Wednesday, January 3, 2018

How to start investing - Chapter 1 - popular Bank deposits

Wish you all a very Happy New Year. Am sure you all have had a good party and a host of new year resolutions. I am eager to share mine. With full of excitement and commitment, I would like to make the topic ‘finance’ easier, and help you become wiser to check on your financial health and get better. The first of the year, I am dedicated to understand what are the simple things you need to do to begin the process of investments.

To begin, needless to say you may consider the following things for smooth execution.

Also read - Smart ULIP

Online Banking - Very customer friendly process, you can start online banking just using your debit card. You can go to the bank website and choose net banking/ Online banking option. You will be guided with the process, if you don't have the pin handy, you can generate one easily, following the instruction.

Bank account - For easy tracking and smooth transaction, I follow one account for last 8 years or so, be it mutual Funds, insurance or paying credit card bills, it also helps in maintain records

Lets start with the most traditional investments, Bank deposit.

Savings account – This is the default savings/ deposit option for any individual with a savings bank account. The cash lying in the account earn a nominal 3 to 4 percent interest per year. Though I highly recommend Liquid Mutual Funds over savings account, still it is an available default option. 

Fixed Deposit - Though I am a fan of debt mutual funds and am aware that fixed deposit cant give an inflation adjusted return, I can’t deny the fact that some of my money stays in the bank account and in the form of fixed deposits. If you already have online banking, you just need to tap on the deposits tab and you will be guided with a small 30 seconds process wherein you have to key-in basic details like - the amount, branch you choose for the deposit (this comes handy if you are depositing a large sum of money, for which you may need to visit the branch for pre-matured withdrawal). The amount you choose for the fixed deposit must be lesser than or equal to your savings bank account. You need to check the interest rates, as it varies for different tenures and then chose the term for which you wish to block the sum and interest payout instruction - Monthly/ quarterly, annually or maturity. You may also need to fill in the details like what you want to do with the maturity proceed, you may choose to get the proceed credited into your account or you can choose reinvestment option (personally, I dont like this option). Do remember to keep you PAN card  handy incase you are depositing a sum above 50,000 rupees. 

One can have multiple fixed deposit parallely with different combination of amount, term and interest rates at the same time. Minimum amount could be Rs. 1000/ 5000/ 10,000 depending on the bank you are operating in.  Choosing a nominee is advisable for a large fixed deposit, its available in online deposit window. 

Recurring Deposit - Another traditional Deposit named as Reccurring deposit is somewhat a precursor to the SIP of mutual Funds. Similar to the fixed deposit option, you need to click the deposit option, choose the tenure (mostly year and multiple of years or 6 months). In this  deposit scheme, you need to choose a fixed sum of money to be added to your kitty every month and the interest is accumulated on pro-rata basis. This is a good option to create an emergency fund or accumulating wealth in 1-2 years times span.

Advantage of Deposits 

1. It is the most liquid investment
2. It can be used as an emergency corpus
3. It gives fixed interest / return on the investment
3. One can take a loan against the deposit, most accepted collaterals by Banks 

1. Bad vehicle for medium to long term wealth creation
2. Doesn’t have any potential for upside/ variable return
3. Fixeddeposits are insured upto 1 lakh Rupee. Money above 1 lakh is not risk free, so incase the bank goes bust, they will not have any liability over 1 lakh Rupee
4. The interest earned on the deposits are taxed basis the individual’s tax bracket
Adios for today. Will come back to you with guidance on how simply one can buy mutual funds, life insurance, ULIP, health insurance, PPF, NSC etc.

Stay healthy, stay fit, and be money wise!

Monday, December 4, 2017

Edelweiss ULIP Rewards the Policyholders for Making Disciplined Investment and Staying Invested

Since IRDA started a mission to protect consumer interest, Insurance companies adjusted to the new normal and are now getting a step ahead to service their policyholders in lower cost and efficient claim management. Also, the disruptive technological space has helped them to lower their overall costs. However, it is truly the customer obsession approach, which has enabled Edelweiss Tokio Life to come up with a unique ULIP product, whose cost claims turns out to be lower than direct mutual funds (equity), if one chooses the 20-year pay term for 20-year policy at below 1.5%.  

While this looks too good to be true, the Edelweiss team calls it #Unyakeenable. In this post, I intend to write all the nuances you must know about the plan, and the best option available in the plan.

Edelweiss Tokio Wealth PlusThis is an insurance-cum-investment plan which invests the premium. The feature of the policy is they invest 100% of the premium into the investment and charges less than 2% over a 20 year period for the fund management fee and mortality charges. The aim of this insurance plan is to give superior investment return while covering ten times the annual premium as the sum insured.

The cost and the investment returns are comparable to direct Mutual Funds returns.

Features of the Wealth Plus
·         Entry age – 1 year onwards
·         Policy term – 10 year to 20 years
·         Payment term – 5 – 20 years
·         Payment frequency – monthly, semi-annually, half-yearly, and annually
·         Minimum premium – 48,000 a year for a minimum of  10-year payment term
60,000 Rs. A year for more than 10 years term

·         Investment options – Investors have an option to choose one of the following investment strategies based on your profile and risk appetite:
Life stage and duration based strategy – Company manages the asset allocation based on the policyholders’ age and remaining years to policy maturity
Self-Managed Strategy – For a savvy investor, money will be allocated to your choice of fund(s)

The funds the plan invests in are highly rated (4 STAR and 5 STAR) by the international rating agency Morning Star.

Highlights of the plan
·         80% of the annual premium is reinvested by the insurer in what can be termed as loyalty program by the common man. Every year, for the first 5 years, the insurer adds 1% of the premium to the investment. From the 6th year to 10th year, the company adds 3% each at the end of the year. 11th to 15th year, 5% of the premium is added, and 15th to 20th year, 7% of the annual premium will be added
·         Top- up facility available, minimum amount Rs. 5000
Point to Note – This feature is applicable depending on the payment tenure decided by the policy holder. Higher payment term one choose, higher return one get

Rising Star Benefit
The best part of the plan is their Rising Star Benefit. While it is a long-term commitment, one may choose it for protecting their child’s future. In this option, both the parent (policy holder) and child are insured.

Who Should Buy this Product?
It is important to know what are you buying and why. This is a great investment product if you have a long-term commitment and minimum Rs. 48,000 a year. This plan is a great buy for goals like child education or marriage plan or retirement. To make maximum of this insurance plan, start early and choose the 20 years premium term and 20 years policy term.

What is in it for the Insurer?
One should ask this question to oneself when any investment offers return higher than usual industry standards. In the current scenario, ULIP charges 3-5% on the investment yearly to manage various expenses like management fees, brokers/agents, marketing channel, and even customer acquisition activity, paperwork, etc. To minimize the cost, Edelweiss has come up with a win-win situation; they are rewarding the customer for continuing investment for 20 years, by incentivizing them with extra units every year - 1% for the first 5 years, 3% from the 6th to 10th year, 5% from 11th to 15th year, and 7% from 16th to 20th year. This means, the longer you invest, the higher the percentage loyalty addition you get.
Through this plan, the insurer is able to give the best in class return as they reduce customer acquisition cost. It is only available online on Policybazaar and Edelweiss Tokio website.

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