Be an Investor

Use Money in Order to Make More Money follow the “Cash Flow Quadrant”

There are four types of income generators in the world
1.    E – The Employee safe and secure job.
2.    S – The Self - Employed own their own job.
3.    B – Business owner why to do it yourself if you can hire someone to do it for you like Tata, Birla etc.
4.    I – investor who makes money with money.

AS SAID RICH V/S MIDDLE CLASS

Rich Earns    - 30% from E or S and 70% from I
Others Earns - 80% or more from E or S and 20% or less from I

Let’s resolve in 2010 to be an INVESTOR:

The Must Haves!

• “Health is wealth” Absolute Truth; when it comes to health. Remember, for yearly executive health check up. Cover your family under Regular Mediclaim / Family Floater Plans & enjoy tax benefit u/s 80D. Sec 80D allows deduction of max limit of 15000, additional limit of 15000 for coverage of dependant parents and for senior citizen the limit is 20000. Opt for LIC’s Health protection plus alongside  and enjoy tax benefit of Rs 15,000 from 2 different files. Sec 80DD allows deduction of max amt of 50,000 or Rs 1, 00,000 for treating maintenance of severe disability for dependent family members. Sec 80DDB includes deduction of medical expenditure on treatment of prescribed ailments.

• “Review Liability Portfolio “ when Too Much is Dangerous clear all your liabilities especially when we are not getting tax benefit out of it e.g. personal loan, car loan, other than business loans and education loan so that we have complete financial independence. Sec 80E includes tax relief of interest payment on education loan for higher studies of child, spouse & self.

• “Home Loan” Let You Family Inherit the House Not the Home Loan; owing a house is not just a dream but a necessity and there are several tax benefits as well. We can always opt for housing loan, as interest paid on home loan can be deducted up to 1.50 lacs, it can be doubled in case of joint borrowers. Further there is no cap on deduction of interest if the house is either let out or deemed to be let out u/s 24 as this can be worked out as a good tax planning tool at the same time it creates asset for you.

• “Life Insurance “is a plan that exalts life and defeats death; At any time human life value in society is far greater in magnitude than value of all property put together.Life insurance plans not only gives peace of mind, but also help us in securing our liabilities. Premiums paid also qualify for sec 80C & 80 CCC. The maturity proceeds are tax free u/s 10(10D)

• “Ready to retire rich ?” Chase your passion, not your pension; With stretched work hours and strenous routines, saturation level are setting in earlier for the youth today. In such a scenario, early retirement has beecome more a need than desire. Remember, the later you start for your destination, the faster you have to travel …the later you start saving for retirement, the more you have to accelerate your rate of saving You can earn tax free monthly income per month by investing monthly from today. Retirement planning assures dignified and independent life.

• Key Person Insurance ; It is an old cliché, but a true one nevertheless, that one of the most essential elements in the success of any business is the quality of people working within it. As a business owner you are a valuable asset to the company ensuring yourself can ensure your company’s future and protect the future of your business. Cost (premium) under Key man Insurance is 100% exempt from business income u/s 37(1).

• “Prepare for Education and Childs Marriage” through mutual funds. With higher apetite to take risk at younger age we can consider investing in mutual funds or unit linked policies  with respect to short term planning. Investing amounts is SIP’s can lead to better results than having lump sum in traditional bank by taking advantage of the volatility in the market.ULIP and few mutual fund schemes are eligible for deduction u/s80C.

Note;The premium can be paid upto Rs 1,00,000/-to avail deduction u/s 80C,80CCC. However the limit of 1Lac can be exhausted by paying premium under any of the said section

• “Succession planning “the key to better planning; Succession Planning combines elements of business design, ownership/management succession, wealth accumulation, retirement design, and estate planning. For further reference we have added the factor on our website www.bharatparekh.com at InstaWILL

• “New Direct Tax Code”; In this budget finance minister is planning to introduce the DTC code which is believed to more simplified and easy but lets talk abt it once it comes.

Please check if you’ve taken the benefit

• Sec 80C/80 CCC  -  Investments upto Rs 1.00 Lac in Life insurance, ULIP, NSC, tax saver - bank deposits, mutual funds, post office schemes, EPF, PPF, Prin. Payment - home loans & children’s tution fees

• Sec 24  -  Upto Rs 1.5 Lacs on home loan interest payments - For joint borrowers Rs 3.00 Lacs. For let out property, no limit on deduction of interest

• Sec 80E  -  Interest payments on education loan taken for higher studies

• Sec 80D -  Deduction upto Rs 15,000 under mediclaim/ health insurance policies. Additional Rs 15,000 for cover of dependent parents. Sr. Citizens, limit is Rs 20,000

• Sec 80 DD  -  Upto Rs 50,000 for treating  maintenance of a handicapped dependent/ Rs 1,00,000 for treating maintenance of a dependant family member with severe disability. E.g. amt deposited with LIC under Jeevan Adhar plan.

• Sec 80 DDB  -   Deduction on medical expenditure on prescribed ailments

• Sec 37(1) - Cost(premium) under Key person Insurance is 100% exempt from business income u/s 37(1)

Last but not least the “Right Choice”: choose your financial advisor with

• Service Attitude
• Thorough knowledge in his domain
• Efficient team
• Rich experience
• Strong client base.

Last Friday my friend Hemant Mishra approached me with a problem, which may sound mundane, but it caused lot of trauma to my friend, courtesy insurance company.

Acting on my advice, he bought a term insurance policy as I always thought it was important even though he had an impressive profile – age 42, decent income, good savings, low debt, high placed professional in an MNC bank and to top it all a fitness buff. Based on this I had recommended him an amount which ran into crores as sum assured.

So I was surprised on receiving a call when an anxious Hemant who told me that there was a problem with respect to his term insurance policy.

Let me share Hemant’s account with you.

His Insurance agent had started the process under which made Hemant filled up the form, paid the premium followed by a battery of medical tests. Given the size of the policy, he had to answer quite a few questions from the Insurance company, besides visit to his office by insurance company’s personnel. The process was smoothly completed and it was time for him to receive the policy. Here comes the real shocker, when the insurance company informed Hemant that they would be charging an extra premium. Reason? quipped Hemant. He was informed that there were some issues with his medical reports, hence he would be required to pay extra charge to get the policy and insurance company wanted his approval in the matter.

At this point Hemant was more anxious to know what were these exact health related issues. Now comes the real twist. When he asked for his medical reports from the insurance company, he was informed that his medical reports were their property and cannot be divulged. He was aghast at this response

Now he was far more anxious to know about the health related issue in his medical report rather than the insurance policy itself.

When he mentioned this to me, I made the research team at ApnaPaisa to do a quick check on the practices followed by the various Insurance companies in disclosing the medical reports to the insured person. They informed that most companies will provide a photocopy of the medical reports on request to the consumer, whereas one . insurance company was willing to provide the copies only to the family doctor named in the Insurance proposal form. But the company chosen by my friend was an exception which did not provide the reports to the insured at all.

A quick check on the Insurance Act showed that Section 51 of the Insurance Act, 1938 requires that Insurance company should supply the “Policy Holder” the medical reports.

So legally speaking Hemant was entitled to a copy of all his medical report after paying a princely sum of Re. One, Once he became a policy holder which means he paid the extra premium and took the policy. After he got his policy he would be in a position to get the medical reports.

In case the Company still refused to give him the medical report, he could file an official complaint on the Insurance company’s website. In case that did not elicit any response he would have no choice but to file a complaint with the Insurance ombudsman or the alternative grievance redressal mechanism of IRDA (details on www.irdaindia.org).

By this time Hemant ( and his wife) were frantic with worry and so decided to repeat all the tests at his cost as he did not want to wait for the Insurance company to react to his request. I asked them not to worry too much as it was very unlikely that there would be anything seriously wrong in his report. Otherwise the Insurance company (or its re-insurers) would have clearly declined to issue the policy rather than just charged an extra premium. I asked him to follow up with the Insurance company after he took the policy since those reports would also serve as a very useful checking point against any reports that he would obtain on his own.

It is indeed sad that Hemant had to go through this distressing experience due to the policies of that specific insurance company.

Let’s hope other consumers are spared such an experience in the future.

The Life Insurance Council has decided to standardize the formula to calculate charges linked to ULIPS (Unit Linked Insurance Plan). This reform just comes after the big bang reform of abolishment of the entry load in the Mutual Fund.

Behind these announcements is the ongoing struggle between life insurance companies and mutual funds.

A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities.

The ulip scheme is a mixture of investment and insurance. ULIPs scheme is like a wayward chicken which doesn’t stick to one place . It’s policy value at any time varies according to the value of the underlying assets at the time.

However, this distinction has blurred over the last few years. Indeed, one gets a feeling the life insurance companies are also in the business of running mutual funds, categorised somewhat differently as unit-linked insurance plans (ULIPs).

Round one-The reforms will put ULIPs in higher pedestrian compared to Mutual Fund.

The insurance agents gets more commission for selling ULIPs schemes. Hence the marketing of ULIPs is on much larger scale which in turn hampers the sale of Mutual Funds. This has given ULIPs a headstart and is doing very well in comparison to the Mutual Funds.

The abolishment of the entry load will discourage the distributors and agents to sell Mutual Fund, since it has completely vanished their revenue stream.

In ULIPs, the agent’s commission varies, but in the first year, it could be as high as 25% and more. This

has definitely put ULIPs in the higher pedestrian and agents will be more than eager to sell the product. In round one ULIPs has clearly taken a lead and entry load abolishment has hurt mutual fund a lot.

Next is the issue of transparency.

There is a vast difference between the meaning of net asset value (NAV) of ULIPs and mutual funds.

In a mutual fund, the NAV announced is net of all expenses and charges the fund company deducts. If your investments were worth Rs 1 lakh when a fund’s NAV was Rs 22, then it will be worth Rs 2 lakh when the fund’s NAV is Rs 44. That’s it.

The arithmetic of insurance companies is different. NAVs of ULIPs are effectively pre-deductions. The NAV may double, but your investments won’t double because the insurance company will reduce the number of units you hold to pay for expenses and commissions etc. This means the announced NAV has no clear and transparent relation to what the unit holders are actually earning.

The Round two- The knockout punch-Ulips to be simplified , standarised.

The new reform of simplifying ULIPs and standardizing the formula to calculate charges linked to ULIPs going to be the game changer for this ULIPs vs Mutual Fund war.

This reform will be the knockout punch for the Mutual Fund. The standardization of the ULIPs charges will make it easier for the consumer to compare the ULIP plans and this will the last armour that ULIPs needs.

The round two - ULIPs wins by a heavy lead.

In the battle of ULIPs vs Mutual Funds, ULIPs has a clear advantage after this two big bang reforms, but it’s still early days to rule out Mutual funds. They can raised up to this challenge and emerge as a winner.

The Supreme Court has held that in motor accident insurance claims the compensation fixed by the official surveyor is not binding on the claimants or the insurance companies. - A newspaper reported on the 22^nd of June 2009. This basically means that the surveyor’s report is not the final verdict for the claim amount. The insurer or the insured do not have any legal liability to rely or adhere to what the report has to say.

Currently every claim needs to have a surveyor report and on the basis of surveyor report the insurance companies had to pass the claim and the insured had to accept the claim amount. So in turn made surveyors very powerful. This creates lots of ambiguity on the entire process. However, now the insured & insurer do not have to depend on the surveyor’s approval of the claim amount.

This may prove to be a good move to incorporate professionalism in this sector of insurance. This can get a whole lot of stability and ethical behavior to this side of insurance.

However, the other argument to this can be the possibility of inflated claims. Since the insurer as well as the insured can argue or not abide by the surveyor’s report, one can inflate the claims. So who will be the final judge of what exactly will be the amount of the claim is left unanswered. Only once, claims are registered from now on, one will know what exactly is the appropriate process. The role of a surveyor now is also in question. This is because the company or the insurer who themselves appoint the Surveyor, now has the authority to not agree to their claim figures. Does it mean that the job of the surveyor is in danger? Or have they realized or witnessed the unethical behavior?

Hence will this move help to get the truth out or worsen the situation? Only time will tell!

The new Policy from United India Insurance is a good idea. Now only it’s own offices knew where the application forms are available.

http://www.apnainsurance.com/health-insurance-india/super-top-up.html

In case you wondered why Indian Hospitals charge more for doctors fees, operation charges, etc. if you stay in the first class rather then their more economical classes. And how is the Indian insurance industry re-acting to these practices

http://www.apnainsurance.com/health-insurance-india/first-class-is-second-class.html

None of the Indian hospital expenses reimbursement policies (popularly known as “mediclaim”) cover expenses incurred on diseases/illnesses caused due to HIV/AIDs or any other sexually transmitted disease. This piece looks at some of the reasons why …..

http://www.apnainsurance.com/health-insurance-india/no-sex-please-health-insurance-aids.html

In 2002 i applied for a rather large term insurance policy and a critical illness rider. since the amount was large i was required to go through a battery of medical tests. It was a surprise for me when the insurance agent called and said that since the medical reports showed some problems the insurance company wanted  to charge extra premium for the critical illness rider (normal premium for the base term policy). I was more worried about my health than insurance at that stage and requested the agent to get the insurance company to send the medical reports to me. That was when i got the shock of my life - The insurance company turned around and said that they would not share those reports with me and that I was not entitled to my own medical reports. I felt that was completely outrageous. At that time i was not as clued on to insurance matters as i am today. So i requested a senior person in the insurance company and he found a via - media. They agreed to share the reports with my family doctor who had been named as such in the insurance proposal. I conveyed my thanks to my friend and felt obliged. (Incidentally the problem was not very serious - i am still around to write about it )

It was only recently that i was going thru the Insurance Act, 1938 (that still governs the Insurance business in India) that i came across Section 51 of act that says as under :

Quote

51. Every insurer shall, on application by a policy‑holder and on payment of a fee not exceeding one rupee, supply to the policy‑holder certified copies of the questions put to him and his answers thereto contained in his proposal for insurance and in the medical report supplied in connection therewith.

Unquote

So asked my colleagues at Apnapaisa to check around on the practices followed by the various life insurance companies. My colleagues reported back that most companies have no problems in sharing the consumer’s medical reports though a couple of them still followed the practice of non sharing of medical reports.

It seems that the contents of this section is not well known. IRDA regulations already require that a copy of the proposal form be attached along with the policy. Perhaps IRDA needs to re-iterate the provisions of section 51 above to ensure that the companies not following the act do so immediately.

Any views on the subject or on practices followed overseas ??

The topic “Credit card: debt trap”, the thought of writing this piece came to me because nowadays, I have been receiving a lot of all calls from various banks asking to take a credit card of their bank. And, to make it more lucrative, they have all these offers such as free insurance (not necessary), life time free and their gold card which make no sense at all. It doesn’t matter whether its gold or silver or a black card. Its after all a credit card, the only difference that you will find is the credit limit and may be the incentives attached when you use it more often.

I do not get this logic of having 5-10 cards when its difficult to maintain even one. I just have 2 cards , that also I use it in case of emergency or when I know I will be able to repay it by next month , after understanding my repaying capacity. I got a friend who has 5 to 10 credit cards and he doesn’t remember how much purchasing he has done on which card. Of course, he can afford too as he has a strong financial backup. But there are people who go ahead and get more than required credit cards when they know they don’t have the power to repay.

This problem has been noticed in US as many people own minimum 10 cards and they cant pay their debts and there has been instances that people have committed suicide.

I want to ask people who get these credit cards, don’t they think twice ,whether, is it necessary? People should use the credit card after checking if the have the repaying capacity . If you see the bigger picture here, then you will realize that you will have less of debts to repay .

In India, people should remember to have debit card rather than credit card or the best example would be the condition of Americans who suffer from debts. One of the episodes in Oprah Winfrey, the famous show in star world, showed how people suffered from credit card debt and one of the family nearly had debts of $60,000.00. Thats huge when you compare it to INR.

Now, people can take few precautions before getting a credit card. One, a check is it required, second- can you can afford to have a credit card and before using the card you should check have you met your basic necessity, have done enough savings for the future and then you may use it or else you know where your going.

http://economictimes.indiatimes.com/Personal_Finance/Insurance/Insurance_news/Cabinet_to_decide_soon_on_raising_FDI_cap_in_insurance/articleshow/3433117.cms

The move to hike the FDI cap in the insurance sector to 49% comes at a time when the government is trying various policy measures to infuse liquidity in the financial system by easing norms for foreign investment in India.

A hike in the sectoral FDI cap to 49 per cent would further grow the insurance sector and bring in much needed FDI to the country.

This move will ultimately help in increasing coverage to the rural and other social sectors, thereby increasing insurance penetration in the country.

As far as the increase in the FDI cap, for insurers to penetrate into the rural and other remote areas, they will require funds to build offices, IT, better transportation facilities, and many more things required to be functional in those areas. This in turn will increase employment, develop tertiary sectors such as IT/ITeS and provide long-term investment for developing infrastructure.

On the flip side, this move could have an adverse effect on LIC. The increased FDI inflow into the other insurance players could hit the marketing force of LIC as well as the management of incentive structure.