http://economictimes.indiatimes.com/articleshow/3418711.cms

The Insurance Regulatory and Development Authority (IRDA) has given permission to insurance companies to invest in mortgage-backed securities (MBS). LIC however, is more comfortable lending directly to housing finance companies (HFCs).

LIC will earn about 11.50% from bank deposits and short-term papers.

If LIC is successful in doing this, it could help banks reduce their prime lending rate (PLR). In addition, the funds lent out will be securitized by the property of customers taking home loans.

LIC has many policies in which policy holders participates in the company’s profit. More importantly, the above mentioned initiative could mean that LIC passes these profits to their customers in the form of bonuses. This will lead to an increased benefit along with the sum insured to policy holders.

http://economictimes.indiatimes.com/Personal_Finance/Insurance/Insurance_news/Now_get_a_life_cover_for_40_less/articleshow/3418926.cms

The Insurance Regulatory and Development Authority (IRDA) has reduced the capital requirement for selling term plans. This has reduced the cost of premium by 40% on the term insurance.

Term insurance only has administrative and mortality charges, no investment component like ULIPs. Hence they are not exposed to market risk. It follows that the capital adequacy requirement for both these products cannot be same; the risk levels are totally different.

Fortunately the regulator realized this, came up with the regulation that should have come earlier. Better late than never…

Many private players have already started passing this benefit to their customers.

Most of the Indians do not have life insurance cover and those who have are mostly under-insured. The regulator’s step of decreasing the premium of term insurance will increase insurance penetration and enhance the growth opportunities of the insurance sector.

Another very important result: The reduction in the premiums will leave the investors with a surplus for investments.

http://economictimes.indiatimes.com/Personal_Finance/Insurance/Insurance_news/IRDA_message_reposes_faith_in_local_insurance_cos/articleshow/3538435.cms
AIG is on the brink of filing bankruptcy. It has shaken the Indian insurance markets to a very great extent. AIG is a major share holder in Tata AIG general and Tata AIG Life insurance. The question being asked by people is safety of the money invested by them in Tata AIG, and policies they bought from the same company.

Insurance in India is a highly regulated industry. Any company that wants to set up an insurance business has to follow very stringent norms given by the Insurance Regulatory & Development Authority (IRDA).

If anyone is tense about investments in any insurance companies like Tata AIG, rest assured, they need not worry about the same. IRDA has prescribed the norms of solvency margin of 150% for all insurance companies including private players. It also imposes that no insurance companies should be investing overseas and that their investment portfolio should be in sync with the norms laid down by the IRDA.

The regulator has taken into consideration policy holders’ interest and is committed to maintain financial stability in the insurance sector.

Human Life Value relates to a person’s worth. What is a person’s worth? What price for man? If your clone were up for sale what price would you be willing to pay for it? And why?

A person has several values: Emotional, Social, Religious, Spiritual, and Economic.

A person’s way of loving and caring for others as a friend, father, mother, brother, sister son, daughter, etc. can not be replaced. Neither can that person’s contributions to the growth and betterment of society by the way of special skills in the arts, profession, ability to generate employment… in short, all acts of making this world a better place to live in.

What can be replaced is a person’s income earning capacity, the amount he/she earns for family members that is used to provide for all their needs and to create wealth for them aas well as future generations.

So how do we measure a person’s economic value?

In simple layman’s terms, our insurance cover, to a great extent, determines our value. Let me explain. We insure our 2 wheeler say, for 70,000, our car, say, for Rs. 8 lakh, stocks for say, 20 lakh. Normally, we insure for a definite amount. Why? Because that’s what we feel it is worth. But we grossly under-estimate our life’s worth by insuring it for paltry sums. Though we create properties worth millions of rupees and know we could create a lot more in our earning life spans, the majority of us, (approximately 97%) insure ourselves for a paltry amount of say, between 2 and 10 lakh. Are we worth only that much?
If a goose laid golden eggs and we insured the eggs for say, Rs. one crore, how much should we insure the goose for? That’s the argument that should determine our HUMAN LIFE VALUE.

Here is another scenario:
Say, last night God came in your dream, and you had this conversation: God: My child, I need you. You are the best person to do my job. Will you work for my cause?
You: Anything for you, my Lord, whatever you say?
God: It’s not easy. Think again before you commit.
You: Anything my Lord. My life is yours. Whatever you say.
God: Very well, then from tomorrow morning, you have to stop working for money and put all the time that you spend on earning money for my cause. Can you do it? Think again.
You: I am ready, but what about the dreams that you showed me of a lavish house, my dream car & what about my responsibilities towards my children’s education and marriage expenses? What about my family’s day-to-day expenses and maintaining our standard till our death? How will that happen? Now, that you have chosen me, I am sure you must have thought about that too.
God: Good question, I am glad you brought it up right now before committing. I have thought about it. Tomorrow morning, go to my temple near your house and you will find a pot on your way back. This is a magical pot. Every month it will give you the amount that you would have normally earned based on your karma. That amount you can use for all your needs and dreams and for all your savings for your future needs. But there is one problem.
You: What is that?
God: Your only responsibility is to take care of that Magical Pot. Thieves could come to know about it and they would try to steal it.
You: So, how do I protect it, my Lord?
God: Do the best that you can to protect it from thieves. But then, on your Earth, I have also started something called Insurance. Insure it the moment you get it, so that just in case, it is stolen you get a lump-sum or a monthly amount that you were going to get as long as you would have been working. Are you ready now? Now, if you commit, you cannot go back. Think and answer.
You: Yes, my Lord, absolutely.

You wake up and tell the story to your family:
“Yeah, I am the chosen Instrument of God to work for Mankind. From today, no tension, I no longer have to work for money.”

But then you wonder,
“How much should I insure my Magical Pot when I get it today? Who knows, it may get stolen right away!

Well, whatever you decide to insure that magical pot for is your HUMAN LIFE VALUE.
You are the Magical Pot that God gave to your family and Father Time is the thief.

P.S. There IS a scientific way of calculating your human life value based on your present age and assumptions of your retirement age, your present income, rate of growth of your income, inflation rate, safe rate of return that your family can earn on investments, etc.

http://economictimes.indiatimes.com/Personal_Finance/Insurance/Insurance_news/UTI_may_stop_Ulip_sale_after_cos_agree_to_keep_MFs_out/articleshow/3495777.cms

Unit linked insurance plans (ULIPs) are today being sold both by life insurance companies as well as mutual funds. ULIPs offer insurance and investment in one product as compared to general products sold by mutual funds that offers only the investment avenue.

At mutual funds, these policies are being sold by agents who do not have the license to sell insurance. This leads to miss-selling as they lack in the product knowledge on insurance, as they haven’t passed the required IRDA exam. (Asset management company folk have to pass the AMFI exam, not the IRDA one). So, the Life Insurance Council has opposed mutual fund companies selling ULIPs. The group selling of ULIP and mutual funds is going against life insurance companies’ business.

The protest by the Life Insurance Council against this practice will protect customer interest and will help the life insurance companies in respect of product development.

Start organizing your money …… NOW!!!!

We are all familiar with the words “Money Attracts Money.” Let me relate a small incident in reference to the statement. There was a small boy working with a businessperson. He once overhead a conversation where his boss mentioned the above statement. The boy was very excited. The day he got his salary, he chose a five hundred rupee note, slipped it into the boss’s locker and pulled it out. The same note came out. Nothing more, nothing less. He tried for the second time, but the same result. The third time he tried, his note was stuck into the locker. The boss meanwhile was observing this entire scene unknown to the boy. As soon as the boy knew, he had been caught, he was very apologetic, and explained that he was only checking out the statement and now realized that it did not hold true. To this, his boss explained that it indeed was true, because, BIG MONEY, PULLS SMALL MONEY. His (the boss’s) big money had attracted the small money into the locker. Therefore, the question now arises- how does one create this BIG MONEY.

People can be broadly classified into three categories:

• Those that EARN and SAVE
• Those that EARN and CONSUME ALL
• Those that EARN and TAKE ON LIABILITIES TO CONSUME MORE THAN THEY EARN

While the going is good, no one wants to visualize or worry about the future, or rather, one can say, one does not want to think that the good times will ever end. The third category of the people is the ones in the most dangerous situation. One feels, that lifestyles have improved, economy has improved, but is it really so? It is most probably, we are spending today, what we would have earned over a period of 10-20 years. We are earning and clearing liabilities. Moreover, liabilities are taken but no insurance to cover the liabilities. THE QUESTION ONE NEEDS TO ASK HERE IS NOT ‘Who will clear the liability IF you die or are permanently disabled?’ This is a very important question but a glaring one that should be corrected. The ‘IF’ in the question should be ‘WHEN’. The ‘IF’ is majorly used as an excuse, for putting off the commitment towards buying a life cover, towards saving. Procrastination becomes a habit. How does one then save, for the future? For retirement? For the big money?

Retirement being the period when there will be no EARNINGS, but 365 days and many more of EXPENSES. Has one made a conscious effort to save for this golden period? Only money saved today and invested will grow and attract more money that can be used for this golden period of life. In fact, life insurance policies are sold, more for retirement provision than life insurance cover. Not that they provide one with inflation-adjusted returns, but they ensure that one is committed to saving a fixed amount every year to reach the target. No other instrument ensures compulsory saving. Surveys reveal that no one has ever consciously saved in a bank for 20 years at a continuous stretch!

Contradictory it may sound, but life insurance and retirement planning go hand in hand. The best thing to save for RETIREMENT is SELF RESPECT and the best way to SAVE is through LIFE INSURANCE. Investment planning is the tool that enables one to achieve one’s various financial goals including retirement. With each passing day, personal finances grow more complex, and with each passing day, an individual has less time to develop a personal financial plan. Therefore, the only way to do is to allow a Certified Financial Planner to handle it. It is only the CFP who can help to CREATE, CONSERVE, AND PROTECT financial resources.

In my last article I had mentioned that there are several methods, or styles, to investing profitably in the equity markets.

Let me start with suggesting that you, the potential investor, spend some time analysing your investments. If one were to assume that your money is indeed “hard earned”, would it not be unfortunate if is easily lost?

Most professional advisors compare their performance to benchmarks, which are indices. For example, if a fund generated returns of 20%, while its benchmark’s returns were 15%, this “outperformance” of the index by 5% is called an ‘Alpha’. This is a good measure to evaluate fund performance, provided the benchmark is reliable. If reliable, it would be a good measure to evaluate even personal portfolios returns.

The BSE Sensitivity Index of 30 shares is the most popular Indian stock market index. If one were to track this over 5 year periods, starting in 1992 (this is the year of the infamous Harshad Mehta boom, which is a relevant beginning simply because this is the first time there was retail participation in the capital markets), we would find that pre-2003 (the start of the latest boom), the index returned less than bank FDs. Even if we go from 1992 to the current date, the index returns are disappointing. This should indicate that equities are a poor long term investment, but are actually among the best options!

In fact, a well diversified portfolio, built over time and given a few years, at reasonable valuations (PE of close to 10, certainly lower than the Sensex’s long term average of 14 times) will outperform the benchmark or almost any other investment. The great Warren Buffet, however, considers that “wide diversification is only required when investors do not understand what they are doing”. If you know, and you need to know, why you make an investment, you should also have guts to invest plenty in it. Again, quoting Mr. Buffet, “Why not invest your assets in the companies you really like? As Mae West said, “Too much of a good thing can be wonderful.””

Diversification or concentration of portfolios can be achieved through investments in mutual funds. Concentration is through sectoral or thematic funds. Concentration is good only if you are an expert and can time your entry and, more importantly, your exits. Avoid being carried away by the noise. Most fund managers consider themselves to be God’s Greatest Gift to Investments (GGGI) in a bull market. However, when they crash with the markets they are quick to point to outperformance, if any, on the index, i.e. “The index has fallen 30%, but I have been brilliant and have lost only 25% of your money”. I have not met any investor who hands out money to be lost, whatever the market conditions. My advice is to ignore the froth from the fund managers, or brokers. If you are convinced the market is cheap, put in all your money. In an uncertain market do an SIP. But when the market seems overvalued sell. (By the way, have you ever heard a fund manager advice you to sell, or redeem your units in a bull market?) A crash always follows a euphoric bubble. Cash is supreme in bad times. It is a good feeling, and also very profitable to buy when the market is down 70%!!

Is this a good time to invest? Yes and no. An important lesson from Joseph Kennedy, almost a century old, is to sell when the shoe-shine boy gives stock tips. I believe this is true today. When the taxi driver is thrilled to take you to the share bazaar and asks for stock tips en route, the stranger at the party gives you sure shot stock bets and the daily newspaper has headlines of the local housewives club betting their grocery money on stocks – GET OUT. This is the best signal to sell your shares.

And buying? This would be when that party animal with best buys stops partying, the Big Bull has jumped off the 13th Floor and there is a funereal feeling at Dalal Street. Buy when the mention of a good company has people grit their teeth and give you dirty looks. And, of course, the index has a low, mouth watering PE!

One of my own gurus told me never to confuse the market with stocks. “The market is irrelevant”, he said, “buy the right stocks and you will always make money.” If you have his stock picking skills, which I do not, this article is not for you. If you are one of the simple folk, hoping to beat inflation and make a little money on your savings, the market at over 18 PE all this week (18.80 on Nifty on September 4, 2008) remains expensive. Look then for gems that might become multi-baggers.

Otherwise hang on to your precious cash. A better day to buy will dawn, when PEs are closer to 10 than 20. Get into SIP mode then. Market corrections can be both deep and long. Losing opportunity (interest cost of your money) is about as unfortunate as losing capital.

Naveen Fernandes is a Certified Financial Planner and Vice-president, Orbis Financial Corporation Ltd, Mumbai. Orbis Financial is a SEBI-approved custodian.

Tax is the most terrifying word for one who needs to pay it. There are many provisions in the IT act by which you can plan and minimize your taxes. One of the provisions through which one can reduce tax liability is by taking deductible from gross income to the maximum limit of Rs.100000 under Section 80C of the Income Tax Act. This can done by investing into life insurance policies, PPF, equity-linked saving schemes etc.

So where to invest to get deduction under Section 80C?

Let’s look at some basics and then we would be in a position to compare them:

An Endowment Policy is a traditional policy which has a risk cover policy for a specified period. At the end of the policy tenure the maturity benefit is paid off. The maturity benefit in this regards is the sum assured and the bonus accumulated during the term of the policy.

A term policy as the name suggests covers the risk for the particular term selected. It is the cheapest of all the life insurance policy, as it is the purest form of insurance the premium collected will not include any investment element in to it.

Public provident fund (PPF) there is a lock in period of 15 years with a minimum amount of Rs.500 and maximum of Rs.70,000 to be invested every year. PPF earns 8.00% p.a.

Equity linked savings schemes (ELSS) are basically a tax saving tool; which safeguards an investor from the short term volatility of the market. As it has a lock–in–period of 3 years. It is a high risk, high return investment. The asset allocation of an ELSS would ideally be 90–98% equity exposure and the balance may be in money market or government security. This makes an.

In an endowment policy the liquidity is blocked for the tenure of the policy and you miss out on the opportunity of booming economic conditions. One more negative which is associated with the endowment policy is that the bonus which is declared in the financial year is not compounded and investor is paid only the actual amount of bonus received in the subsequent financial year at the time of maturity. In case you surrender your policy you get a surrender value after paying a certain surrender charges for it.

On the other hand if you purchase a term policy along with a PPF or a term policy along with ELSS you will get a better return on your investment as compared to an endowment policy.

Let us understand with an example. If you take an endowment policy with a sum assured of say Rs.10 lakhs for tenure of 20 years. The annual premium payable would be Rs.47,000. If you buy a simple term life insurance policy for the same sum assured i.e. Rs.10 lakhs for 20 years the annual premium payable would be Rs.2920. The balance of the premium i.e.Rs.44,080 (47,000 - 2920) if invested yearly in PPF for 20 years at 8%p.a. the accumulated amount would be Rs.20,17,187. In other case if you invest the difference of the premium i.e. Rs.44,080 on a yearly basis in ELSS which gives you a compounded annualized growth rate of 12.00% p.a. the accumulated amount would be Rs.31,76,072.

A risk-averse investor should look in for a term insurance along with a PPF option. A risk-liking investor should look in for a term insurance along with an ELSS option since ELSS is more aggressive - its inclination is mainly into equity investments which yield better returns in a longer tenure, beating inflation.

Is life insurance necessary, considering the fact that one has to pay premiums regularly? May be not that important now, but will be a great help in future. Insurance is often mistaken as an investment product. It is a product which gives protection benefit. On buying a life insurance policy you feel that your life is secured. It helps you when you need the financial support during crisis. While parking our surplus funds for retirement we only consider those products which give returns at regular intervals. Most of the times we forget to insure our life.

Is life insurance needed for women? A woman needs to be monetarily independent, as she has to manage her career, bring up her family, and take care of her aging parents. A woman who is the single parent taking care of her children must be insured. In her absence her child will not be financially deprived. A working woman who financially supports the family must also be insured. The insurance policy will help to fill the financial gap in her absence. And a home maker must be insured as her services are priceless.

However, not many women are insured. There are only two companies in India which offer life insurance policies for women. The two companies are Bajaj Allianz Life Insurance Co. Ltd. and Life Insurance Corporation of India. Bajaj Allianz Life Insurance Co. Ltd. offers two different policies for women - Bajaj Allianz House Wives and Bajaj Allianz Working Women where as LIC offers Jeevan Bharathi.

Both these policies are designed specially for women. Bajaj Allianz Life Insurance Co. Ltd. covers Critical Illness Benefit, Reconstructive Surgery Benefit for Breast (s) due to Breast Cancer, Congenital Disability Benefit and Complications of Pregnancy Benefit. LIC of India covers Female Critical Illness Benefit and Congenital Disability Benefit.

Another advantage that women get is they have to pay low premium on life cover as compared to men as the mortality rate is higher in the former.

Women in India must insure their life as tomorrow is uncertain. Insurance helps to live a carefree life.

During a stint at a financial planning company, a gentleman asked to be guided on goal planning. I asked him to list down all his goals and to prioritize them. To my surprise he placed buying a Honda Accord above his child’s education. I asked him if he was sure of what he was doing. He replied that it would be a matter of around Rs. 5 lakh for the kid’s education – a sum that he could easily manage in the next ten-twelve years (his son was around 5 at the time). So I asked him if he had accounted for inflation. To which query he replied that the difference would hardly be enough to make it that big a deal. I showed him some simple spreadsheet calculations and he was quickly surprised to know that Rs. 5 lakh at present, adjusted for inflation at 5%, would amount to Rs. 11 lakh 16 years. At an average inflation rate of 8%, the amount would grow to Rs. 17 lakh.

He reprioritized. Quickly.

Children’s education is becoming more and more challenging as the years go by. Hence it should be the most integral part of financial planning. It should be at the top of any list of goals while preparing a financial plan. The earlier you start, the better it will be. Luckily for the above-mentioned gentleman, he realized it very early, rejigged his priorities and started planning accordingly.

There are two main pillars when we talk about children’s education.

The first is life insurance cover for the earning parent (or parents).

The question arises as to why this insurance is so important. In the event of any mishap and the parent (s) passing away, it would become very difficult for the child to get the otherwise promised good education. The life insurance payout can then help to keep the child’s educational aims intact. In this regard, a pure protection term insurance policy would meet the needs.

The parent (s) could, in addition, opt for personal accident cover. As the name implies, the risk of death by accident is covered here. Again, this is to ensure that the child’s education does not suffer if any of the parents pass on before their time in unfortunate circumstances.

The second pillar is investment. That is, investing present available funds in such a manner that will allow parents to provide the best education for their children.

You should start investing early to take advantage of the power of compounding. To state an example, let’s assume the cost of an MBA for your kid after 15 years is going to be around Rs. 10 lakh. At the 8% rate of return provided by the Provident Fund (PF), you will need to start putting aside an amount of Rs. 37,000 every year to meet this goal. Investing that same sum in equities would fetch much better returns. This could be done directly, via mutual funds, or using the portfolio management services (PMS) route.

To corroborate this, let’s take the performance of the Bombay Stock Exchange (BSE) Sensex, a benchmark index of the Indian equity market. In 1992, it stood at 1957 at trading close, 01 January 1992. At trading close, 31 December 2007, the BSE Sensex stood at 20286 – a 936% jump. This is way better than anything a PF would give you.

Here are some interesting numbers - where you had to put away Rs. 37,000 every year at 8% in the PF to get your child that MBA, you would only have to invest Rs. 27,000 in equities every year at a 12% rate of return. And if the rate of return is raised to 17% per annum, your annual invested amount reduces to just Rs. 17,000.

The biggest dream of any parent is to see his/her children doing well in their lives. To achieve that goal, one needs to plan accordingly. The earlier one plans the better the plan will work out.