Personal Finance Blog- India V 2.0

The most mis-sold financial product

We strongly feel that ULIP is the most mis-sold financial product in the market. We have seen a lot of individuals who have ‘invested’ in ULIPs without even knowing the ABC of what it is. Most of the folks who sell ULIPs are even unaware of what they sell. The thing often repeated by the person’s marketing these ULIPs are ‘Growth fund of our ULIP has yielded returns above 40% for the last three years consistently’. People get sold immediately and later grieve over it.

One of the oldest player in Insurance industry sold a ULIP plan and made news before a couple of months. Thanks to its agents who mis-sold it effectively. IRDA (Insurance regulator) also made a public statement on this one condemning such practices. Such things wouldn't help unless the buyer is AWARE and AWAKE.

We went through the brochure of a ULIP plan and found out the following charges being levied.

1) Premium allocation rate for the first year was 40%.(i.e. , if I invest 10000, only 4000 will be invested…guess what happens to Rs 6000 !!!.The premium allocation however gets better over a period of time)
2) Fund management charge. (Around 1% p.a)
3) Surrender charge for early surrenders.
4) Policy administration charges. (Rs 20 per month!!)
5) Mortality charges (for getting you insured)
6) Switching charge ( growth to balanced switch ,etc) Rs 100 for each extra switch
7) Partial withdrawal charge.
8) Revival charge (Rs 250)
9) Miscellaneous charge on top of it. ( charges for any alteration in the contract!!)

And nobody tells that the 40% plus return has been because of the phenomenal stock market performance and the same can’t be expected year on year.

The best thing is to have a term insurance policy for covering your life and invest through SIPs in mutual funds, if you want to get the benefit of equity (where the cost of investment is only the entry load and fund management cost, which may add up to 5% p.a on the higher end).
When a ULIP sales person calls you next time, be ready with the right questions.

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Spotting opportunities from the past

Everybody is good at spotting opportunities from the past. During the last two years the real estate and stock markets have raisen to phenomenal heights. Almost everyone whom I meet talks about the opportunities they have lost. example. ' If I had invested in sensex two years back..', ' if I had bought a flat /plot 10 years ago in XXX area ...I would have had....so much ', etc.

Actually any day and any year has equal number of opportunities. Anyone can spot opportunities from the past. So, no matter pondering in the past only. A prudent person should start seeing opportunities that are yet to be seen by the masses and be an early entrant into the new investment opportunities or business ideas. The early entrants or the trend setters are the ones who gain the most out of any opportunity.

I am not suggesting you to forget the past.you can always do, but try to learn a lesson or two from the same so that you get the ability to spot the opportunities that present/future holds. No point only lamenting over lost opportunities.

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Two obvious choices in ELSS

We have been receiving a lot of mails asking to suggest good ELSS funds. HDFC tax saver and Magnum tax gain have been consistent performers and are five star rated funds from Value research.

Both of them have had strong track records and you can opt for an SIP in any of the these funds.

Fund Name, Launch Date ,Risk Grade, Return Grade, 5 year return

HDFC Taxsaver ,Mar-1996, Low, High, 49.87

Magnum Taxgain, Mar-1993 ,Below Average ,High ,57.66

Tax Saving-ELSS Advantage! Equity top up investment SIP returns - Analysis Traffic signal

* data source -Value research

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Equity top up investment

I have seen many people who are scared of investing in equity either directly or through mutual funds. This is mainly because of the fear of loosing capital or at times due to low understanding of equity as an investment instrument.

You can create a debt portfolio plus a equity top up in this case. This will give
100% protection to your capital amount invested.
Will help you increase your returns through equity.

How can you achieve this.

Alternative 1

You can choose to invest the amount you have in a Fixed Deposit and opt for a monthly or Quarterly interest payout option.
Alternatively you can also choose to invest in POMIS ( Post office monthly income scheme) which pays out monthly interest rate.
You can invest the interest so earned in an equity mutual fund through the SIP (Systematic Investment Planning) route.

Alternative 2

Suppose if you have Rs X with you now, you can invest such an amount in an instrument like F.D/ NSC for a period, say 5 years. You can invest amount X-Y in F.D/ NSC such that you will receive Rs. X on maturity. The remaining amount (i.e. Y ) can be invested in Stocks/ Equity/ Balanced fund based on your convenience.

Thus you can use equity as a top-up and sleep without the fear of loosing your capital.

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SIP returns - Analysis

Of late, we have been receiving a lot of mails asking for us to suggest some good funds to invest in. We suggest that you always invest in funds that have a proven track record and have been through various market life cycles.

One more thing, always try to follow the SIP route , as you can handle market volatility better. More important is time that you spend in the market.

See the following chart (source: economic times) which shows the return from proven funds through SIP over a period of ten years.