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Nilesh Harde

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تسجيل الدخول إنشاء مدونة إلكترونيةالمدونة اإللكترونية التالية» المزيد

Financial Planning, Mutual Fund and Insurance http://mfa-nilesh-harde.blogspot.com/

1 of 10 06-01-2015 22:25

Posted by Nilesh Harde at 2:09 AM No comments:

Please send your suggestions and issues found to my E-mail address

[email protected].

Friday, February 8, 2013


Avoid these common mistakesMost retail investors plan to grow their savings via investments, but most of them fail to grow

the investments to their full potential. You can blame this on the common mistakes that retail

investors make during the investment period. Here are some of them:

Lack of planning: Investments are made indiscriminately across asset classes, overlooking

the investment objective or risk appetite. A strong investment or financial plan addresses the

goals or objectives to be achieved after a specific period of time. Here, if one is not well-versed

with the nuances of financial planning, he/she should consult a financial planner.

Lack of diversification: Often, investors put money only in one asset class, thereby losing

the opportunity to benefit from better performing asset classes. For instance, in India, portfolios

of most retail investors are locked in bank fixed deposits (FDs) instead of having a mix of

mutual funds and FDs. The table here shows a diversified mutual fund portfolio of equity, debt

and gold that provides higher returns than bank FDs over a 10-year period.

Impact of inflation: Investors often ignore the effect of rising prices or inflation on their

portfolio. This is especially important in a highgrowth and high-inflation economy such as India.

For instance, if a bank FD gives 8% returns in a year when the inflation rate is 7% (average),

the real rate of return for the investor is just 1% (8%-7%), which is insignificant. Investors can

beat inflation only by investing in diversified products across the asset class spectrum.

Not starting early: The adage 'early bird catches the worm' holds true in case of investing

also. If a person starts investing early, he/she will be able to reap the benefits of compounding

of returns to the maximum. For instance, Rs 1 lakh invested at the age of 35 years at the rate

10% per annum would grow to Rs 6.73 lakh in 20 years (55 years). However, the same

amount if invested at the age of 25 at the same rate of interest would have grown to Rs 17.45

lakh. This is three times the growth seen from the money invested 10 years later. This is

nothing but the power of compounding, which works to the advantage of those who start

saving early.

Timing the market: Financial markets tend to move in cycles — equities have a far shorter

cycle compared to debt or other asset classes. A big mistake that investors make, especially in

equities, is trying to time the market. However, the risk of loss is very high if calculations go

wrong.

Investments based on tax planning: As the financial year-end draws near, tax benefits

overshadow pragmatic investment needs. Investors do not invest based on any goal or plan

but only to save on tax. Investors must align their tax-saving investments according to their

long-term investment plan. For instance, for young and relatively risk-averse investors, equity-

linked savings schemes are a better alternative than debt instruments as equities have

outperformed debt over the long term.

Lack of review and rebalancing: Retail investors fail to review and rebalance their

portfolios. They should track their investments at regular intervals to gauge the performance.

Further, portfolios must be rebalanced to match the pre-defined asset allocation. Reviewing

also helps to weed out non-performers in the portfolio.

Lack of insurance: Insurance, both life and medical/health, should be an integral part of an

investor’s financial planning. This is because exigencies come unannounced and could be

costly. A term plan may be preferred to an endowment or a money-back plan.

Thursday, January 31, 2013


2 of 10 06-01-2015 22:25

Health Insurance - Why you should have apersonal accident cover?

For less than 1,000 a year, you can get a 5 lakh cover against death and

disability due to a mishap.

You need a life insurance policy to cover the risk of death and a health

insurance policy as a cushion against hospitalisation expenses. While

most readers are bound to be familiar with these essential covers,

very few would have heard of the personal accident cover. Personal

accident schemes cover the policyholder against death or disability

due to an accident. All general insurance companies offer these

policies, but it’s very unlikely that an agent will try to sell you one.

These low-priced policies are not very popular because the agent

earns barely 20-30 as commission from selling such a policy.

However, you should buy a personal accident policy because it plugs

an important hole in your insurance portfolio. Firstly, it will provide

financial support to the policyholder if he is disabled after an accident.

Secondly, the magnitude of the mishap doesn’t matter; even minor

ones like falling off a bicycle and breaking an arm, or fracturing a leg

while playing football are covered by the policy.

If you thought term insurance policies were cheap, wait till you find

out about the premium rates of a personal accident policy. For as little

as 225 a year, you can get a cover of 5 lakh. The daily cost works out

to about 60 paise. However, this is the rate for a basic cover from a

PSU insurer and will only cover death and permanent disability. If you

want enhanced protection, you will have to shell out more (see

graphic).


3 of 10 06-01-2015 22:25

Bundle it with other covers

One way to get the agent interested is to buy it along with your

health or motor insurance. “Since agents get very low commissions,

they usually try to bundle the personal accident cover with some

other insurance product. However, this doesn’t mean that you will pay

a lower premium, though some companies may give you a discount,”

says Sanjay Datta, head of underwriting and claims, ICICI Lombard

General Insurance. A basic personal accident cover against death and

permanent total disability is already built into a motor insurance

policy. You can enhance the cover by paying extra.

PSU insurers offer a maximum cover of 5 lakh under a personal

accident plan. Private insurance companies offer a higher cover and a

wider range of benefits, but the premium rates are higher too. You

can take a cover of up to 8 times your annual salary. Apart from the

basic death and permanent disability cover, you can buy additional

protection against partial and temporary disability, even loss of

livelihood. “A personal accident policy covers the buyer against costs


4 of 10 06-01-2015 22:25


that can shatter him financially,” says Subrahmanyam B, senior

vice-president, health & commercial lines, Bharti AXA General

Insurance.

Understand terms & conditions

It’s important to understand the terms and conditions clearly before

you buy a policy. For example, hospitalisation benefit can be availed

of only if the policyholder is admitted within seven days of the

accident and is hospitalised for at least 24 hours. A fractured leg is a

temporary disability, and if you have taken a cover against it, your

policy will pay a weekly sum of 5,000 for up to two years. However,

this weekly cash benefit is paid only if you are unable to go to work

and the payment starts only 60 days after the accident. One also has

to submit proof, including a doctor’s certificate for the disability that

prevents one from attending work.

Also, be very clear about the definition of disability. When a

Delhi-based policyholder lost his index finger in a car accident, the

hospital gave him a certificate of 15% disability. Yet, the life insurance

company denied his claim because he had a cover against total

disability. “The policy

document defines the loss of hand as total disability. The loss of one

digit, even though it was the index finger, was not covered,” he says.

Permanent total disability is defined as total loss of sight in both eyes,

or total loss of use, or dismemberment of both hands or legs, or one

hand and one leg. Losing one eye is a

permanent, but not total, disability. Ask the insurance company or

agent to explain the exclusions clearly to you.

You may also have a group cover

Most companies offer personal accident insurance to their employees

through a group cover. However, this is a very basic cover and may

not offer the benefits offered by a standalone policy. “I recommend an

individual policy only if one can afford it and if his company’s cover is

insufficient,” says Jayant Pai, head, marketing, Parag Parikh Financial

Advisory Services.

You can also buy an accident cover with a rider along with a life

insurance policy. However, these riders come with strings attached

and don’t offer certain covers. “Since life insurance companies cannot

offer anything but life cover, you will not be covered against other

damages, such as hospitalisation expenses,” says Sanjay Tiwari,

vicepresident, strategy and product, HDFC Life. “Riders can never be

as comprehensive as a standalone policy,” he adds.

A plain vanilla personal accident cover is not very expensive, but it

can come handy in case of a mishap. Selfemployed professionals who

travel a lot during the course of their work will find this especially

useful. Buy one right away so that there is nothing left to chance in

your insurance portfolio.

Tuesday, September 11, 2012

Cashless health insurance

The facility of cashless claims in health insurance tries to remove the

problems associated with se�ling hospital bills and making lump-sum

payments for hospitalisa�on. The facility can be availed of only if the hospital,


5 of 10 06-01-2015 22:25

Posted by Nilesh Harde at 9:30 PM No comments:

where the pa�ent is to be treated, figures among the hospitals approved by

the insurer. The list of network hospitals can be obtained from the TPA

(third-party administrator) either from its website or by calling its toll-free

number. The details of TPA are available in the health insurance policy.

Informing the hospital

The hospital needs to be informed at the �me of admission that the

pa�ent is covered under cashless health insurance policy and the insurance

card needs to be submi�ed at the admission desk for this purpose.

Pre-authorisa�on form

The form is available with the hospital and has to include the

approximate hospitalisa�on cost based on an es�mate from the admission

desk. If the hospitalisa�on is planned, it is advisable to finish the

pre-authorisa�on procedure beforehand.

Process

On receiving the pre-authorisa�on form, theTPA checks the policy

limits, eligibility and riders applicable in order to accept or reject the claim.

A�er approval, the TPA sends an ini�al authorisa�on by fax to the hospital.

Se�lement

At the �me of discharge, the insured has to sign the discharge form

and all the bills and forms, which are sent by the hospital to the TPA for

authorisa�on. If this authorised amount is less than the hospital bill, the

difference needs to be paid by the policyholder to the hospital.

Points to note

· Even if a pre-authorisa�on request is denied by the TPA, the insured

can go ahead with treatment, se�le the bills and then apply to the

insurer for a possible reimbursement.

· In case of an emergency hospitalisa�on, the pre-authorisa�on form

has to be faxed to the TPA in the dura�on specified.

Non-medical bills and expenses not covered must be se�led directly by the

insured before discharge.

When to exit your mutual fund

Five situations which may warrant redemption of your fund units.

People spend a lot of time trying to identify the right mutual fund to invest in. While

choosing a good scheme is important, knowing when to exit is as crucial. This is

because even though you may be holding the right mix of mutual funds at a given point

in time, you may want to alter the holding pattern by disposing of some funds in the

future. How do you decide when to do this? Here are five situations where you may


6 of 10 06-01-2015 22:25

Posted by Nilesh Harde at 9:28 PM No comments:

need to consider getting rid of your investment.

Consistent underperformance

Gross underperformance of any scheme is the first signal for you to consider

moving out. However, don’t dump a fund based on the performance over a short span of

time. Move out only if it continues to perform poorly over three to four quarters.

Remember to compare the scheme’s performance with that of its benchmark or category,

not with a fund belonging to another category.

Exit of a capable fund manager

A change in the fund manager should normally not be reason enough to dump

your fund. Even if a star manager leaves a fund house, it should not make you press the

panic button. Instead, keep a watchful eye on the new fund manager for some time.

Track his investment style, churning frequency, stock selection, asset allocation strategy,

etc. If you are satisfied with his approach, stay put. If the fund house has a robust

investment processes in place, the fund is likely to do well regardless of who is steering

it.

Change in scheme a�ributes

Investors should typically opt for a fund only if its objectives or investment

mandate are aligned with their needs. So if you suddenly find that your fund has

deviated from its stated objective or revised its investment mandate, you should consider

exiting it. Over time, some fund managers take investment calls that do not match the

stated objective of the scheme. If this happens too often, it’s time to get rid of the fund.

Besides, whenever there is a change in the fundamental attributes of a scheme, the fund

house is required to provide the investors an exit window, wherein those who wish to

move out can do so without incurring any exit load.

Achievement of an inves�ng goal

Financial planners advise that you should invest with a goal in mind. Once your

investment reaches the targeted amount, you should redeem it. There’s no point in

continuing with the investment for you will be exposing your investment to further risk.

Don’t get greedy and wait for the fund to go that extra mile.

Rebalancing of the por�olio

Asset allocation is the key to success in investing. It ensures that your portfolio

does not deviate from its original path, putting your goals at risk. So if you find that

your equity allocation has grown beyond comfortable levels, consider redeeming the

funds. A change in life stages would be another reason to change you asset allocation

and consider switching to a fund that matches your needs. As you near retirement, you

might want to consider more conservative funds.

Tuesday, April 17, 2012

Health Insurance - Does a floater cover


7 of 10 06-01-2015 22:25

work?

Does a floater cover work?Such an insurance plan is a good option when the family is

young, but it may not prove cost-efficient if there is an older

person to be insured or when the children are grown up.

One of the biggest dilemmas faced by health insurance buyers is whether

they should go for individual policies or a floating cover for the entire family. In

an individual policy, the cost of the cover is generally lower compared with a

floating plan. However, in the case of the latter, a higher cover is available to all

members of the family since each member can avail of the combined cover. The

logic is simple. There is a low probability that more than one or two family

members will require hospitalization in a year. It is a calculated risk which

reduces the cost of the cover substantially.

Floaters work best in case of young families. The premium is low because it

is linked to the age of the eldest member in the plan. “A family floater cover is

advisable when the oldest member is less than 45 years old,” says Neeraj

Basur, chief financial officer, Max Bupa Health Insurance. For 34-year-old

Rakesh Somani, it is an ideal choice for insuring his family (see picture). “Since

we are a young family and our healthcare costs are not too high, a floater plan

of 5 lakh should be sufficient for us,” he says.

Costly for older families

However, the same may not be true for an older family, where the eldest

member is more than 45 years old and the children are grown up. In such a

case, individual policies may work out to be cheaper (see graphic). The same is

true if you want to insure an elderly member of the family. The premium can be

prohibitive when you include a senior citizen (above 60) in the floater plan. For

instance, a 3 lakh floater cover for a family of four, where the eldest member is

35 years old, will cost less than 9,000 a year. However, if you add senior citizen

parents (65 and 60 years), the premium jumps to 52,500. “When older family

members have to be covered, it is better to buy separate plans for them,” says

Gaurav D Garg, managing director & CEO, Tata AIG General Insurance.

Individual covers of 3 lakh each for the two senior citizens would cost about

30,000 ( 18,000 for the 65-year-old man and 12,000 for the 60-year-old woman).

This still works out cheaper than a combined floater for the entire six-member

family.

Go for individual cover after 45

Taking an individual plan could also be an option when the eldest member of the

family crosses 45 years. He can take a standalone policy for himself, while the

rest of the family is covered under a floater plan. Insurers allow members to

branch out and take individual policies when the plan comes up for renewal.

This is also useful when a dependent child grows up and starts earning. He may

need to buy a separate health insurance plan for his own family.

Check if your insurer will carry forward the benefits accumulated by the

individual in the floater plan when he shifts to the individual cover. This is

important since there is a 3-4 month cooling off period for all claims as well as a

2-3 year waiting period before pre-existing diseases are covered by health

insurance companies.

Top-up plans are cheaper

The health insurance provided by employers usually includes floater plans that

cover the employee and his dependants. It is not advisable to depend entirely

on such a cover because if you change jobs or stop working, your family may be

rendered uninsured. If you think buying a fresh insurance plan is very

expensive, go for a top up health cover. Top-up policies cover medical expenses

beyond a certain threshold. Suppose an individual has an insurance cover of 3

lakh from his employer and takes an additional top-up cover of 5 lakh, with a

deductible of 3 lakh. If he is hospitalised for an illness and the bill comes to 7


8 of 10 06-01-2015 22:25


lakh, his employer’s cover will pay for the initial 3 lakh and his top-up policy will

pay the remaining 4 lakh. The deductible in the top-up covers brings down their

cost substantially. Since almost 85-90% of the claims are below 3 lakh, the risk

for insurance companies is minimal. Therefore, a top-up plan is 40-60% cheaper

compared with a full-fledged cover. If a regular cover of 3 lakh costs 3,500, a

top-up cover of 5 lakh with a 3 lakh deductible will cost only 1,600.

Source: The Economic Times Wealth April 16, 2012


9 of 10 06-01-2015 22:25

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Source: The Economic Times Wealth April 16, 2012

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