Why should we invest in Mutual Funds?

Investing in the equity market directly is exciting and glamorous. You are in the thick of things and are able to take  responsibility for yourself. Though the volatility and the information overload makes it a daunting task. The present subprime quagmire makes it even more daunting.


How about investing through Mutual funds? Doesn't it have its own loading and administrative charges and the fund managers making merry on your hard earned money? And can't we see the best performing mutual funds and follow their portfolio? The performance of a scheme is reflected in its net asset value (NAV) which is disclosed on daily basis in case of open-ended schemes and on weekly basis in case of close-ended schemes. NAV of mutual funds are required to be published in newspapers.

Here are some points to ponder:

We should allocate our time to investment decisions in proportion to our income generation goals.

Convenience and hassle free investing should be a major factor.

Fund managers are into it full time. If we able to identify fund managers who have consistently performed over last 3-5 years, nothing like it.

The fund manager also has the muscle power of crores of Rupees and is able to take entry and exit decisions impartially.

MFs continuously churn their portfolio. When MFs buy and sell stocks, they don't have to pay capital gains as you do when you churn.

We are likely to panic over market crashes. MFs can take advantage of a crash!

With Systematic Investment plans (SIP), you can start investing with as low as Rs 500 per month.

The NAVs are also available on the web sites of mutual funds. All mutual funds are also required to put their NAVs on the web site of Association of Mutual Funds in India (AMFI) www.amfiindia.com and thus the investors can access NAVs of all mutual funds at one place. 

The mutual funds are also required to publish their performance in the form of half-yearly results which also include their returns/yields over a period of time i.e. last six months, 1 year, 3 years, 5 years and since inception of schemes. 

Investors can also look into other details like percentage of expenses of total assets as these have an affect on the yield and other useful information in the same half-yearly format. The mutual funds are also required to send annual report or abridged annual report to the unit holders at the end of the year. 

Various studies on mutual fund schemes including yields of different schemes are being published by the financial newspapers on a weekly basis. 

Apart from these, many research agencies also publish research reports on performance of mutual funds including the ranking of various schemes in terms of their performance. Investors should study these reports and keep themselves informed about the performance of various schemes of different mutual funds. 

Investors can compare the performance of their schemes with those of other mutual funds under the same category. They can also compare the performance of equity oriented schemes with the benchmarks like BSE Sensitive Index, S&P CNX Nifty, etc. On the basis of performance of the mutual funds, the investors should decide when to enter or exit from a mutual fund scheme.

Financial Planning Basics - Personal Finance

Financial Planning Basics 

Financial planning covers a wide variety of money topics including budgeting, expenses, debt, saving, retirement and insurance among others. Understanding how each of these topics work together and affect each other is important for laying the groundwork for a solid financial foundation for you and your family.

1. Budgeting
At the very basic level of personal finance you are dealing with a budget; you make money and then you spend that money. Even if you haven’t created a detailed and written budget you continue to budget on a daily basis. When you are faced with spending money on something, you think about it and realize that by spending that money, you will not be able to spend that same money on something else.

When you create a budget, you begin to see a clear picture of how much money you have, what you spend it on, and how much, if any is left over. When you can clearly see where your money is going, you can then budget appropriately so your money is going where it should.

2. Cutting Expenses
After you have successfully created a budget, you'll have a much better understanding of where your money goes and where you can possibly trim expenses. For many people, this is as simple as cutting back on some of the little things that can add up.

3. Getting Out of Debt
Even after creating a sound budget and cutting unnecessary expenses, you may still find yourself with lingering debt to get rid of. Using credit and taking on some debt itself isn’t necessarily a bad thing, but when you can't keep up with the payments or borrow more than you can afford to pay back, you could be in trouble.

One of the most important steps in getting out of debt is to pay more than the minimum amount due each month. Even a modest credit card balance can take over a decade to pay off if you simply pay the minimum amount due. In addition, paying the minimum will end up costing you thousands of dollars in interest over that period.

4. Saving for Retirement
With fewer companies offering full pension plans and the uncertainty of Social Security, it has become more important than ever to save and plan for your own retirement. Unfortunately many people feel that they simply don’t have enough money left over each month to save.

Retirement savings needs to become a priority instead of an afterthought. The Internal Revenue Service has made saving for retirement even more attractive with special tax-advantaged accounts such as employer 401(k) plans, individual retirement accounts and special retirement accounts for the self-employed. These accounts allow for tax deductions, credits and even tax free earnings on some retirement savings.

5. Insurance
You've created a budget, cut expenses, eliminated your credit card debt and, have started saving for retirement, so you are all set, right? While you've definitely come a long way, there is one more important aspect of your finances that you need to consider.

You've worked hard to build a solid financial footing for you and your family, so it needs to be protected. Accidents and disasters can and do happen and if you aren’t adequately insured it could leave you in financial ruin. You need insurance to protect your life, your ability to earn income, and to keep a roof over your head.

Health Insurance for children is Important

Health Insurance for children is Important

Nowadays everyone has realised the importance of health insurance. Awareness about mediclaim, critical illness, and personal accident is increasing. Every individual makes it mandatory to have a health insurance cover not only for self but also for their family. Insurance companies are coming up with family floater policies which cover not only man and spouse but also children.

Though most of the times children are covered with their parents under health insurance, a separate policy is not taken for them. There is a certain mindset that health insurance for children is not as important as for adults. However with the current lifestyle of the children, there are chances of them having more health issues than their parents.

Parents keep their children as their highest priority. They dedicate their entire life for them however when it comes to taking up a health insurance policy their thinking goes haywire.  Either the child is covered under a family floater with a very low cover or they don’t have a health insurance policy. Parents feel completely helpless when their child is ill that they go to any extent to cure them. The treatment cost for them can also be very high. Thus every parent should understand that health insurance is equally essential for the child as it is for them.

Health expenses are now touching the sky. A simple surgery for sinus or any injury caused due to sports, etc, may cost anywhere between rs 20,000- rs. 50,000. Treatment for children leads to financial breakdown and stress if not covered well. Thus to control such situations in life one should buy sufficient health insurance cover for their kids. Many companies provide health insurance for children only. Also the family floater plan covers the child well if the policy cover is good for them.

A minor can be provided health insurance from the 91st day along with his/her parents. A child of age 5 and above can be provided health insurance separately. When one decides to buy health insurance for their children it is necessary to provide all medical history of the child,  as a few months old child may have health issues like juvenile diabetics, bronchitis etc. If one decides to purchase health insurance at a later stage when the child is in his teens it is very essential to produce facts whether the teenager is smoking, any pre-existing disease since birth etc. Once the needful information is provided only then the policy is given to the costumer.
It is suggested that you to purchase a health cover not only for yourself or spouse but also for your child/children. Also it is importance to take an optimum cover for your child as well. Premiumsfor health insurance policies are not too high & also have tax benefits, thus a good cover for your child is a must.

It is also essential to understand the policy, and become familiar with common health insurance provisions, including limitations, exclusions, and riders only then purchase it for your child. One should carefully read the documentsbefore buying a policy. Some might be having a time limitation of claim while others might be unsupportive of a particular required ailment in case of children. The policy terms and conditions document gives a list of covered ailments and the extent of coverage. Most of health insurance companies in india cover hospitalization, surgery, medicine, surgeon and other equipment charges. However it depends fromcompany to company.

With these points in mind, do adequately cover yourself, spouse & children medically!!

Govt considers complete makeover for insurance laws

Govt considers complete makeover for insurance laws.  

Discussion with IAI, officials of FSLRC’s working group on insurance

Mumbai: The government’s financial reforms panel is considering a complete makeover of the country’s insurance laws that would end the monopoly of state-owned Life Insurance Corp. of India (LIC), shift control of the government to the insurance regulator, and create a legal system to deal with any failure of insurers.

Following a discussion last month, the Financial Sector Legislative Reforms Commission (FSLRC) recently took up the recommendations of the Institute of Actuaries of India (IAI), the government’s supervisory body for actuaries, which if accepted, will change the face of India’s insurance industry.

The government set up the commission last year to rewrite and synchronize the financial sector legislation, rules and regulations so as to address the contemporary requirements of the sector, including insurance. The commission’s term ends in March.

In its discussion with IAI, officials of FSLRC’s working group on insurance, chaired by D. Swarup, chairman of Financial Planning Standards Board India, considered at least 20 areas of possible changes in laws both for life and non-life insurance.

It is likely to compile a final report in a few weeks, which will then need to be vetted by the parliamentary standing committee on finance before the laws can get amended. A copy of FSLRC’s communication with IAI and the latter’s recommendations to the commission is with Mint.

“LIC versus private sector insurers is an issue. The commission feels that exemptions are heavily loaded in LIC’s favour, which needs to be changed,” said L. Khan, president, IAI.

There are 23 life insurers in India with combined assets of at least Rs. 16 trillion. LIC is the largest with assets of at least Rs. 13 trillion alone.

FSLRC asked IAI if the present laws for state-owned insurers have an adverse impact on competition and how the issues involving government’s ownership in some insurers should be addressed. Existing laws exempt LIC from certain sections of the Insurance Act.

The actuaries institute recommended that capital and solvency requirements of LIC should be aligned with that of private life insurers and LIC should be restrained from using its policyholders’ money as solvency margin. For private insurers, solvency margin is met from shareholders’ money.

If the recommendations are accepted, the government will have to infuse a substantial amount to cover LIC’s future liabilities and capital needs. This, in turn, may not only slow LIC’s pace of growth but also reduce the government’s net income from the dividend paid by LIC every year on its surplus.

It was also proposed to empower the Insurance Regulatory and Development Authority (Irda) to regulate LIC’s investment norms and business conduct on par with private insurers. Despite Irda’s restrictions on insurance firms to hold over 10% stake in a listed entity, LIC holds above 10% in several companies. Even to protect policyholders from the risk of an insurer’s investment concentration, Irda has limited say as the government dictates the investments made by state-owned insurers to meet its own capital needs.

To address such issues, the regulator may also get the power to suspend or cancel the licence of state-owned insurers, including LIC, if the recommendations are accepted.

The commission is also looking at introducing resolution mechanisms to deal with any failure of any insurance firm—a legal system to protect the interests of policyholders and ensure financial stability.

FSLRC asked IAI if some form of deposit insurance or compensation scheme is required to protect consumers of failed insurance firms. At present, there is no specific law for such a scheme, which exposes policyholders of life insurers, except LIC, to the risk of losing money in the event of an adverse economic situation.

LIC Act extends a sovereign guarantee by the central government to LIC. Though, the extant Irda norms safeguard the interests of policyholders of all insurers and minimize the risks of losing money, a sovereign guarantee for LIC gives it a business edge over private insurers.

IAI suggested the creation of an Insurance Guarantee Corporation to address this issue. “Such a corporation could be created to at least partly bear the liability of policyholders in the event of failure of an insurance firm,” said Khan. But while creating a guarantee corporation, the costs incurred in paying the claims should be levied both on shareholders and policyholders, IAI said. The proposals, if accepted, will not only curb the risks for policyholders but also end the domination of LIC in the industry.

The proposals are aimed to end the discrimination of policyholders of state-owned insurers with that of private insurers. To achieve this, FSLRC also looked at the possibility of shifting certain powers from the government to Irda to avoid monopoly of any insurer in the industry.

FSLRC is also likely to revisit the current investment laws and suggest amendments to enable Irda to frame rules for agents’ commission, solvency norms, capital requirement norms, loans and advances by insurers, among other things. At present, these norms are largely governed by the Insurance Act.

IAI recommended enabling the regulator with powers to issue guidelines for insurers to invest in new asset classes such as real estate, derivatives, and asset-backed securities. It also suggested flexibility in not setting the investment management function for the unit-linked business in-house. At present, it is compulsory for insurers to have in-house investment managers for all their fund management businesses.

FSLRC is also looking at allowing insurance companies to invest a part of their funds in overseas investments. At present, overseas investments are allowed only in government securities of the UK to the extent of meeting liabilities of certain funds under an insurer.

Overseas exposures will allow a wider range of assets for investment diversification and access to potentially higher returns, IAI proposed. To enable such investments, the Insurance Act needs to be amended. If it is allowed, it will hold out prospects of better returns for policyholders, especially for those in unit linked insurance policies.

Key recommendations

• Empower Irda to fully regulate investment norms, solvency, limits on distributor compensation, share capital, divestment, dividend distribution and limits on loans and advances by insurers.

• Framework to achieve level playing field for both public and private sector players.

• Create an Insurance Guarantee Corporation to partly handle policyholders’ liability in the event of an insurer’s failure.

• Central government to infuse adequate funds to meet solvency needs of state-owned insurers, including LIC.

• Create legal framework for the regulator to force capital injection by shareholders, weaken the solvency rules and de-risk the business of an insurer in the event of a failure.

• Allow overseas investments by insurers, flexibility for insurers to not set up in-house investment management for Ulips, and allow investments in new asset classes such as real estate, derivatives and asset-backed securities.

• Abolish the two councils—Life Insurance Council and General Insurance Council—to restructure Irda.

• Align capital and solvency requirement of LIC on par with other life insurers in the private sector.

Financial Tips for Students

Source - blognbuzz

Once you finish your school and enter college you want to concentrate on your studies. But along with studies you have a new responsibility of handling your money. Till now you were given pocket money from your parents for your expenses but now since you have grown up you will have to handle your own money. You may still receive money from your parents but it is up to you how to spend this money.
Today there is a rise in the rate of inflation and things are becoming more expensive then before. So it is time you must learn the difference between needs and wants. Many college students do not know how to handle their finances. Till now your parents fulfilled all your wishes from expensive clothes or shoes or mobiles but it is now your responsibility to value money. If you learn the basic principles of finance at this age then it will be useful to you in future, after all you are going to face financial issues once you are out of the college. So now is the time to learn how to handle money.

Students only think that money is to spend and they are always ready to spend it, but this is not correct, you must also think of saving and earning. Students also misuse credit cards and think that the credit limit gives them the permission to spend as much as they want. They are not aware that after all they have to repay the money back and that too with interest if they fail to make payments on due dates. Students think that banks want them to make use of their money but the truth is that banks are there to make money and they will take their money back anyhow. It is time to learn to value money and know the working of many financial products. The following financial tips will help college students to manage their finances and learn some rules of handling money:

1) Do not spend unnecessary:

Spending is a habit and once you get the habit of spending you will find it very difficult to leave it. So try curbing your expenses and try to spend less. Differentiate between necessity and luxury. Always keep in mind that it is very easy to spend but very difficult to earn. So buy things only if necessary.

2) Save more:

Saving is the main principle of finance. Without saving your financial plans will not work. Savings will help you in the time of emergency. Try to save on books, food, clothes and other items of use. You can refer to books from the library or borrow it from your friend instead of purchasing them, always eat home food this will save a lot of money, do not go for branded clothes or other accessories these good are very expensive. If you spend less you will save more and the more you save the more money you will have at your disposal.

3) Make a budget:

Try to make a budget and spend only from whatever money you have. Keep a record of all your expenses and maintain a book of records and write all your expenses in it. This will ensure that you do not spend on unnecessary things. Also write you incomes in form of pocket money, birthday gifts etc. See to it that your income is more than your expenses.

4) Do not use a credit card:

It is found that credit cards are the main culprit in increasing debt. Many people specially college students find it easy and convenient to use credit cards but they forget to make timely payments and thus fall into debt trap. At this age it is not good to be in debt after all you do not want to be burdened by things other than studying. Use credit cards only in case of emergency. If do want to carry lot of cash then try to use debit cards rather than credit cards. Debit cards will limit your purchases and in this way reduce your expenses.

5) Never borrow money:

Some students are of the habit to borrow money from their friends and never return it. This is a very bad habit as it will give you a bad name and people will never lend you when you are in real need of money.

6) Work from home:

Student can work from home or take up a part time job in their free time. In this way you will increase your income and you will know how hard it is to earn money. You can start giving tuitions or work in a restaurant or in a call centre for extra income. Make sure that you do not spend the extra income you earn, try to save this amount in your savings account, this money will be useful in  time of emergency.

7) Shop from places that offer discounts:

There are many places where students discounts are given so shop from places where these discounts are available. In this way you will save a lot of money.

8)  Pay your bills on time:

In case you have taken any credit then pay all your bills on time. If you do not pay your bills on time then the credit company will charge you interest with increased rate, this will be an extra burden to you.

9) Try to get scholarships:

College students having an excellent student grades or performance record may qualify for scholarships or grants  from colleges or various institutions. So try to get these scholarships and save money on fees and books. Grants and scholarships are a better option than students loan as you do not have to pay them back.
10) Don’t be with people who spend much, they will only make you spend more. So form your own group and teach them to spend less and save more.

11) Lead a simple life:

Do not waste money on unnecessary things, spend money only on the things which are really useful to you. Also reduce your travel expenses by using a cheaper mode of transport like buses, trains etc. You can always go for a movie or a night club but try and find out how you can enjoy them at a minimum cost.
The above tips will help college students manage money and learn to put their finances in order so they can focus on their studies rather than their wallet. College is the time when students learn from their mistakes and learn to manage their lives. So as far as possible learn whatever you can from your college life, if you face any difficulty then you can always approach your parents or friends or even teachers for help. Make sure you start your financial life after college without any debt and more of savings. This will make your life after college safe and secure and you can face the world more confidently. If you develop good financial habits in college then you are likely to have good financial habits for life.

Credit Card Tips You Can Use.

2 Credit Card Tips You Can Use.

 

 Do you want to know some credit card tips which you can use in your life ? In all probability you must be holding a ICICI, HDFC or SBI Credit Card and must be wondering how to use it effectively ! .  Credit card is used by almost everyone now a days and utilizing a credit card features is an art -I would say. It needs discipline, attitude and the right mindset to be used. However I came across 2 very good credit card tips, which were discussed by few readers on the comments section and hence this article bring forth those tips and tricks to you. These following tips are really good, but only for those who want to really squeeze out the benefit of their credit cards and not for someone who likes to keep it simple. Let’s see those credit card tips:

Credit Card Tips 1 – Making short term Fixed Deposits

Most people know that by the end of the month, they will get a credit card bill and they will have to pay a good amount of money towards it. Now imagine this situation – You will most probably have a good amount of money in your savings bank account which you know would be utilized towards paying off the credit card bill and you make sure that the money stays with your account. You don’t spend it or invest it anywhere because it already has a purpose and it also improves your credit score and report

Now the simple tip here is, that just see how much is your average credit card bill each month. It can be 10,000, 15,000 or 20,000 at times, but if you know that generally the maximum you get is around 20,000. Then instead of keeping that money in your bank account, you can just do a short term fixed deposits in that start of your billing period, so that instead of earning mere 4% in a saving bank account, it will earn some 7%. The idea is to create around 90 days of fixed deposit each month for your average credit card bill amount. So what will happen that from 3rd month, you will automatically get those FDs matured and you will have the money ready. I said 90 days so that the interest rates you get are better. I can see that my ICICI bank is giving 7% for 91 days deposit. If your bank provides good return in 30 days, better make 30 days deposits.

Important : Do this only if your bank provides the online facility of creating fixed deposits and you would like to get better interest for your money in short term along with eagerness to pay off your credit card debt in full every time. At time this can look like over optimization, but its up to you. Now if you like it, take it, else let it go.

Credit Card Tips 2 – Have two credit card with different billing cycle

You can get the maximum credit of 55 days on a credit card if you make the purchase in the start of the billing cycle and have a grace period of 25 more days (30 + 25 = 55). But you can not always make big purchases in the start of the billing cycle to get maximum credit, a lot of people make this mistake because they do not understand minimum balance in credit cards . So in that case the tip is to have 2 credit cards with two different billing cycles preferably having a gap of 15 days between them, you can use one credit card for first 15 days of the month and another one in the  second half. So for example you can have credit card A which has billing cycle from 1st Apr to 30th May and another credit card B whose billing cycle is from 15th May to 14th June.

So this way you can use the credit card A in the first half of the month and B in the second half. Note that though this involves 2 cards and requires a little tracking , but it will really help someone who uses the credit card a lot and would like to get benefit of maximum credit period almost all the time.