs. 5 lacs and you would get a bonus amount equivalent...

THE elderly -- and those with medical ailments --will now find it easier to renew their health insurance plans. In response to court orders and recommendations of various committees, the insurance regulator IRDA has changed the rules of renewability of health insurance policies. The new regulations make it mandatory for an insurance company to renew a health insurance policy irrespective of how much it has already paid out in claims. More significantly, insurers now have to condone delays up to 15 days from the renewal date and carry on the benefits of coverage of pre-existing diseases. A large number of complaints against health insurers say that they avoid renewing policies of the elderly and those with medical conditions if there is a break of even one day in renewing the policy. In a circular issued to all non-life companies this week, Insurance Regulatory & Development authority (IRDA) said that health insurance policies must be renewed except when the policyholder indul...

‘If you always do what you’ve always done, you’ll always get what you’ve always got.’ - Anonymous Most of us vow to do it early, but end up doing it in a hurry. Now is the time to start your tax savings investments. You can also use the ‘ Contrarian Style’ . Asset allocation While using tax saving investments, look at the overall asset allocation, since managing risk is the key to sustaining long term wealth creation. Tax saving avenues may restrict you to the available asset classes. While planning asset allocation, diversify across complementary avenues so that risks are managed better. A contrarian needs to study various asset cycles and accordingly choose the investment avenue where the trend is likely to change. For example, when interest rates are expected to fall, invest in a bank fixed deposit of about 7-10 years instead of just a 5-year deposit. To invest in equity or not? Most of us who have invested in equity linked saving scheme (ELSS) funds last year are likely t...

Here I have tried to lists out some investment options that are relatively safer in volatile market conditions The stock markets are on a downward trend from the beginning of this year. Volatility in the markets is also quite high. There are many factors that contribute to negative market sentiments. For example, a persistent high inflation rate (especially the core inflation rate that is driven by basic commodities), rising commodity prices in global markets, anticipated slowdown in the global economy etc. Foreign investors were investing heavily in emerging markets. They are now taking out money, especially from emerging markets. Large foreign investors are bearish on global growth and expect the global economy to deteriorate. They believe that in the era of a global slowdown, emerging markets will under-perform their global peers. Foreign institutional investors ( FII ) have taken out around $5 billion from the domestic markets so far this year. Since the stock markets are ...

The earlier you buy property in your earning years, the better it is for you financially The high economic growth in the past five years has brought about a big change in the life of the average person. Many young people are joining work early and earning high salaries. Many of them are either single or newly-married with lower financial commitments. There is higher disposable income in their hands. Home loans are relatively easy to get and mortgage rates are getting cheaper. So, the journey of wealth creation now starts in early 20s. Property as an asset Easy availability of home loans, declining loan rates and tax concessions imply that with the right amount of planning you can easily buy that dream home early in life. When you analyse it thoroughly, the first house purchase is not just to fulfill your dreams but also to provide for a secure place to live in through the golden years of your life - after retirement. Due to the improved living conditions and access to better m...

Mr & Mrs Achar, both in their early thirties, have a long list of want to-do things post-retirement. While Achar, a private banker, wants to travel a lot and write a book, Mrs Achar wants to look after their children and do some social work. The interesting part, however, is that they want to do this after 10 years, when they plan to retire! Yes, you are right, they do want to retire in their early forties and wish to pursue their passions. Wait a minute... did we hear similar voices from you too. Alright, so let's see how this can be achieved with systematic planning that includes having reasonably aggressive investment plan, regular savings and may be a slight change in lifestyle to ensure a better and safe tomorrow. Early retirement is essentially a lifestyle issue and is proportionate to one's income and consumption pattern. To retire early one needs have to do careful planning and calibrated thinking. Before making any retire plan, one should first prepare a balance sh...

If you are an earning member of your family, and there are members of your family who are financially dependant on you, you need life insurance. But how much life insurance do you need? There are many factors that are relevant in determining the amount of life cover you should buy. Need for minimum protection It is essential that a particular level of income should be maintained for the family even when its breadwinner is not around. Suppose a family's present needs are Rs 25,000 p.m. The extent of life insurance for its earning members should be such that interest income from the sum assured can meet the family's monthly expenses of Rs 25,000. If one also wants to provide for the future fall in the purchasing power of rupee due to inflation, one must necessarily take policies for higher amounts. No widow, they say, has ever complained that her husband bought too much insurance. Current income level Payment of insurance premium results in an outflow of disposable income. You ...

INSURANCE is a subject matter of solicitation. But how often do you give any thought to this rider, which perhaps is the most important clause while buying a policy. Traditionally, in India, people buy insurance products not because they need them, but because they are goaded to buy a policy to appease a neighbour, relative or a friend who is also an insurance agent. Financial experts hold the view that insurance needs are specific to each individual, depending on their financial objectives. The product that you buy should be in line with your requirements. Here are the pertinent queries that you should ask your insurance agent before being sold an insurance policy. Is the agent qualified or authorised to suggest me a financial solution? As a first step, you should ask your insurance advisor to provide the agent licence number and details such as when was it issued and its expiry date. This will inform you for how many years he has been in this profession. Also, whether he is a full-...

It is ideal to make your financial plan for the year early. Don’t leave tax-saving options for the last minute Many people rush to make last-minute and hasty investments to save on tax. Such hurried investments are usually made without much deliberation. The result - either the investment is unsuitable for your profile or you have to take a loss. Get down to financial planning and manage your finances well to meet your goal. Planning well in advance gives you ample time and opportunity to investigate, prepare and schedule investments. Set Goals The first step to financial planning is chalking out your goals and refining them. Next, define your risk appetite. A professional financial planner can help you save and invest for your future goals. Decisions have to be made based on inflation, income tax, current income and investment levels, asset allocation, and returns in various asset classes, expenditures, long-term commitments, short-term commitments and objectives. A financial planner ...

A money back policy has dual benefits of insurance cover and periodic returns MONEY back life insurance policies rank high on the popularity chart. And for good reason: they offer dual benefits of insurance and redemption of money at regular intervals. But little do people realize that they pay more towards premium amount in comparison to a term policy. Here’s a lowdown on what it takes to buy a money back policy and the issues involved. FIRST THINGS FIRST According to life insurers, money back policies fit perfectly in the scheme of things of traditional investors who seek financial instruments that provide insurance and investment, with a low risk element and guaranteed returns. In other words, the plan is meant for individuals who require money at certain intervals in their lifetime to meet fixed long and short-term financial needs (buying a house or car, vacations abroad). “Unlike ordinary endowment insurance plans where the survival benefits are payable only at the end of the end...

Tax Benefits on Insurance and Pension Life insurance and retirement plans are effective ways of saving taxes. The tax breaks that are available under our various insurance and pension policies are described below: 1 Our life insurance plans are eligible for deduction under Sec. 80C. 2 Our Pension plans are eligible for a deduction under Sec. 80CCC. 3 Our health insurance plans/riders are eligible for deduction under Sec. 80D. 4 The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D), subject to norms prescribed in that section. INCOME TAX GROSS ANNUAL HOW MUCH TAX CAN YOU SAVE? SECTION SALARY Sec. 80C Across All income Slabs. Upto Rs. 33,990 saved on investment of Rs. 1,00,000. Sec. 80 CCC Across all income slabs. Upto Rs. 33,990 saved on Investment of Rs.1,00,000. Sec. 80 D* Across all income slabs. Upto Rs. 3,399 saved on Investment of Rs. 10,000. TOTAL SAVINGS POSSIBLE ** Under Sec. 80C + 80 CCC - Rs. 37,389 Under Sec. 80 D - Rs.3,399 , calculated fo...