Invest 'N' Insure

Calculating Retirement Corpus

2010-03-22T02:22:00.000-07:00

Calculating retirement Corpus
	Formula	Sample calculation - Years to retirement = 25, Present Montly Expenses = 15000, Rate of Inflation = 5%, Rate of Interest after retirement (RIA)= 8% Rate of Interest before retirement(RIB) = 11%
Estimated Future Cost of Living	Present Cost*(1+Rate of Inflation)^No of Years for Retirement	609,544
Corpus Required	Future Cost/RIA	7,619,299
Yearly Savings Reqd	CorpusRIB/(((1+RIB)^Years to retirement-1)(1+RIB))	59,995

Income Tax Savings courtesy Budget 2010

2010-03-08T03:59:00.000-08:00

Budget 2010 is here and it brings yet another relief for the salaried middle class - quite a relief infact considering the fact that you can u will have to shell out 40% less in taxes.

Here's how the maths goes:

This illustration assumes a person having a Taxable income of 6 lakhs. The deductions considered are Sec 80 C, 80 D and the new Infrastructure bonds only.

As can be seen, the Tax under new laws comes to 31415 Rs from 52530 that the person had to pay earlier - a saving of approx 40%.

Yes yes its a reason to cheer but make sure you invest this extra money & not spend it. Its will ensure a better for you only and nobody else.

PPF alert

2010-01-26T08:47:00.001-08:00

Did you know?? Investment in PPF after March 2010, would attract tax at the time of withdrawal, as per the yet to be implemented, 'Direct Tax Code'. So if you have any plans of investing in your PPF fund in the near future, the time is now.

How to calculate tax on debt funds?

2010-01-19T04:58:00.000-08:00

If you have been investing in debt funds prudently this year or plan to do so, then this post is for you. In this post i will talk about how to calculate tax on your earnings from debt funds.

Yes you heard it right. Earnings on debt funds are taxable, unlike equity funds.

In case you are selling your debt funds in less than a year of purchase, you need to add the earnings to your income for the year, and calculate tax accordingly.

In case you have been holding the fund for more than a year, then it qualifies as a long term capital gain, and the interest is calulated as 20%-inflation adjustment or a at a flat rate of 10%.

Here is an example to explain things better:

Suppose you invest Rs 1,00,000 in a debt fund in Feb, 2004 and earns 40,000 on it in 5 yrs (u sell it in 2009). Now you have the option to

1) Pay a direct flat tax of 10% on ur earnings i.e. 4000 Rs, or
2) Claim indexation benefit - this means that u pay tax on inflation adjusted gains. the formula is:
Value of investment = Amount invested * (Cost inflation indexation of 2009-10/Cost inflation indexation of 2003-04).

In this example the value of investment comes out to be = 1,00,000*632/463=1,36,000 (approx). So you need to pay 20% tax on actual earning - inflation adjusted value (1,40,000-1,36,000) = Rs 800 only.

So calculate your tax using both the methods and pay the lesser amount.

Whats your Credit Score?

2010-01-04T02:36:00.000-08:00

The article has been moved to InvestInsure

Pension Plans terms explained

2009-11-17T03:30:00.000-08:00

I hope the information i have shared till now on Pension Plans has been of use to you. In coming posts i will be sharing with you a comparison of various Pension Plans available in the market. But before that, i would like to share with you some important terminologies used in Pension Plans

Immediate Annuity Plans vs Deferred Annuity Plans

Immediate Annuity Plans are ones in which pension commences immediately that is, within one year of having paid the premium. Also the premium is usually a one time premium (also called purchase price).

In case of deferred annuity plans, pension is deferred up to the time decided by policyholder. For example an individual can buy a deferred pension plan, with a tenure of 30 years. In this case his pension will begin after 30 years of buying of policy. The premiums for these policies can also be paid as single or regular premium.

Presently most insurance companies offer deferred annuity plans only. LIC's Jeevan Akshay II is one of the few immediate annuity plans.

Pension Plan Options

1) Life time annuity without return of purchase price : In this plan, the individual receives as long as he lives. However if the insured dies within 5 yrs of start of annuity, the pension amount is lost.

2) Life time annuity with return of purchase price: In this plan, the individual receives as long as he lives. In case the insured dies due to an eventuality, the purchase price (basic sum assured+bonuses, if any) is paid out to the nominees.

3) Annuity guaranteed for certain number of years: Under this option, the individual continues to recieve pension irrespective of the fact whether he is alive or not. The benefit of this plan is that if individual survives this period, he continues to receive pension for the rest of his life.

4) Joint Life or Last Survivor annuity: In this, individual receives pension till he is alive. In case of an eventuality, the spouse recieves pension amount. In case of death of both, purchase price of annuity is returned to the nominee (in case he opts for a return of purchase price).

Taxation under Pension Plans

2009-11-13T02:56:00.000-08:00

Premium paid under Pension Plans is treated tax free under Sec 80 CCC (upto a max of 10,000 Rs). So does that mean you can make a total tax saving of Rs 1,10,000 (1 lakh under Sec 80 C and 10,000 Rs under Sec 80 CCC)? Unfortunately no is the answer. If you save 10,000 Rs under Sec 80CCC, then the maximum amount eligible for tax saving under Sec 80 C is Rs 90,000 only.

As i had already stated, in Pension Plans only 1/3 rd of maturity amount is tax free. The rest is given as pension, which is treated as normal income and taxed accordingly. If you withdraw entire maturity amount in one go, then you will have to pay tax on 2/3 rd of the amount.

Retirement Pension Plans vs Life Insurance Plans

2009-11-02T21:46:00.000-08:00

If you have been a regular visitor to this blog you must be knowing about Life Insurance Plans (LIP). While Life Insurance Plans take care of you and your family in case of permanent disability or worse-death. Pension Plans are their to take care of you if u survive. :)

In LIP you get entire sum assured or maturity value at one go, which is tax free, but in case of Pension Plans, you get only 1/3 rd of the maturity benefit (tax free). Rest is given as annuity (or pension) and is taxed as any other income is taxed. If you choose to withdraw the remaining 2/3 rd amount in one go, then you will have to pay tax on that.

While premium paid for LIP comes under Sec 80 C, for pension plans it comes under Sec 80 CCC.

One thing to keep note of is that Pension Plans come with 'With Cover' and 'Without Cover' option. Under 'With Cover' option, in case of death of the policy holder, the sum assured is paid to the nominee (like in LIP). While in 'Without Cover' Plan, only the accumulated amount (plus bonus if any) is given to the nominee.

Pension Plans – Lets start with an intro

2009-10-29T20:12:00.000-07:00

So I was talking of retirement and how important it is to begin saving early for retirement. But what are the options we have?

To list down a few

1) PPF

2) NPS

3) Pension Plan

4) PF

In this section we will be discussing pension plans.

Pension Plans are savings that cater to your life after retirement. The amount you put in Pension Plan is locked till you retire (Say 55 years).

They are very much different from Life Insurance Plans. Life insurance plans aim at covering the risk from an unfortunate event. Pension plans on the other hand work on the opposite scenario that if an individual survives beyond an age (retirement age), he will need to provide for himself.

After you retire you can withdraw the entire savings, or withdraw a part of it and get the remaining as a pension. This plan is ideal for those working in private sector where we don’t have any retirement benefits/schemes. Also it helps save tax. Yes most of us might not be knowing that savings under Taxation details under Sec 80 CCC (upto a max of 10,000). However it is included under Sec 80 C.

While Conventional pension plans invest a major portion of the premium monies in bonds and government securities (G-Secs), hence offering much lower returns of 5%-6% per annum (plus tax benefit) , Unit Linked Pension Plans, though riskier, offer much higher returns (but the tax benefit is not applicable here). However if most of your savings are invested in stocks or mutual funds or ULIPs, then its better to invest in debt related pension plans so as to maintain a balance.

So which plan to buy? What premium to go for? All this will be covered in upcoming posts. Stay tuned.

Retirement Planning

2009-10-26T01:12:00.000-07:00

I am not even 26, then why am i talking of retirement? Isn't it too soon? The answer from many of you might be yes, but it pays to start early. It creates a discipline to save for retirement and also saves you from unnecessary worries at the end of your work life. Retirement is not the end of your life, infact it can be the beginning of the best time of your life. It means you dont have to drag yourself to office everyday, and can do what you fancy. But all this costs a lot, so start planning early. Here's a list of things you should take into account while planning for retirement.

1) Longevity : Life expectancy has increased over last decade and continues to increase, so you need to ensure that your assets do not outlive your age. Also inflation will add to your woes. Calculate your retirement amount very carefully. Use retirement calculators available online.

2) Healthcare: Medical costs are rising faster than rate of inflation and is the biggest source of expenditure after retirement. Its better to opt for a health insurance in early stages of life. This will save your premium and also reduce the chances of your policy application being rejected due to any medical conditions.

3) Taxes: With the New Direct Code supposed to come into action soon, your retirement savings are gonna be taxed too. Keep this into account when you plan for retirement.

4) Market Volatility: For earning better returns most of us rely on stock markets, but don't forget that the markets are volatile. So don't get tempted in taking unnecessary risks, and keep your plan as volatility proof as possible.

By investing early you would be able to gain from the power of compounding. 100 Rs saved today 10% interest will become 1083 Rs after 25 years. So start saving now.

The article has been sourced from Money Today, October edition

ULIPs - How agents manipulate facts

2009-09-13T23:56:00.001-07:00

I was reviewing my friends ULIP policy and i was amazed so see he how had been made to misunderstand simple facts. Unfortunately he is not the only one. Many of us might have undergone a similar experience. So in this article i will try to bust some common myths propagated by scrupulous agents.

Sum Assured is the sum that you get once your term period gets over (might be 10 yrs or more), or in case of (God Forbid) an accident leading to permanent disability or in case of death. Its not an amount that you would get after 3 yrs of paying your premium.

Also while ULIPs require you to pay premium for only 3 yrs, u would actually end up in a loss if you do so.
Consider this--
Your allocation charges for 1st year are 30% and for 2nd and 3year is 20%. So if you pay 10000 Rs every year, the amount that is actually invested is 7000 Rs in 1st year and 8000 Rs each in 2nd and 3rd year. So even though you pay 30,000 Rs over three years, your fund value (considering 10% returns) is still 28,500 (even lesser than what you have paid). Now if you stop paying premium at this point, you will lose you life cover, plus you amount will never grow much. Also it might be that during the period you paid premiums market was on a high, and after 3 yrs, they are in a turmoil. In that case you would never be able to take advantage of averaging out.

So the crux is that invest in a ULIP only when you have an appetite to pay its premium for atleast 5 yrs

New Pension Scheme-Decoded

2009-09-07T23:11:00.000-07:00

We save for ourselves, for buying a house, for our children’s education and marriage, but how many of us save for our retirement? Given the fact that most of us are working in private sector, we don’t have any retirement security. So what when we finally stop earning. Yes our children are supposed to take care of us but then shouldn’t we be self sufficient?

The New Pension Scheme introduced by The Government of India is a step in this regard. All Indian citizens aged between 18 to 55 years are eligible. The minimum contribution is Rs 6,000 while there is no maximum limit. Also the amount is eligible for tax deduction under Sec 80C (up to a maximum of 1 lakh). However the truth is so far only 2500 people have enrolled for this scheme. My dad asked if he should apply also, so I did some studying and here is what I found out.

While the amount invested under Sec 80 C is eligible for tax deduction, it is taxed on withdrawal. Unlike PPF and PF, which are tax free even on withdrawal. This significantly reduced the returns of the scheme. Another reason why this scheme is not gaining popularity is the low fund management charges. The fund management charge is 0.0009%. That means for 1 lakh Rs invested you pay only Rs 9 as fund management charge (The same invested in a MF can cost upto Rs 2250). You will say that this is a good thing, isn’t it? Yes it is, however such a low fund management charge gives little incentive to fund managers to perform well. Hence the returns from this scheme are also likely to be low. So this blessing is actually a curse in disguise.

Well, there a lot of talks going around regarding a new tax system being introduced, etc etc, but then as of now this scheme has definitely more drawbacks than pluses and I would definitely not recommend it.

Calculating Returns on MF

2009-08-30T22:50:00.000-07:00

Most of us invest a large portion of our savings in MFs. Suppose you invested 1 lakh on a MF, at NAV of Rs 20. After 5 yrs the value is Rs 50. So u can that rate of interest earned is (50/20*100) = 250 % or 50% per year. Unfortunately this is not true. The actual interest earned is given by CAGR (Compounded Annualised Growth Rate) =

(((M/I)^(1/N))-1)*100

So the interest earned in above example is actually = (((70/20)^(1/5))-1)*100
= 28.47%

Saving for your child's education - Opt for a Money Back Plan

2009-07-26T23:18:00.000-07:00

A short while ago i had been talking about various types of insurance. I had covered Term Plans, ULIPs, Health Insurance. However there is another type of insurance that you must have heard about - Money Back Insurance Plan. What exactly is this plan? Why should we go for it?

Money Back Plan is a similar to an endowment policy. While in an endowment policy you get returns after onlly after maturity, in a Money Back plan, it is paid at certain intervals during the policy term. Consider a Money Back Policy from LIC. Under this you get premium paid back to you after every 5th year. That means if you buy a policy of 10 lakhs for 16 years at a premium of 48000 (approx), every 5th year you get back 1.5 lakhs (15% of the sum assured). This is handy in taking care of expenses like you child's education or daughter's marriage, etc.

Apart from this you also get a life cover to take care of any emergency needs. And if you survive the entire policy term (we pray for that), you get back the remaining amount with bonus additions (which varies from 6% to 10% of sum assured).

Source: Times of India, Pune Edition

Debt Fund - the way out

2009-07-16T23:58:00.000-07:00

Hello people, I had created a poll last time, asking you about various 'risk free' yet 'yields oriented' ways of investment you know about. One of the opinions (infact the only opinion :( ) was to invest in Gold. Well my dear friend, Gold in these days is also not an attractive investment option. With economy on the path to recovery, more and more funds are being shifted to equities from gold, hence eventually gold prices are subject to fall in coming months (Disclaimer:This is an entirely personal though point).

Their is another option you can consider. Its called a debt fund. Lets know more about it.
A Debt Fund is a type of mutual fund that whose core holdings are fixed income investments such as short-term or long-term bonds, securitized products, money market instruments or floating rate debt.

Bonds? Secuirities??? blah, blah..didnt get a word. Well dont worry, we will try to make it as crystal clear as possible.
Securities are usually a government debt obligation (local or national) backed by the credit and taxing power of a country with very little risk of default. This includes short-term Treasury bills, medium-term Treasury notes, and long-term Treasury bonds. While bonds or debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any government-issued Treasury bond (T-bond).

In short, just like fixed deposits are considered a safe way of investment and based on the belief that the bank will be able to pay back the amount when needed, similarly debt funds are funds which invest in instruments which have very low chances of defaulting, and at the same time, they are aimed at increasing the invested amount. The main investing objectives of a debt fund will usually be preservation of capital and generation of income. So how do these debt funds provide increased returns?

Debt funds buy debt instruments at a certain price and then sell them. The difference between the cost and sale price accounts for the appreciation or depreciation in the fund’s value.

A debt instrument’s market price depends on the interest rates of its underlying assets and also on any upgrade or downgrade in the credit rating of its holdings. Market prices of debt securities swing with movements in interest rates. Let’s assume your debt fund owns a security that yields 10 per cent interest. If interest rates in the economy fall, new instruments that hit the market would reflect the changed interest rate scenario and offer lower interest rates. This would result in an increase in your fund’s instrument’s price as the higher yield would raise the instrument’s value. As a result of the increase in the debt instrument’s value, your fund’s NAV would also rise.

Also, Similar to the interest that a bank fixed deposit gives during its tenure, debt funds also earn a regular interest from the fixed income securities that they are invested in.

This income gets added to a debt fund on a daily basis. If the interest comes, say, once a year, it is divided by 365, and the debt fund’s NAV goes up daily by this amount.

Ok, their was enough technical jargon here. But did you understand anything?

Source of information
http://www.investopedia.com/terms/d/debenture.asp
http://www.outlookmoney.com/article.aspx?91628

Equity-too risky, FD's-very low interest rate..is their any better option?

2009-07-15T00:32:00.000-07:00

What are the various instruments that we invest it? Shares, mutual funds, fixed deposits, PPF, tax saving mutual funds for those who want to save tax. What else? While shares and mutual funds are market linked and hence very risky, fixed deposits these days offer petty interest rates, so petty that its better to keep your money in cash at home, than invest in these deposits. So do we have some other option that is not risky and still gives respectable returns????????? Lets take a poll and find out what you think.

Is their a better option than equities and FDs?(polling)

Earn more interest - Sweep in Fixed Deposit

2009-07-13T03:58:00.000-07:00

Many of you must be knowing about it, others might have heard of it, but for those who are not yet aware of it, this article for them. All of us know of fixed deposits. Though they give us the opportunity to earn higher interests, they take away the flexibility of ready cash at disposal, which we many a times need to meet with unplanned expenses.

Sweep in fixed deposits come to our rescue in this case. We normally have to specify a minimum amount, above which the money will be transferred to a fixed deposit. In case you need money, you can withdraw it like you do from a normal savings account.

Here is an example: Udit earns 38000 per month. He needs Rs 16000 for his expenses this month but their is a possibility that he might have to lend the remaining to his friend. Hence he cannot put the remaining 22000 in a FD. What he can do is create a sweep in FD. He can specify the minimum limit as 14000 (assuming its his normal monthly expenditure). Any amount above it is automatically transferred to the FD, earning him much higher interest, which he would have lost out otherwise.

Sounds attractive..it is..go for it now.

Myth and Reality - Debt Funds always outperform bank deposits

2009-07-03T01:11:00.000-07:00

Returns from debt funds can be lower or higher than that of a fixed deposit depending upon how well is the fund managed by fund manager. Hence the higher returns provided by a debt fund come with a (little) higher risk. However as these funds enjoy tax benefits-while income from FDs is charged at normal tax rate (considered a part of income), long term capital gains (>1 yr) from debt funds are charged at only 10%. Also dividend from these funds is not taxable, hence giving them an edge over conventional fixed deposits.

Filing taxes online??Check these 10 easy steps

2009-06-28T23:28:00.000-07:00

Hi,
After a week of hiatus, i am back, with a much neater interface. Cudn't find any much useful widgets though.

Anyways, i got hold of Outlook Money 1st July edition and it contains 10 steps for filing tax returns online.
Do check it out. Its very useful.

Investing in Mutual Funds - Check out MoneyToday, June25 edition

2009-06-21T22:13:00.000-07:00

Again I am digressing from the agenda of this blog, but as I had said earlier, its not just about insurance, its also about investment, in fact effective investment.

One of the very popular mediums of investment is Mutual Funds. But investing in Mutual Funds is not enough. U should make sure that you invest in the right mutual funds,which give smart returns.

Check out Money Today, June 25 edition for Mutual Fund Rankings under various categories, and find out if you made the right choice. The rankings are very comprehensive, and definitely trustworthy. Hope it helps.

P.S. I wont be posting any more posts for this working week, as i will be working on enhancing the user experience for you all. That means, a better look and feel, more relevant tags, and more useful gadgets which u can readily use. See u on Saturday..mean while keep visiting :)

ULIPs - Do u wanna know more??

2009-06-01T05:16:00.000-07:00

After reading my blog i infer u must hav known my disinclination towards ULIPs. Having explained the basics of ULIPs and the various expenses, i wonder if i shud u delve into more details giving details of various ULIPs available in market.

If u r interested let me know, else i will move to a more interesting topic - Health Plans.

Expenses in a ULIP-Take a look

2009-05-30T06:14:00.000-07:00

Before selecting a ULIP go thru the list of expenses charged by them. These charges, a large extent, determine the usability and effectiveness of a ULIP.

Most of the expense types are listed below and explained:

Expenses Charged in a ULIP

Premium Allocation Charge:
A percentage of the premium is appropriated towards charges initial and renewal expenses apart from commission expenses before allocating the units under the policy.

Mortality Charges:
These are charges for the cost of insurance coverage and depend on number of factors such as age, amount of coverage, state of health etc.

Fund Management Fees:
Fees levied for management of the fund and is deducted before arriving at the NAV.

Administration Charges:
This is the charge for administration of the plan and is levied by cancellation of units.

Surrender Charges:
Deducted for premature partial or full encashment of units.

Fund Switching Charge:
Usually a limited number of fund switches are allowed each year without charge, with subsequent switches, subject to a charge.

Service Tax Deductions:
Service tax is deducted from the risk portion of the premium.

Having defined ULIP expenses, an illustration will help in understanding how they pan out as well as their impact on returns over a period of time.

ULIP expenses

Tenure	Yearly Premium	Expenses (%)
		Initial 2 yrs	Remaining tenure	Fund Value	Effective ROI
		(pa)	(pa)
10	25000	27	3	358,417	6.48
15	25000			703,694	7.53
20	25000			1,232,827	7.98
25	25000			2,042,497	8.22
30	25000			3,281,631	8.36

As u can see, in the first two years of a ULIP, the expenses account for nearly 27%, hence even if a ULIP is kept for a duration of 10 yrs, the ROI (6.48%) rarely beats that even from an FD.

Hence i re-iterate, exercise caution before u opt for one.

Term Plans – Final Post, Next Topic-ULIPS

2009-05-14T23:23:00.000-07:00

For all those who have been reading my posts, the last few posts were basically aimed at answering a friend's query abt choosing b/w ULIPs or a combination of MFs&Term Plan. Though i have tried to explain in a simple manner it still might seem complicated to those new to the world of insurance. But dont worry. U will get a grip on these topics soon.

So far i have focussed on term plans and covered :

What are Term Plans
Wht are the varieties in Term Plans available in market
Quotations of the best term plans available in market
Riders and their importance

I wud recommend going for (LIC Jeevan Amulya - tried and tested), or SBI Shield (cheap and effective) or Kotak Term Plans (providing a lot of riders). Having said that, i wud shift my focus to ULIPs..the very popular insurance instrument and explain to all beginners wht r they and y r they so popular..but in my next post. Till then..ciao

Illustration - TermsPlans+MF vs ULIPs

2009-05-12T22:24:00.001-07:00

Here is an illustration highlighting the benefits of opting for a Term Plan + MFs over a ULIP.

In the first table, policy premium for Birla Sun Life Dream Plan (for a person of 25 yrs, insured for 25 yrs period) is 7040. The total charges include administration fee, mortality fee, and other misc fund charges. Fund value is the amt invested in ULIPs after deduction of charges. As we can see from first table, fund charges are usually levied for the first 5 yrs. After 5 yrs charges are almost negligible.

In the second table, we have assumed that we are investing the same amount 7040 (policy premium of Dream Plan) in SBI Life Shield Term Plan and a mutual fund. As is quite evident after seeing both the tables, in first five years the fund value in case of MF+Term plan option is more than that of a ULIP. Hence if u r a short term investor this is one of the better options for you. However if u r are looking at a long term horizon (more than1 10 years) than ULIPs can very much generate you better returns. So choose ur option wisely.

ULIPs or MFs+TermPlan

2009-05-06T22:25:00.000-07:00

A friend of mine asked me to review a ULIP..my first question was why ULIP? Y not go for a combination of Mutual funds and Term Insurance. I did some googling and here r my findings :

So how does one go about comparing ULIPs vis-a-vis tax-saving funds? An illustration will help in putting things in perspective.

ULIP from ABC Company Ltd.

Age (Yrs)	Term of policy (Yrs)	Premium paying term (Yrs)	Sum Assured (Rs)	Premium (Rs)	Maturity amount (Rs)
30	10	10	10,00,000	1,00,000	15,20,375

Assumed returns rate : 10%
The figures used in the illustration above are based on that of an existing life insurance company.
The returns could vary across life insurance companies.

As can be seen from the table, an individual decides to invest in a ULIP having a sum assured of Rs 10,00,000 and tenure of 10 years. The premium for the same would be approximately Rs 1,00,000. The assumed rate of return is 10 per cent (compounded annualised). The entire investible amount can be invested in equities (in this particular plan). The maturity amount in the above example at the end of the tenure would be Rs 15,20,375. That is presuming that the investments grow at the rate of 10 per cent.

But company illustrations can often be misleading. That is because the returns calculated by life insurance companies are often on that portion of premium (i.e. premium paid - charges, charges include mortality charges, administration charges and fund management charges etc and can vary from 5 to 40%) . Therefore, the net return on Rs 100,000 works out to approximately 7.50 per cent in this illustration.

Let us take an example of an individual buying a term plan plus investing in a tax-saving fund.

Term plan from XYZ Company Ltd.

Age (Yrs)	Sum Assured (Rs)	Premium (Rs)	Tenure (Yrs)	Death benefit (Rs)
30	15,00,000	3,600	10	15,00,000

The figures used in the illustration above are based on that of an existing life insurance company.
The returns could vary across life insurance companies.

As the table indicates, an individual, instead of investing the entire amount of Rs 1,00,000 in a ULIP, opts for a term plan from XYZ Company Ltd for a sum assured of Rs 15,00,000. The premium amounts to Rs 3,600 per annum.

Systematic investment plan

Amount invested per month (Rs)*	Amount invested per annum (Rs)*	Investment tenure (Yrs)	Assumed return (%)**	Maturity value (Rs)
8,033	96,400	10	9.00	15,34,993

* Figures rounded off
** Compounded Annualised Return

In the table, we have assumed that the individual makes an investment of Rs 96,400 per annum (Rs 100,000 - Rs 3,600) in tax-saving funds. This amount is further divided into 12 parts for 12 months as we have also assumed that the individual will make regular monthly investments every year. We can see that the maturity value is still more than that of a ULIP.

Moreover, the best part about keeping one's investment needs and insurance needs apart is that both work towards their respective goals separately. Therefore, in case of an eventuality, the individual's nominees would stand to get not only the sum assured from the term plan (i.e. Rs 15,00,000) but also the amount that has been invested in a tax-saving fund.

Further, lets assume that instead of putting money in a Tax Saving fund, its put in a PPF at a ROI of 8.5% for 10 years.

PPF: A viable option

Amount Invested p.a. (Rs)	Assumed Rate of Return	Tenure (Yrs)	Maturity Amount (Rs)
96,400	8.00%	10	14,57,247

He invests the remaining amount . The current rate on the PPF is 8%. At this rate, the individual’s maturity value after a period of 10 years would be approximately Rs 14,57,247.And for the insurance company to be able to give him an equivalent return on the ULIP, it would have to yield a return out of its skin so to speak.

And that’s not where the comparison ends. In case of an eventuality if we compare this scenario to the earlier endowment policy scenario, the individual stands to benefit more by buying a combination of a term plan plus investing in a PPF. Had an eventuality occurred say, in the 10th year after buying a term plan, the individual’s nominees would have got approximately Rs 15,20,375. In 10 years, he would have shelled out Rs 10,00,000. But instead, had he invested in a term plan plus a PPF, the beneficiaries would still have got the sum assured of Rs 15,00,000 on the term plan. But in addition, they would also have inherited the maturity amount on the PPF to the tune of Rs 14,56,247, which would have matured by the end of the 10th year-end. That is considerably more than what the nominees would have got had the individual invested all his money in an ULIP. This was possible only because insurance needs and investment needs were separated and both fulfilled their roles to the hilt.

Hence i wud suggest that u go for a combination of MFs and Term Plan if u r willing to do a lil bit of research (to find out best term plan and tax saving MFs) urself.

More on pros's and con's of these approaches in my next post

Source:

www.rediff.com/money/2005/jul/22perfin.htm

http://www.personalfn.com/detail.asp?date=4/26/2006&story=1

Any Questions???

2009-05-05T21:41:00.000-07:00

The last post hasnt come up th way i want..the table can only be half seen..anyways if u need details please put ur email id in comments and i wil send u the details asap.

Well now wht to talk of?? If u hav any questions let me know.

Ashwin told me about a ULIP..wil be reviewing it but before that want to do a comparison b/w ULIPs and mutual funds+insurance.. I know for beginners this will go over their head but plz bear with me for a while :)

Taking a pause!!

2009-04-29T22:44:00.000-07:00

I hope i am able to convey the essence of insurance to u all in a very easy manner..as i had said in my previous post m ready with the list of comparisons for various term plans, but before i do so, i want to take today's day to get ur feedback, to answer ur questions, and ur queries.

May b m going 2 fast, may b not explaining the keywords that can help u understand all this better..etc etc.
Please let me know the same so that i can help u better.

The mantra of insurance

2009-04-28T00:14:00.000-07:00

How much shud u get insured for??? Not sure..well here is the thumb rule.. if ur salary is 4 lakhs per annum, u shud get insured 6 times this amt that is 24 lakhs.

Why so??

Here is the explaination:

@ 4 LPA ur monthly salary comes around 35000 per month.

Now say (God forbid), something happens 2 u, which leaves u and ur family without any source of income. At this time ur insurance comes to ur rescue...24 lakhs invested in a FD at 8.5 % ROI wud fetch u an interest of 2 lakhs per annum or 16,000 per month..good enuf for survial and maintaing a decent living of living.

If this amt seems less, u need to scale up the sum insured.

So which policy to choose..Term Policy, Money Back.....or any other.

More abt this, coming up in my next post

The story behind amatuer investor!

2009-03-09T06:31:00.000-07:00

Feb 2008

I had got a promotion, a bonus, had bought a laptop, had surplus left even after parking money for downpayment of my bike, and incidentally, stock markets were on an all time high, threatening everyday, to reach new highs, almost creating an inferiority complex among those who were not a part of it yet..and then i too decided to jump into it. The consequent year has been a year of learning, albeit it came at the cost of 70% loss in value of my portfolio, but i still believe that the learnings have been more valuable. The most important learning has been to save for a rainy day, after making sure u have enuf funds to meet ur expenses in the near future, and ONLY THEN, if U have SURPLUS, gamble with it..Unfortunately my planning was a bit different..Feb 2008 was when i began, and i was hoping that come Feb 2009, i wud b completing a year of investing (hence wud be able to redeem it without paying any taxes), and that the returns from the amt invested wud b ENUF to pay for 20% of my Tax Savings..unforunately nothing turned out as planned, and i had to really CUT CoSTs to save enuf for my tax savings.

My Plan for 2009:
Its the year of recession, and m saving for the rainy days first..creating enuf backup to survive for 6 months in case......
that means i need to save around 120K Rs..have saved 45K till now, and set myself a deadline of April end to save upto 100K..lets c how things go.

Things have looked bright now, but i have seen and learned a lot. This blog is inteneded to make people learn from my mistakes, so they can avoid making those same mistakes (but often unavoidable) again.