Category: Investment Advice for Defence Personnel

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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14 May 2016
Liquid Funds- 4% more Interest without you doing anything….

Liquid Funds- 4% more Interest without you doing anything….

Col Sher Khan is a go-getter infantry officer, known for his professional acumen and is a sought-after party animal. He and his family live life to the full. His only Achilles Heel is finance. He routinely has a large amount – anything from Rs 75,000 to even 2-3 Lakhs lying in his savings bank account at any given time, earning 4% savings bank interest. And just because it was lying there, unimportant expenditures would come up and suddenly become urgent and the most important ones to be done then and there. He was fully aware that bank interest is fully taxable and he being in 30% bracket, it practically earned him a mere 4% – (30% of 4%) = 4% – 1.2% = 2.8% interest. He wanted to do something about it but didn’t know what and how.

That’s the time he got introduced to Liquid Funds by a friend. He suddenly realised that he could earn double the interest, have the money safely tucked away so as not to be ‘very easily’ available but still be available at one working day notice through sms, phone call or net login. He started it and found it reduced unnecessary expenditure while not affecting his life-style in any way.

So what are Liquid Funds? Liquid fund is a category of debt mutual fund which invests primarily in extremely safe instruments like certificate of deposits of the banks,government treasury bills, commercial papers of highly rated companies etc. They have no lock-in period and withdrawals from them are processed within 24 hours on business days. The cut-off time on withdrawal is generally 2 pm on business days. It means if you place a redemption request by 2 pm on a business day, the funds will be credited to your bank account on the next business day by 10 am. Liquid funds have no entry load, exit loads and like all mutual funds, have no concept of TDS (Tax Deduction at Source) unlike the bank savings bank or FDs. This implies that you can put in any amount any time, and withdraw any time while the rest of it lying in the fund keeps earning its good interest.

Liquid funds are among the best investment options for the short term during a high inflation environment. Their taxation is as per your tax slab but double the savings bank returns ensure a large additional surplus returns to you. During the past years, some liquid funds have even offered higher returns than bank fixed deposits, which levy a penalty on premature withdrawal.Many fund houses give the option of transacting (investing and withdrawal using your bank account) in them through sms and phone from registered mobile number apart from the internet, thus bringing your money to your literal fingertips! One fund house even gives an ATM card for withdrawing up to about Rs 50,000 from bank ATMs.

Finally, what should you use your Liquid Fund for?

  • Surplus money which earns practically nothing, lying in your savings bank account.
  • Money you leave in bank account catering for EMIs or instalments over next few months.
  • Sales proceeds of your previous house/flat till you invest in new one.
  • Funds created for your child’s education /marriage till you use it.
  • Lump sum amount lying in your bank account which you may be required any time
  • Large amount of money lying idle over long weekends whether your own or the company’s. Example: Rs 1 Cr kept for one day will earn about Rs. 2200 per day as per current Liquid Fund returns. This means, this happening over weekends throughout the year in your company will earn you Rs 2,28,000 (salary of one person?).

 

Read more about such financial nuggets at our blog, Need help? We’re just a call or email away. feel free to reach us on, contactus@humfauji.in or call + 011 – 4240 2032, 40545977, 49036836

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21 Jan 2016
Great times to increase your market exposure

Great times to increase your market exposure

Stock Markets have been unrelenting for the past one year and, it has only intensified in Jan 2016. Most of the retail investors have not understood the reason why it is so – Acche Din to Aane Wale The!

They’re told that China is slowing down, so the world is slowing down. But the US of A, the world’s largest economy, is on an acknowledged growth path now.

They’re told that Oil prices drop is affecting the world growth. But cheap oil results in India saving about 60-70 Billion USD a year – how can that be bad for us? Same is the case with other commodity price drops the world over.

They’re told that Govt’s policies have not delivered and the economy is not doing well. But everybody can see that the structural reforms being undertaken will cure the ills of past so many decades.

It all becomes very confusing as to what is the reason for this huge decline in markets so fast and so much. Actually the drop in stock prices in India has not much to do with India or Indian economy. The drop is largely due to Foreign Institutional Investors (FIIs) pulling money out of India. These FIIS are largely either the Middle East sovereign funds pulling out to meet their economy’s deficits due to oil revenues falling or the Emerging Market (EM) funds pulling out anticipating a big Chinese shadow on EM economies which are primarily the commodity producers. The poor Indian corporate earnings last year, which are likely to continue for about two more quarters at least, has also not helped. But ultimately, all global economy pundits expect India to have a robust growth in times to come.

Do you know that there is a big segment which is quietly buying in tandem with FII sales? The equity mutual funds (MFs) are buying what FIIs are selling. Till 19 Jan 2016, FIIs sold stocks worth 9666 Crores while Indian MFs bought worth 7866 crores. And do you know, your neighbour is quietly increasing his SIPs (Systematic Investment Plans) while you contemplate getting out of the markets. In 2015, a weak equity year, new SIPs increased by 66% compared to 2014 when the markets were really robust. In money terms, it amounts to Rs 2399 Crores worth of additional SIPs from people like you and me. Indian investor is really taking full advantage of the DISCOUNT SALE that is on in the equity markets now.

Please carefully read below what Prashant Jain, CEO of HDFC MF, has written in Economic Times today (21 Jan 2016). He has referred to his article on similar theme in 2012 which we had posted on our blog at http://humfauji.in/blog

Make the most of this opportunity

Finally our advice to you: This is as good as it gets to buy quality equity Mutual Funds. Use it to your advantage. Don’t treat your notional losses to be real losses – they turn real only if you panic, lose patience and get out of the markets. This is the time to buy equity MFs, increase your SIPs and sit tight. The long-term winner is being decided now by the markets – don’t throw it away. If you’ve invested for the long term, don’t judge your portfolio by short term volatile returns.

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