Category: Insurance

28 Aug 2017
Is this Diamond worth your money

Is this Diamond worth your money?

Life Insurance Corporation of India (LIC) is aggressively marketing its insurance policy, LIC Bima Diamond Plan, as a ‘Diamond for Life’. Let’s see if this ‘Diamond’ is worth your money?

LIC Bima Diamond Plan is a typical non-linked, with-profit, limited premium payment money-back life insurance plan. Non-linked means it is not ULIP or your money will not be linked to equity market movements. With-profit means, it is like investment product where you get returns on your investment based on the product feature. Money back means at a different interval of the policy term, you will receive some money from this policy.

Highlights of the policy

  1. It is a fixed tenure insurance policy. There are three tenure options – 16 years, 20 years and 24 years.
  2. The premium paying term is less than the tenure of the policy e. g. for a 16-year policy you have to pay only for 12 years.Money-Back (Survival Benefits)every 4th year.
  3. The premium rate of LIC Bima Diamond is one of the highest.
  4. It gives life cover even aftermaturity of the policy. It gives extra protection up to half of the policy tenure additionally. For example, for a 16-year policy, you would get life cover till 24 years. However, during the period of this extended protection, the sum assured would be half of the original amount.
  5. It gives life cover even after you stop paying the premium (called Auto Cover). This relaxation is up to two years.
  6. Itvdoes not give annual reversionary bonus. You would get loyalty addition after a certain tenure.
  7. This plan hasa loan facility.
  8. You can take accident & disability rider and new Term Assurance Rider.
  9. The maximum sum assured is Rs 5 lakhs, minimum 1 Lakh and entry age is minimum 14 years completed.

Positives of Bima Diamond Plan

  • It gives life cover even in case of non-payment of premium for up to 2 years. This feature does not leave you vulnerable at the time of financial distress.
  • The death cover continues beyond the policy maturity and can keep you insured till the age of 76 years.
  • You can add term assurance and accident rider to enhance your death cover.
  • You can avail loan from this policy for up to 80-90% of surrender value.

Negatives of Bima Diamond Plan

  • The premium rate is too high. For a sum assured of Rs 5 lakhs, the premium is up to Rs 46,000 per year.
  • Maximum sum assured is Rs 5 lakhs. This amount is exceedingly low for a normal middle-class family.
  • Though touted as a benefit, the sum assured gets halved in extended protection period which is grossly insufficient for a family after 20 years.
  • The maturity benefit would be very low as it pays the basic sum assured less the periodic money back payment already done. Thus if the sum assured for a 20-year policy is Rs 5 lakhs, the maturity sum assured would be only Rs 2 lakhs.
  • The returns from LIC Bima Diamond is less than the market rate. LIC is still giving 5-6% return. One would be in a better position by opting VPF and PPF for saving purpose.
  • Auto Coveris highlighted as a unique benefit but in case of death during this period, the due premium is deducted from the benefit payable. So it seems the idea is to run the policy as much as possible instead of showing in their books as LAPSED policies.
  • At maturity you are eligible for Maturity Sum Assured, which is 55% to 40% of Basic Sum Assured and Loyalty Addition. Hence, do notthink that the maturity benefit will be full sum assured as is the case with other plans.
  • Extended cover is showcased as a unique benefit. But, head-to-head, LIC’s New Jeevan Anand seems to be better in this aspect as offers the extended cover forever and full to the value of sum assured. In this plan, it is only up tohalf of policy term and half of sum assured.

Final Verdict

Any Endowment insurance plan of LIC is primarily an investment product, wherein you actually neither get good insurance cover nor satisfactory investment returns. It is sold as a good combination of protection and returns while all endowment insurance policies of all insurance companies fail on both the counts. In fact, the problem is mixing insurance with investment. Such a combo product never benefits the investor but only the insurance companies and the agents since the premiums are high, commissions are high and when time you discover this after taking the policy, you realise it has been structured in such a way that you can exit only at prohibitive costs (losses) to you.

Hence, we would recommend you to consider only a good term insurance plan for death cover, if you do need such a cover. For tax saving purpose, choose Equity Linked Saving Schemes (ELSS) or PPF/DSOPF. For investments, nothing better than a good portfolio of mutual funds.

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03 Apr 2015
Can Your Bank FD or PFDSOPF match this

Can Your Bank FD or PF/DSOPF match this?

We are generally comfortable investing our money in bank FDs, PF/EPF/DSOPF and other fixed income instruments, always smug in the belief that our money is safe and will grow up adequately to meet our aspirations regarding self, spouse and children. However, we neglect the combined damaging effects of Inflation & Taxation from our calculations.

If your safer investments are tax-free (generally the PF/EPF/DSOPF, and Insurance policies), they should generate at least 8% per annum to merely neutralise long-term inflation and your money actually grows only if you earn beyond this. If the investments are not tax-free (all your bank and post office instruments including savings accounts, FDs, PO MIS, SCSS and RDs) and say, you are in 30% tax bracket, your investments should give at least 11.43% annualised returns for you to ‘break-even’. For 20% and 10% tax brackets, the minimum returns to break even are 10% and 8.88% respectively. We call this these the ‘Tread-mill’ rates! When you are earning this return, you feel you are moving fast. But when you get down from this tread-mill and take a reality check, you find you are not even  reaching the place where you started from – you’ve actually lost due to inflation and tax.

Have you ever considered Debt Mutual Funds as an investment? Debt funds generally invest in Govt Bonds, equivalents of bank FDs and Company FDs. They have no component of stock investments. When interest rates go down, while your FDs will lower the rates, the returns from long-term debt funds will actually rise. Even without that, currently long-term debt funds are clocking returns between 11-13% per annum. Also, if you remain invested in them beyond 3 years, you are likely to pay a tax of just about 5-7% after 3 years and maybe Nil tax after 4 years, going by the past 3-4 years’ performance and inflation statistics.

What about Equity Mutual Funds? You take stock market risks and get the risk-premium there. A large number of investors continue to believe that stock market movements can lead to a complete loss of your money if the markets do not behave. This happens only if you try very hard to achieve such a complete loss!Consider this – what was one of the worst financial year for Indian stock markets? Undoubtedly 2001-02. Twin Towers attack in USA took place on 11 Sep 2001 (9/11, famously) and the Indian Parliament attack on 13 Dec 2001. The BSE Sensex was 3604 on 30 Mar 2001 and 3469 on 28 Mar 2002. So if you kept your head when everybody else was losing theirs, there was literally no effect even in the worst of the crisis.

See the returns chart for the last financial year (FY 2014-15) published in Economic Times of 03 April 2015. Do you still think you can afford to leave out mutual funds from your portfolio if you want to meet your future financial commitments comfortably?The Best Performing Assets

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25 Dec 2014
nsurance is Not Investment-

Insurance is Not Investment

Insurance is a key part of every individual’s financial planning but far too many people are thinking of it as an investment…

‘I invested Rs2 lakh last year, out of which Rs 80,000 was in insurance.’ The genesis of the article you are reading was this one single sentence in an e-mail that was sent to Value Research recently. There was nothing unique about this e-mail–we get many every day asking us for investment advice. The fact that the writer, without any hesitation, considered insurance to be investment was also not unique. What has really caught our eye is that we are seeing more and more of this attitude.

An ever-increasing number of people are ‘investing’ in insurance, driven, no doubt, by the sharply higher amount of insurance advertising and marketing that they are exposed to. Over the years, we have been bombarded by insurance pitches at a rate that is far higher than used to earlier. This is a natural by-product of the competition in the insurance industry and by itself there is nothing wrong with this.

Whereas earlier, insurance marketing was driven solely by competition between insurance agents and agents’ own drive to make more money, today the marketing hype is driven by insurance companies competing with each other. Insurance advertising in the mass media, which was almost non-existent once, has grown hugely. By some measures, mass media advertising of insurance products is around eight times what it used to be three years ago. On the face of it, there’s nothing wrong with this. After all, it’s an uncertain world and most people sleep better at night knowing that they’re well insured. Actually, there is something deeply wrong about the way the whole activity of insurance is evolving.

Here’s the problem: a bulk of the money that flows into the insurance companies’ coffers is not payment for insurance but for what are essentially investment products. Generations of Indian have been brainwashed by insurance agents into thinking that buying term insurance is a stupid thing to do.

Here’s how it works. An insurance agent chases you, usually referred to by someone just to get rid of him (insurance agents serve a useful purpose but hardly anyone in this world is ever able to talk to one without instantly developing an urge to get rid of him). When he finally traps you, he never mentions term insurance on his own and if you bring up the topic, he immediately warns you that you will not get anything back. ‘No benefit’ is the phrase he normally uses. Since you certainly don’t want to do anything that carries no benefit, your thinking veers towards policies that supposedly carry a benefit.

They do carry a benefit of course, but this benefit is largely for the agent and the insurance company. The reason for this is a secret of the psychology of insurance-buying that every agent understands but few insurance buyers (or ‘life’, as they are called in the insurance business) do. Here’s the secret: the ‘life’ thinks in terms of the cover he or she gets, while the agent and the insurer make money in terms of the premiums that the life pays. The ‘life’ will come to a purchase decision that is something like, “If I die, Rs20 lakh ought to be adequate for my family”. Once such a number has been put to what the life’s life is worth, it’s in the agent’s interest to steer the life’s thoughts away from the cheaper term insurance policies and towards more expensive policies.

You can easily verify this by conducting a little experiment. Call a life insurance agent, pretending to be a ‘life’. Tell him that you would like to insure yourself for Rs20 lakh and ask him to suggest a policy. Now, call another agent and say that you would like to spend Rs 3000 a month on insurance and ask him to suggest a policy. In the first case, the agent will either never mention a term insurance or will talk you away from it. In the second case, once the agent is sure that you really are not willing to spend more than Rs 3000 a month, he will be just as glad to sell you a term insurance.

This combination of factors–the business model of insurance selling plus the insurance buyers’ hunger for ‘benefit’ has resulted in a situation where too many otherwise money-savvy Indians are not thinking clearly about what insurance is, how it is different from investment and how they should best go about insuring themselves.To be sure, there are many superficial similarities between insurance and investment, and this is what causes the confusion. Loosely speaking, both involve giving money to a financial service provider in exchange for a future benefit but there the similarity ends.

Let’s take a systematic, back-to-the-basics look at what insurance is and how it should be bought and compare this to investment. The purpose of insurance is to cover the financial aspect of risk. The risk can be of property, life, health, legal liability and of many other kinds. The only logical kind of life insurance that makes sense is term insurance because only in that case are you are insuring against a risk that is insurable. The moment you buy any other kind of insurance, you are actually making an investment that is disguised as insurance.

The problem with buying investment disguised as insurance is that there are many characteristics of insurance that are most undesirable in investments. Here are some major problems.

Illiquid: Investments ought to be liquid. After all, it’s your money and if you really need it, you should be able to get your hands on it. However, the investment part of your insurance policy is locked in for enormous periods of time. Sure, there are investments like public provident fund and other tax-saving investments which we recommend. However, those offer a far better deal in some other way, either in tax exemptions, or in sovereign guarantees or in the relatively short period of lock-in and often a combination of these. The investment part of insurance offers moderate returns and decades-long lock-in. This just doesn’t make sense.

Lack of transparency: We believe that transparency should be followed like a religion in every kind of financial service, most of all in insurance on which people depend so totally. Malpractices, inefficiency and poor performance in any kind of financial service are almost always rooted in lack of transparency.In this regard, the insurance industry in India just doesn’t measure up to the standards that are followed by the mutual fund industry. There is absolutely no valid reason why you, as an investor, should have less knowledge about what your insurer is doing with your money than you have about what your mutual fund is doing with it. Daily NAVs, change in key personnel, procedural rules about justifying investment decisions and the myriad other rules that mutual funds follow need to be imposed on insurance companies as well.

Cost: Compared to what agents selling mutual funds, Reserve Bank of India and other bonds and Post Office deposits get, the commissions received by insurance agents are a scandal. The commissions are enormous, generally around 15 per cent of first year premiums and 7.5 per cent in the second and 5 per cent from the third year onwards. For a financial product that is supposed to be an investment, this is a shocking level.At the end of the day, these commissions are probably the strongest argument against investing with an insurance company. Given what safe investment earns these days, this commission alone ensures that this ‘investment’ is an incredibly bad deal.Sure, insurance is necessary, but at these commission levels, it is a necessary evil. The only way to go about it is to calculate how much cover you need and then find a good, low-cost, term insurance.

Investment and insurance just don’t mix.

(Source:, 24 Dec 2014)


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24 Jun 2014
How Will Personal Financial Planning Help You

How Will Personal Financial Planning Help You

Many investors think that a big deal is made out of personal financial planning. They say that, if you save regularly and invest wisely, then you will be able to meet most of your goals. However, investors without a well structured financial plan may end falling short of their financial goals. At different stages of life, different goals seem relatively more important to us. For example, if you are in your early thirties and do not own a house, buying a house may seem to be a very important goal. Retirement, which is 25 or 30 years away may not seem to be a very important goal. On the other hand, if you are in your 20s and recently married without children, children’s college and higher education is so far away, that you may not really be concerned about it. However, over your entire saving and investing lifecycle, are any of these goals less important? No, all the goals are very important. Your financial plan will help you to be ready for each of the financial steps in your life. In this article we will discuss, how personal financial planning will help you.

The first step of financial planning is to define specific goals. The more specific the goals are the better. Sometimes, especially if you are young, you may not have enough clarity about all the financial goals in your life. This is where an expert financial planner or adviser can help you. He or she can help you define the goals across your savings and investment lifecycle. He or she can then, help you determine the specific numbers you need to reach specific goals. For example, if you want to buy a house in a particular neighbourhood five years later, your financial planner can help you determine how much corpus you will need, based on several factors like current property prices in that neighbourhood, real estate appreciation trends, inflation, down payment requirements etc. He or she can help you to determine, how much you need to save and invest each month to meet your goals. You financial planner will also make recommendations on the type of investments you should use to reach those goals. For example, if you have a short to medium term goal, your financial planner will calibrate your asset allocation towards that particular goal appropriately. On the other hand, if you have a long term goal, your financial planner will recommend a more aggressive asset allocation.

Budgeting is the next step of financial planning. This is probably the most important step of financial planning, because even if you have the most detailed and well structured financial plan, if you are not able to save enough, you will not be able to meet your financial goals. Saving habits are very personal. It depends on our lifestyle, relative to our income levels. Some of us, irrespective of our income levels, are very careful about expenses. Others are more extravagant as far as spending is concerned. The objective of a good financial plan is to enable you to meet your short term or long term financial goals, without having to sacrifice the lifestyle commensurate with your income. This is where a thoughtful budgeting exercise is very useful. Your budget allows you to plan how to spend your money. It makes it easier to find ways to save money. While financial planner or adviser may not actually prepare your budget, he or she can give you guidance on how to find additional savings in your budget. In a budgeting exercise, the devil is in the details. Therefore, you should not skip even minor details when preparing your budget. Through a careful budgeting exercise, you may be able to identify expenses, which you can easily reduce, with any noticeable impact on your lifestyle. Sometimes, it is not just about reducing consumption, but also negotiating lower prices, for the goods and services you consume. Some costs may seem too small to bother about. But even small additional savings can make a big difference to your long term wealth, with the help of power of compounding. Just to give an example, even an additional Rs 500 monthly savings, invested in equity assets yielding 20% return, will generate a corpus in excess of Rs 1 crore over 30 years. On the other hand, even with the most rigorous budgeting exercise, you may not be able to save what you need to meet your financial goals. In that case, we will have to realistic about our goals. Your financial planner or adviser will help you re-calibrate your financial goals, either by postponing the goal timelines or re-adjusting the goals. Not all financial objectives can be postponed. For example, your children’s higher education or your retirement cannot be postponed. On the other, you can postpone your car purchase or house purchase. Your budget will play an essential part of making your overall financial plan work.

Financial plans help you prepare for big events in your life. These events like, house purchase, your children’s higher education, your children’s marriage etc, have a big impact on our lives. Some people rely on making windfall gains, like getting a big bonus or an unusually big profit on their investment, to be ready for these events. You should prepare for these events, instead of leaving them to chance. Unless you have enough savings and investments, you will not have enough money, one fine day, to make the down payment for house purchase. You should start preparing for it early enough. Similarly, you cannot wait till your child is 16 to start preparing for his or her higher education. You need to start much earlier. Financial planning helps you inculcate, disciplined savings and investment practise. Once you have developed a robust financial plan and have started executing on it in a disciplined fashion, your preparation for the big events in your life will be on auto pilot.

Financial plans give you a head start in meeting your financial objectives, especially if you are young. For many young people, saving and investment is not an important priority. However, as with anything else in life, starting to invest from early age has great benefits. The earlier you start, the better are the chances for creating wealth as you get more return for more time on your investments. Financial planning and investing is often a daunting task for young people. You are not sure about your specific long term goals. This is where an experienced financial planner or adviser can help you. Working with a financial planner is most beneficial if you are young.

Financial planning will help you make the right investment decisions. Asset allocation is one of the most important aspects of financial planning. How you invest your savings (debt or equity or real estate), makes a big difference, to your long term wealth. A lot of investors allocate a sub-optimal proportion of their portfolio to equities. This is because the risk appetite of investors in India is low. A financial planner or adviser will provide guidance to investors with regards to their asset allocation strategies, in order to meet their short term, medium term and long term financial objectives.

Having a financial plan helps you prepare for contingencies. Contingencies are unforeseen events that can cause financial distress. The worst case contingency is an untimely death, which can result in financial distress for the family, apart from the emotional trauma. Financial planning can help us prepare for such contingencies through adequate life insurance. Another contingency is serious illness that can have an impact on your savings and consequently your short term or long term financial objectives. A good financial plan will make adequate provisions for health insurance. There can be other contingencies like temporary loss of income or major unforeseen expenditures. Financial plans will help you prepare for such contingencies.


In this article we have discussed, how personal financial planning can help you meet your short term, medium term and long term financial objectives. You should engage with an expert financial adviser, to help you prepare your financial plan and execute on it. [Also read about the concept of financial goals and wealth creation at our website, to understand the benefits of having a financial plan and committing to it].

(Source Credit: Dwaipayan Bose,, 24 Jun 2014)

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For more information, feel free to reach us on, or call + 011 – 4240 2032, 40545977, 49036836

01 May 2014
Importance of Asset

Importance of Asset Allocation

If you are an avid reader of our articles, you may have realized that we often emphasize on maintaining proper asset allocation. You see, building an investment portfolio through optimal asset allocation is imperative while you endeavour to achieve your financial goals.. So in this article we thought of explaining you in detail about asset allocation citing the benefits it offers to you as investors.

What is Asset Allocation?

As the name implies, asset allocation refers to distributing your investible money across asset classes such as equity, debt, gold, real estate or even holding cash for that matter. So by allocating assets, you are essentially adopting an investment strategy which can balance your portfolio’s risk and reward keeping in mind your risk profile, your financial goals, and your investment time horizon. The below chart shows you an example of optimal asset allocation:-
What are the benefits of proper Asset Allocation?

  1. Optimal Return

In the absence of proper asset allocation, many individuals invest in an ad-hoc manner. This in turn makes it difficult for them to determine whether the return on investments is sufficient enough to achieve their short and long term financial goals. Some investors are either too aggressive or conservative and invest accordingly, so they are unable to earn adequate returns on their investments. Proper asset allocation will help you determine how much return you can expect on your investments on the basis of investment risks you are taking.

  1. Risk Minimization

Based on your past investment experience or your willingness to take risk you will make your future investments decision. If you have earned good amount of returns in the past, you might become too aggressive and invest only into equities. While if you have already burnt your fingers in the past by investing into equities you may become too conservative and invest only in fixed income instruments such as Fixed Deposits, Recurring Deposits etc. You see, past experiences can lead to you being either too aggressive or too conservative about your investments. And mind you, while learning from past experiences is good, it is vital to follow a proper asset allocation actually meant for you in order to achieve your financial goals. This will help you minimize risk on your investments and will also infuse more certainty on achieving your financial goals.

  1. Help investments align as per Time Horizon

Along with the risk profile, your time horizon is also a key factor to decide the asset allocation, while you endeavour to achieve your financial goals. Your time horizon will determine in which asset class you should invest a dominant portion of your investible surplus. Just remember, longer your time horizon of your financial goal, the more you can tilt your asset allocation towards equity and less towards debt. Equities are considered very risky in the short term while less risky in the long term, as they will have more time to recoup from turbulent phase(s) of the equity markets. While debt is considered less risky, the returns clocked by the asset class are usually insufficient to beat inflation, thus mainly for this reason it doesn’t help you to achieve your long term financial goals. Proper asset allocation will help you to determine the correct mix of equity, debt, gold, real estate and even cash based on your time horizon to achieve your financial goals.

  1. Minimize Taxes

If you happen to be under 30% tax bracket and invest all your savings in fixed deposit to keep your investments safe, then you are making a big mistake by paying huge amount in taxes, which otherwise could have been legitimately saved. Tax consequences are different for every individual and for every scenario so you should always view investment returns from the point of view of post-tax returns on investments rather than pre-tax returns as post-tax return is the return which you get in your hand. Proper asset allocation will not only help you to determine the right asset class, but also the right investment product which will help you to minimize taxes.

  1. Adequate Liquidity

Liquidity is also one of the vital factors while making investment decision as some investments have a lock in period and can’t be redeemed within that period. For e.g. If you are investing in a Public Provident Fund (PPF) account or Equity Linked Saving Scheme (ELSS) mutual fund and are in need of money in next One year, then they aren’t the right investments for you no matter how good these investments are. Prudent asset allocation will make sure that you have sufficient liquidity to pay for your financial goals as and when required.


Defining an optimal asset allocation is not as easy as it might seem to you, because you need to take into account, host of factors to reap the benefits of prudent asset allocation. But once prudent asset allocation is in place, you can be rest assured that you will earn adequate return, minimize risk and taxes, have sufficiently liquidity and even achieve your financial goals.

(Source: dated 29 Apr 2014)

If you are unsure of what’s the optimal asset allocation for you to achieve your financial goals, we can help you in setting your asset allocation right and help you achieve your financial goals. You can either call us on 9999 022 033 or write to us at to schedule a tele meeting with our financial planner and investment advisor.