Personal Finance 2.01

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Putting a finger on the value of yr life is crazy. Isn’t yr life invaluable and priceless?

Indian consumers have bought life insurance for reasons of tax saving rather than the core need of providing for one’s family in case of death of breadwinner.

Secondly, Indian consumers have been unaware that insurance too needs change with every change in one’s life stage (e.g., if one gets married or has children, one’s need for insurance goes up).

As a result the average insurance size is less than Rs 1,00,000. This is less than the price of a car yet to be made. And every car has to be insured by thr rule of the land. This implies that people who think they are insured are also heavily under-insured.

Heard of this yaksha question: What is the greatest mystery on earth? Yudhisthir answers, Every one has to die. But no one thinks that for himself. This is the greatest mystery.”

In a broad economic sense, insurance transfers risk from individuals to a larger group, this is
better able to pay for losses.

So how do you calculate yr Insurance need? Start with calculating yr Human Life Value (HLV). A very simple way of looking at it is as follows. Imagine a monthly income of Rs 10000 and the net income provided to the family is Rs 8000 after deducting Rs 2000 for personal expenses. Thus the annual income provided to yr family is Rs 96000. The amount of money which will earn Rs 96000 pa at 8% interest rate is Rs 12,00,000. This is only a representation of the value of HLV. It is not the exact way of calculating yr HLV.

The future income growth, yr income generating assets, liabilities, spouse income, children’s
education, etc are also to be factored in.

Insurance, Personal Finance

ULIP is a hot selling insurance product these days. Unit Linked Insurance policy is an insurance policy where the funds are invested in the Capital market and the policyholder bears all the investment risks.

Insurance companies are falling over each other to bring out ULIPs in new and attractive packages, thanks to it being accepted across India in huge numbers. More than 80% of the new premium income of Insurance companies come from ULIPs today.

Advantages:

But shouldn’t this product be left to Mutual Funds who have been dealing with investments in the capital market with much more transparency and disclosures?

Well, the Insurance companies have only added the insurance angle and are charging separately for that too.

Let’s look at the charges for investing in a ULIP. Generally, a Mutual Fund charges 2.5% as entry load and 1-2% as Fund Management charges.

Companies also run schemes where they take high performing advisors to Singapore, Brazil et al.

And the investors will be taken to the cleaners!!

So look befor you leap for a ULIP!!

Insurance, Investing, Mutual Funds, Personal Finance, Planning

Slideshare is a wonderful way of sharing your slides and powerpoint presentations. It is a place to share and discover slideshows. You can embed the slideshows in your blog, tag, comment and have fun.

I have embedded a presentation I have made on “Taking responsibility for your finances”

Click here for the slides

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Asset Allocation, Budgeting, ETF, Index Funds, Insurance, Investing, Mutual Funds, Personal Finance, Planning, Stocks

Visit my blog Weblog on Finance and Business. It is a storehouse of info on finance and business.

Asset Allocation, Budgeting, ETF, Index Funds, India, Insurance, Investing, Mutual Funds, Personal Finance, Planning, Stocks

I have always been smug with my assumption that a sophisticated finance professional will take care of all my wealth creation needs. But the day my over friendly and over smart advisor came, I was more confused when he left than when he had entered!! He talked about sophisticated jargons, terms, options, technology, software, analysis and at the end of it asked me to decide on my own risk appetite. Damn it, if I have to do my own analysis what the heck was he doing, sitting smugly on my sofa while I looked like a sheep in my own house.

To be fair to my financial advisor, he helped me understand that one must take responsibility for oneself. And he logged me on to the fascinating world of finance and investing. As part of the learning process I have built this e-scratch pad and have really enjoyed the process.

My initial findings - investing is no rocket science and can be easily understood by a layman.

There are very interesting tools and calculators available which even a child can use and play with.

It’s easy to be overwhelmed with the investment options. 650 odd Mutual Funds, More than 2000 scrips to choose from, options, futures, commodities, real estate, deposits, insurance, tax saving schemes and bonds like PF, NSC, KVP, Infrastructure bonds, et al……. At times I feel the importance of the proverb: ” Ignorance is bliss”

Apart from the overwhelming options, you are faced with finance jargon, terminologies, irrational behaviour of the stock markets and smug finance professionals.

Wait a minute. It’s critical to be responsible for your wealth and as I said in the beginning, it’s pretty interesting too! Here’s a indicative list of what you should know for a start and I promise I’ll take them one at a time.

1. Why to Invest, Golden rules of investing, Your Financial planning steps.
2. Introduction to stocks, derivatives, options.
3. Introduction to Mutual Funds
4. Introduction to Insurance
5. Product review.
6. Sensex review.
7. Asset allocation, Time, Value of money, etc….

More in the next post!

Asset Allocation, Budgeting, ETF, Index Funds, Insurance, Investing, Mutual Funds, Personal Finance, Planning, Stocks