Calcutta, Sept. 26: Life insurers have tossed ethics out of the window, and the insurance regulator seems to be looking the other way.
In a concerted move, a number of life insurance companies have quietly increased the mortality charges on their unit-linked plans (Ulips) from September 1.
The Insurance Regulatory and Development Authority (IRDA) didn’t find anything wrong with that and cleared a passel of new plans recently.
The move is another blow for investors in Ulips — the product that stormed the mutual fund bastion a couple of years ago and sparked a tussle for regulatory oversight between the IRDA and capital market watchdog Sebi earlier this year.
Earlier, the life insurers raised the entry barriers for Ulips by increasing the minimum monthly premium on a policy to anywhere between Rs 1,500 and Rs 3,000 a month from Rs 500 to Rs 2,000 earlier. Clearly, the insurers were looking to target the well heeled through the new Ulip plans.
But in an even more sinister move, they have raised the mortality charge, which is the cost deducted from the premium you pay to cover the payment of death benefits.
Why to worry?
Let us suppose you have bought a policy with a sum assured of Rs 10 lakh and the total premium (or the investment fund value in the case of a Ulip) paid till now is Rs 2 lakh. If you happen to die now, the risk of death benefit payment on the insurer is Rs 8 lakh.
To cover this risk, the insurer deducts the mortality charge from your premium. While the mortality premium is calculated on the sum at risk (Rs 8 lakh in our example), the premium rate is determined by the mortality table.
Mortality measures the probability of death, and the mortality premium rate increases with the increase in the age of the policyholder.
From September 1, the insurers have increased the mortality premium rates for each age category steeply compared with the Ulips they sold before.
For example, the mortality charge for a 20-year old policyholder was Rs 1.122 per Rs 1,000 sum at risk in the case of Bajaj Allianz Life’s Max Gain policy. The insurer has now more than doubled it to Rs 2.57 per Rs 1,000 sum at risk in its new Ulip Max Advantage.
The insurers have a glib explanation for this move.
“We have increased the mortality charges because the minimum sum assured has now gone up to 10 times the annual premium from five times earlier. Under our new Ulips, we are giving both the sum assured and the fund value as death benefit. Besides, there is a built-in accident death cover,” said a senior official with Bajaj Allianz Life Insurance Company.
However, this argument is a little woolly because almost all insurers had earlier been offering a sum assured under their Ulip plans of as high as 20 times the annual premium.
Type II Ulips — where both the sum assured and the fund value are given on the death of the policyholder during the policy term — have always been around and nobody used this as an excuse to raise the mortality charge. For example, SBI Life’s Unit Plus Elite II didn’t slap differential mortality charges.
The insurers’ argument can also be easily demolished. If the sum at risk goes up at any given point of time, the mortality premium, calculated at a given rate, automatically goes up. So why tweak the rate?
“The mortality premium rates can vary if the underwriting conditions change or if the insurer experiences a high claim ratio in a particular product,” said G.N. Agarwal, chief actuary of Future Generali Life Insurance Company.
“We have also noticed some companies increasing their mortality charges. This should not have happened. It isn’t proper,” said Agarwal, who formerly was an actuary with the Life Insurance Corporation of India. “I don’t understand how the regulator approved these products without seeking clarifications from the insurers.”
S.B. Mathur, secretary-general of the Life Insurance Council, the lobbying body of life insurance companies in the country, said he was not aware of this development. However, he added, “This should not have happened. I am not aware of this. Therefore, I cannot make further comments. I’ll take a look at it.”
Sinister purpose
In its revised circular issued in August 2009 that capped charges relating to Ulips, the insurance regulator excluded mortality charges from the overall cap on expenses while determining the investment returns of policyholders.
The first circular in July 2009 had, however, included mortality charges within the overall cap on expenses.
After August 2009, insurers such as SBI Life increased the mortality charges while reducing its premium allocation and other charges.
“After the new regulations came into place from September 1, insurers have been increasing their mortality charges to make profits which otherwise would have suffered,” Agarwal explained.
What the insurer doesn’t tell you is that profits earned from the investment of mortality premium accrue to the shareholders of the insurance company and not to its policyholders.
Therefore, an increase in mortality charges imply more investible fund for an insurance company and, hence, greater distributable profits to shareholders. “This could be another reason why insurers are raising their mortality charges,” admits Agarwal.
The Telegraph, Kolkata. Monday , September 27 , 2010
Tuesday, October 5, 2010
Monday, October 4, 2010
Some very useful and safe investment tools in India
Senior Citizen's Savings Scheme
• 9% interest per annum payable quarterly
• Minimum Deposit: Rs.1,000 and multiples thereof
• Maximum Limit: 15 Lakhs
• The scheme is for 5 years and can be extended for a further period of 3 years
• Premature closure facility is available after 1 year with nominal penalty
• Risk free investment
• Individual aged of 60 years and above can invest
• Retiring employees aged 55 years and above can invest under scheme
• A tax saving instrument
• Joint account can be opened with spouse
• Best Return
• Very Safe investment - A central govt. scheme
Public Provident Fund
• The rate of interest is 9.5% compounded annually
• The minimum deposit is Rs.500 p.a.
• The maximum is Rs.70,000 p.a.
• Interest is totally tax free
• Tax saving instrument under section 80C
• Loan facility available from third year
• The PPF Scheme is a statutory scheme of the Central Government of India.
• The Scheme is for 15 years
• One deposit with a minimum amount of Rs.500 is mandatory in each financial year
• The deposit can be in lump sum or in convenient installments, not more than 12 installments in a year or two installments in a month, subject to total deposit of Rs.70,000
• It is not necessary to make a deposit in every month of the year
• The amount of deposit can be varied to suit the convenience of the account holders
• The account in which deposits are not made for any reason is treated as discontinued, account and such an account cannot be closed before maturity
• The discontinued account can be activated by payment of the minimum deposit of Rs.500 with default fee of Rs.50 for each defaulted year
• The account can be opened by an individual or a minor through the guardian
• Joint account is not permissible
• Those who are contributing to GPF Fund or EDF account can also open a PPF account
• A Power of Attorney holder can neither open nor operate a PPF account
• The grandfather/mother cannot open a PPF on behalf of his/her minor grandson/daughter.
• The deposits shall be in multiples of Rs.5 subject to minimum of Rs.500
• The deposit in a minor account is clubbed with the deposit of the account of the guardian for the limit of Rs.70,000
• No age is prescribed for opening a PPF account
• Interest is not contractual but the rate is notified by the Ministry of Finance, GoI, at the end of each year
• The facility of first withdrawal in the 7th year of the account subject, to a limit of 50% of the amount at credit preceding three year balance
• Thereafter one withdrawal in every year is permissible
• Premature closure of a PPF Account is not permissible except in case of death
• Nominee/legal heir of PPF Account holder on death of the account holder cannot continue the account
• The account has to be closed in such case
• The account holder has an option to extend the PPF account for any period in a block of 5 years at each time
• The account holder can retain the account after maturity for any period without making any further deposits
• The account holder can retain the account after maturity for any period without making any further deposits
• The balance in the account will continue to earn interest at normal rate as admissible till the account is closed
• One withdrawal in each financial year is also admissible in such account
• A PPF account can be opened either in a Post Office or in a Nationalsed Banks
• The Account is transferable from one Post Office to another and from Post Office to Bank or from a Bank to a Post office
• Account is transferable from one Bank to another bank as well as within the bank to any branch
• Deposits in PPF qualify for rebate under section 80-C of Income Tax Act.
• The interest on deposits is totally tax free
• Deposits are exempt from wealth tax
• The balance amount in the PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability
• Nomination facility is available.
• The Best option for long term investment
Post Office Time Deposit Scheme
• Interest payable annually but calculated quarterly at following rates:
Period Rate of Interest
One Year 6.25%
Two Years 6.50%
Three Years 7.25%
Five Years 7.50%
• Minimum amount of deposit is Rs.200
• No maximum limit
• Account can be closed after 6 months but before one year without any interest
• Facility of redeposit on maturity of an account
• No interest is payable on un-drawn interest amount
• Account can be opened by an individual, two adults jointly and minor through guardian
• A Minor who has attained the age of 10 years can open the account in his/her own name to be operated directly
• Non Resident Indian / HUF cannot open the account
• Any number of accounts can be opened
• Two, three and five years accounts can be closed after one year at a discounted rate of interest
• Deposits not drawn on maturity are eligible to saving account interest rate for a maximum period of two year
• Account can be pledged as security against a loan to banks/ Government institutions
• Accounts are transferable from one Post office to any Post office in India
• Rebate under section 80-C is not admissible
• Interest income is taxable
• Deposits are exempt from wealth tax
• No TDS
• Nomination facility available
Post Office MIS
• Interest rate of 8% per annum payable monthly
• 5% bonus also payable on maturity period is 6 years
• Minimum investment amount is Rs.1,500 or in multiple thereof
• Maximum amount is Rs.4.50 lakhs in a single account and Rs.9 lakhs in a joint account
• Premature encashment facility after one year
• No TDS
• Account can be opened by an individual, two/three adults jointly, and a minor through a guardian
• A minor having attained 10 years of age can open an account in his/her own name directly
• Non-Resident Indian / HUF cannot open an Account. Minors have a separate limit of investment of Rs.3 lakhs and the same is not clubbed with the limit of guardian
• A separate account is opened for each deposit
• Any number of accounts can be opened subject to the maximum prescribed limit
• Facility of automatic credit of monthly interest to saving account if accounts are at the same post office
• Facility of premature closure of account after 1 year to 3 years @ 2.00% discount
• Deduction of 1% if account is closed prematurely at any time after three years
• Facility of reinvestment on maturity of an account
• Interest not withdrawn does not carry any interest
• Maturity proceeds not drawn are eligible to earn savings account interest rate for a maximum period of two years
• Account is transferable to any Post Office in India, free of cost
• Nomination facility is available
• Rebate under section 80 C is not admissible
• Most suitable scheme for senior citizens and for those who need regular monthly income
• Deposits are exempt from Wealth Tax
National Savings Certificate
• Rs.1,000 grows to Rs.1,601 in six years
• Minimum investment Rs.500
• Maximum no limit
• Certificates can be pledged as security against a loan to banks/ financial Institutions
• A Tax saving investment under Sec 80C
• Individual or minor can apply
• Rate of interest 8% compounded half yearly
• Two adults, individuals, and minor through guardian can purchase
• Companies, Trusts, Societies or any other Institutions are not eligible to purchase
• Non-resident Indian/HUF cannot purchase
• No premature encashment
• Annual interest earned is deemed to be reinvested and qualifies for tax rebate for the first 5 years under section 80 C of the Income Tax Act
• Maturity proceeds not drawn are eligible to Post Office Savings Account interest for a maximum period of two years
• Facility of reinvestment on maturity
• Facility of encashment of certificates through banks
• Certificates are en-cashable at any Post Office in India before maturity by way of transfer to desired Post Office
• Certificates are transferable to any Post office in India
• Certificates are transferable from one person to another person before maturity
• Duplicate certificate can be issued for in case the original one gets lost, stolen, destroyed, mutilated or defaced certificate
• Nomination facility is available.
• Facility of purchase/payment to the holder of Power of Attorney
• Tax Saving instrument - Rebate admissible under section 80 C of the Income Tax Act
• Deposits are exempt from Wealth Tax
Kisan Vikas Patra
• Money doubles in 8 years and 7 months
• Facility for premature encashment
• No maximum limit on investment
• No TDS
• Rate of interest 8% compounded annually
• Two adults, individuals and minor through guardian can purchase
• Companies, Trusts, Societies or other Institutions are not eligible to purchase
• Non-Resident Indian/HUF are not eligible to purchase
• Maturity proceeds not drawn are eligible for Post Office Savings account interest for a maximum period of two years
• Facility of reinvestment on maturity
• KVPs can be pledged as security against a loan to Banks/Govt. Institutions
• KVPs are encashable at any Post Office before maturity by way of transfer to desired Post office
• KVPs are transferable to any Post Office in India
• KVPs are transferable from one person to another person before maturity
• Duplicate can be issued for lost, stolen, destroyed, mutilated and defaced parts
• Nomination facility is available
• Facility of purchase/payment of Kisan Vikas Patras to the holder of Power of Attorney
• Rebate under section 80 C is not admissible
• Deposits are exempt from Wealth Tax
Bonds
6.5% Tax-free bonds has been withdrawn from the market. This will not effect the investments already made.
2. Taxable Bonds
The salient features of the Bond are as follows:
The Bonds may be held by -
a) an individual, not being a Non-Resident Indian (NRI)
i) in his or her individual capacity, or
ii) in an individual capacity on joint basis, or
iii) in an individual capacity on anyone or survivor basis, or
iv) on behalf of a minor as father/mother/legal guardian
b) a Hindu Undivided Family
c) As follows
i) 'Charitable Institution' to mean a Company registered under Section 25 of the Indian Companies Act 1956 or
ii)an institution which has obtained a Certificate of Registration as a charitable institution in accordance
with a law in force; or
iii)any institution which has obtained a certificate from Income Tax Authority for the purpose of
Section 80G of the Income Tax Act, 1961
d) "University" means a university established or incorporated by a Central, State or Provincial Act, and includes an institution declared under section 3 of the University that Act, 1956 (3 of 1956), to be a university for the purposes of that Act
Limit of Investment
There is no maximum limit for investment in the Bonds
Tax Treatment
• Income-Tax: Interest on the Bonds will be taxable under the Income-Tax Act, 1961 as applicable according to the relevant tax status of the bond holder
• Wealth Tax: The Bonds will be exempt from Wealth-tax under the Wealth- Tax Act, 1957
Issue Price
• The Bonds will be issued at par i.e. at Rs.100 percent
• The Bonds will be issued for a minimum amount of Rs.1,000 (face value) and in multiples thereof. Accordingly, the issue price will be Rs.1,000 for every Rs.1,000(Nominal)
Subscription
Subscription to the Bonds will be in the form of Cash/Drafts/Cheques. Cheques or drafts should be drawn in favor of the Receiving Office, specified in paragraph 10 below and payable at the place where the applications are tendered.
Date of Issue
• The Bonds will be issued with effect from 21st April 2003
• The date of issue of the Bonds in the form of Bond Ledger Account will be the date of receipt of subscription in cash or the date of realisation of draft/cheque
Form
• The Bonds will be issued and held at the credit of the holder in an account called Bond Ledger Account (BLA)
• New Bond Ledger series with the prefix (TB) are to be opened. All investment in 8% Savings (Taxable) Bonds by an existing BLA holder will be viewed as a new investment under a new BLA
• The Bonds in the form of Bond Ledger Account will be issued by and held with designated branches of the agency banks and SHCIL as authorized by Reserve Bank of India in terms of paragraph 10 below
• The Certificate of Holding in respect of Bond Ledger Account will be issued in Form TBX or Form TBY as applicable for non-cumulative and cumulative investments respectively
• The Certificate of Holding in respect of cash applications may be issued on the same day as per the extant instructions
Applications
• Applications for the Bonds may be made in Form ‘A’ (Annex 2) or in any other form as near as thereto stating clearly the amount and the full name and address of the applicant
• Applications should be accompanied by the necessary payment in the form of cash/drafts/cheques as indicated in paragraph 6 above
• Applicants who have obtained exemption from tax under the relevant provisions of the Income Tax Act, 1961, shall make a declaration to that effect in the application (in Form 'A') and submit a true copy of the certificate obtained from Income-Tax Authorities.
Receiving Offices
Applications for the Bonds in the form of Bond Ledger Account will be received at:
a) Authorised Branches of State Bank of India, Associate Banks, Nationalised Banks,
private sector banks and SHCIL as specified in the Annex 3
b) Any other bank or branches of the banks and SHCIL as may be specified
by the Reserve Bank of India in this regard from time to time.
Nomination
A sole holder or a sole surviving holder of a Bond, being an individual, may nominate in form B (Annex – 4) or as near thereto as may be, one or more persons who shall be entitled to the Bond and the payment thereon in the event of his/her death.
Transferability
The Bond in the form of Bond Ledger Account shall not be transferable.
Interest
a) The bond will be issued in cumulative and non-cumulative form, at the option of the investor
b) The Bond will bear interest at the rate of 8% per annum. Interest on non-cumulative bonds will be payable at half-yearly intervals from the date of issue in terms of paragraph 7 above. Interest on cumulative bonds will be compounded with half-yearly rests and will be payable on maturity along with the principal. In the latter case, the maturity value of the Bonds shall be Rs.1,601 (being principal and interest) for every Rs.1,000 (Nominal). Interest to the holders opting for non-cumulative Bonds will be paid from date of issue in terms of paragraph 7 above upto31st July/31st January, as the case may be and thereafter at half-yearly for period ending 31st July/31st January on 1st August and 1st February. Interest on Bond in the form of "Bond Ledger Account" will be paid, by cheque/warrant or through ECS by credit to bank account of the holder as per the option exercised by the investor/holder.
Advances/Tradability against Bonds
The Bonds shall not be tradable in the secondary market and shall not be eligible as collateral for loans from banks, financial Institutions and Non Banking Financial Companies, (NBFC) etc.
Repayment
The Bonds shall be repayable on the expiry of 6 (Six) years from the date of issue. No interest would accrue after the maturity of the Bond.
• 9% interest per annum payable quarterly
• Minimum Deposit: Rs.1,000 and multiples thereof
• Maximum Limit: 15 Lakhs
• The scheme is for 5 years and can be extended for a further period of 3 years
• Premature closure facility is available after 1 year with nominal penalty
• Risk free investment
• Individual aged of 60 years and above can invest
• Retiring employees aged 55 years and above can invest under scheme
• A tax saving instrument
• Joint account can be opened with spouse
• Best Return
• Very Safe investment - A central govt. scheme
Public Provident Fund
• The rate of interest is 9.5% compounded annually
• The minimum deposit is Rs.500 p.a.
• The maximum is Rs.70,000 p.a.
• Interest is totally tax free
• Tax saving instrument under section 80C
• Loan facility available from third year
• The PPF Scheme is a statutory scheme of the Central Government of India.
• The Scheme is for 15 years
• One deposit with a minimum amount of Rs.500 is mandatory in each financial year
• The deposit can be in lump sum or in convenient installments, not more than 12 installments in a year or two installments in a month, subject to total deposit of Rs.70,000
• It is not necessary to make a deposit in every month of the year
• The amount of deposit can be varied to suit the convenience of the account holders
• The account in which deposits are not made for any reason is treated as discontinued, account and such an account cannot be closed before maturity
• The discontinued account can be activated by payment of the minimum deposit of Rs.500 with default fee of Rs.50 for each defaulted year
• The account can be opened by an individual or a minor through the guardian
• Joint account is not permissible
• Those who are contributing to GPF Fund or EDF account can also open a PPF account
• A Power of Attorney holder can neither open nor operate a PPF account
• The grandfather/mother cannot open a PPF on behalf of his/her minor grandson/daughter.
• The deposits shall be in multiples of Rs.5 subject to minimum of Rs.500
• The deposit in a minor account is clubbed with the deposit of the account of the guardian for the limit of Rs.70,000
• No age is prescribed for opening a PPF account
• Interest is not contractual but the rate is notified by the Ministry of Finance, GoI, at the end of each year
• The facility of first withdrawal in the 7th year of the account subject, to a limit of 50% of the amount at credit preceding three year balance
• Thereafter one withdrawal in every year is permissible
• Premature closure of a PPF Account is not permissible except in case of death
• Nominee/legal heir of PPF Account holder on death of the account holder cannot continue the account
• The account has to be closed in such case
• The account holder has an option to extend the PPF account for any period in a block of 5 years at each time
• The account holder can retain the account after maturity for any period without making any further deposits
• The account holder can retain the account after maturity for any period without making any further deposits
• The balance in the account will continue to earn interest at normal rate as admissible till the account is closed
• One withdrawal in each financial year is also admissible in such account
• A PPF account can be opened either in a Post Office or in a Nationalsed Banks
• The Account is transferable from one Post Office to another and from Post Office to Bank or from a Bank to a Post office
• Account is transferable from one Bank to another bank as well as within the bank to any branch
• Deposits in PPF qualify for rebate under section 80-C of Income Tax Act.
• The interest on deposits is totally tax free
• Deposits are exempt from wealth tax
• The balance amount in the PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability
• Nomination facility is available.
• The Best option for long term investment
Post Office Time Deposit Scheme
• Interest payable annually but calculated quarterly at following rates:
Period Rate of Interest
One Year 6.25%
Two Years 6.50%
Three Years 7.25%
Five Years 7.50%
• Minimum amount of deposit is Rs.200
• No maximum limit
• Account can be closed after 6 months but before one year without any interest
• Facility of redeposit on maturity of an account
• No interest is payable on un-drawn interest amount
• Account can be opened by an individual, two adults jointly and minor through guardian
• A Minor who has attained the age of 10 years can open the account in his/her own name to be operated directly
• Non Resident Indian / HUF cannot open the account
• Any number of accounts can be opened
• Two, three and five years accounts can be closed after one year at a discounted rate of interest
• Deposits not drawn on maturity are eligible to saving account interest rate for a maximum period of two year
• Account can be pledged as security against a loan to banks/ Government institutions
• Accounts are transferable from one Post office to any Post office in India
• Rebate under section 80-C is not admissible
• Interest income is taxable
• Deposits are exempt from wealth tax
• No TDS
• Nomination facility available
Post Office MIS
• Interest rate of 8% per annum payable monthly
• 5% bonus also payable on maturity period is 6 years
• Minimum investment amount is Rs.1,500 or in multiple thereof
• Maximum amount is Rs.4.50 lakhs in a single account and Rs.9 lakhs in a joint account
• Premature encashment facility after one year
• No TDS
• Account can be opened by an individual, two/three adults jointly, and a minor through a guardian
• A minor having attained 10 years of age can open an account in his/her own name directly
• Non-Resident Indian / HUF cannot open an Account. Minors have a separate limit of investment of Rs.3 lakhs and the same is not clubbed with the limit of guardian
• A separate account is opened for each deposit
• Any number of accounts can be opened subject to the maximum prescribed limit
• Facility of automatic credit of monthly interest to saving account if accounts are at the same post office
• Facility of premature closure of account after 1 year to 3 years @ 2.00% discount
• Deduction of 1% if account is closed prematurely at any time after three years
• Facility of reinvestment on maturity of an account
• Interest not withdrawn does not carry any interest
• Maturity proceeds not drawn are eligible to earn savings account interest rate for a maximum period of two years
• Account is transferable to any Post Office in India, free of cost
• Nomination facility is available
• Rebate under section 80 C is not admissible
• Most suitable scheme for senior citizens and for those who need regular monthly income
• Deposits are exempt from Wealth Tax
National Savings Certificate
• Rs.1,000 grows to Rs.1,601 in six years
• Minimum investment Rs.500
• Maximum no limit
• Certificates can be pledged as security against a loan to banks/ financial Institutions
• A Tax saving investment under Sec 80C
• Individual or minor can apply
• Rate of interest 8% compounded half yearly
• Two adults, individuals, and minor through guardian can purchase
• Companies, Trusts, Societies or any other Institutions are not eligible to purchase
• Non-resident Indian/HUF cannot purchase
• No premature encashment
• Annual interest earned is deemed to be reinvested and qualifies for tax rebate for the first 5 years under section 80 C of the Income Tax Act
• Maturity proceeds not drawn are eligible to Post Office Savings Account interest for a maximum period of two years
• Facility of reinvestment on maturity
• Facility of encashment of certificates through banks
• Certificates are en-cashable at any Post Office in India before maturity by way of transfer to desired Post Office
• Certificates are transferable to any Post office in India
• Certificates are transferable from one person to another person before maturity
• Duplicate certificate can be issued for in case the original one gets lost, stolen, destroyed, mutilated or defaced certificate
• Nomination facility is available.
• Facility of purchase/payment to the holder of Power of Attorney
• Tax Saving instrument - Rebate admissible under section 80 C of the Income Tax Act
• Deposits are exempt from Wealth Tax
Kisan Vikas Patra
• Money doubles in 8 years and 7 months
• Facility for premature encashment
• No maximum limit on investment
• No TDS
• Rate of interest 8% compounded annually
• Two adults, individuals and minor through guardian can purchase
• Companies, Trusts, Societies or other Institutions are not eligible to purchase
• Non-Resident Indian/HUF are not eligible to purchase
• Maturity proceeds not drawn are eligible for Post Office Savings account interest for a maximum period of two years
• Facility of reinvestment on maturity
• KVPs can be pledged as security against a loan to Banks/Govt. Institutions
• KVPs are encashable at any Post Office before maturity by way of transfer to desired Post office
• KVPs are transferable to any Post Office in India
• KVPs are transferable from one person to another person before maturity
• Duplicate can be issued for lost, stolen, destroyed, mutilated and defaced parts
• Nomination facility is available
• Facility of purchase/payment of Kisan Vikas Patras to the holder of Power of Attorney
• Rebate under section 80 C is not admissible
• Deposits are exempt from Wealth Tax
Bonds
6.5% Tax-free bonds has been withdrawn from the market. This will not effect the investments already made.
2. Taxable Bonds
The salient features of the Bond are as follows:
The Bonds may be held by -
a) an individual, not being a Non-Resident Indian (NRI)
i) in his or her individual capacity, or
ii) in an individual capacity on joint basis, or
iii) in an individual capacity on anyone or survivor basis, or
iv) on behalf of a minor as father/mother/legal guardian
b) a Hindu Undivided Family
c) As follows
i) 'Charitable Institution' to mean a Company registered under Section 25 of the Indian Companies Act 1956 or
ii)an institution which has obtained a Certificate of Registration as a charitable institution in accordance
with a law in force; or
iii)any institution which has obtained a certificate from Income Tax Authority for the purpose of
Section 80G of the Income Tax Act, 1961
d) "University" means a university established or incorporated by a Central, State or Provincial Act, and includes an institution declared under section 3 of the University that Act, 1956 (3 of 1956), to be a university for the purposes of that Act
Limit of Investment
There is no maximum limit for investment in the Bonds
Tax Treatment
• Income-Tax: Interest on the Bonds will be taxable under the Income-Tax Act, 1961 as applicable according to the relevant tax status of the bond holder
• Wealth Tax: The Bonds will be exempt from Wealth-tax under the Wealth- Tax Act, 1957
Issue Price
• The Bonds will be issued at par i.e. at Rs.100 percent
• The Bonds will be issued for a minimum amount of Rs.1,000 (face value) and in multiples thereof. Accordingly, the issue price will be Rs.1,000 for every Rs.1,000(Nominal)
Subscription
Subscription to the Bonds will be in the form of Cash/Drafts/Cheques. Cheques or drafts should be drawn in favor of the Receiving Office, specified in paragraph 10 below and payable at the place where the applications are tendered.
Date of Issue
• The Bonds will be issued with effect from 21st April 2003
• The date of issue of the Bonds in the form of Bond Ledger Account will be the date of receipt of subscription in cash or the date of realisation of draft/cheque
Form
• The Bonds will be issued and held at the credit of the holder in an account called Bond Ledger Account (BLA)
• New Bond Ledger series with the prefix (TB) are to be opened. All investment in 8% Savings (Taxable) Bonds by an existing BLA holder will be viewed as a new investment under a new BLA
• The Bonds in the form of Bond Ledger Account will be issued by and held with designated branches of the agency banks and SHCIL as authorized by Reserve Bank of India in terms of paragraph 10 below
• The Certificate of Holding in respect of Bond Ledger Account will be issued in Form TBX or Form TBY as applicable for non-cumulative and cumulative investments respectively
• The Certificate of Holding in respect of cash applications may be issued on the same day as per the extant instructions
Applications
• Applications for the Bonds may be made in Form ‘A’ (Annex 2) or in any other form as near as thereto stating clearly the amount and the full name and address of the applicant
• Applications should be accompanied by the necessary payment in the form of cash/drafts/cheques as indicated in paragraph 6 above
• Applicants who have obtained exemption from tax under the relevant provisions of the Income Tax Act, 1961, shall make a declaration to that effect in the application (in Form 'A') and submit a true copy of the certificate obtained from Income-Tax Authorities.
Receiving Offices
Applications for the Bonds in the form of Bond Ledger Account will be received at:
a) Authorised Branches of State Bank of India, Associate Banks, Nationalised Banks,
private sector banks and SHCIL as specified in the Annex 3
b) Any other bank or branches of the banks and SHCIL as may be specified
by the Reserve Bank of India in this regard from time to time.
Nomination
A sole holder or a sole surviving holder of a Bond, being an individual, may nominate in form B (Annex – 4) or as near thereto as may be, one or more persons who shall be entitled to the Bond and the payment thereon in the event of his/her death.
Transferability
The Bond in the form of Bond Ledger Account shall not be transferable.
Interest
a) The bond will be issued in cumulative and non-cumulative form, at the option of the investor
b) The Bond will bear interest at the rate of 8% per annum. Interest on non-cumulative bonds will be payable at half-yearly intervals from the date of issue in terms of paragraph 7 above. Interest on cumulative bonds will be compounded with half-yearly rests and will be payable on maturity along with the principal. In the latter case, the maturity value of the Bonds shall be Rs.1,601 (being principal and interest) for every Rs.1,000 (Nominal). Interest to the holders opting for non-cumulative Bonds will be paid from date of issue in terms of paragraph 7 above upto31st July/31st January, as the case may be and thereafter at half-yearly for period ending 31st July/31st January on 1st August and 1st February. Interest on Bond in the form of "Bond Ledger Account" will be paid, by cheque/warrant or through ECS by credit to bank account of the holder as per the option exercised by the investor/holder.
Advances/Tradability against Bonds
The Bonds shall not be tradable in the secondary market and shall not be eligible as collateral for loans from banks, financial Institutions and Non Banking Financial Companies, (NBFC) etc.
Repayment
The Bonds shall be repayable on the expiry of 6 (Six) years from the date of issue. No interest would accrue after the maturity of the Bond.
Saturday, September 25, 2010
Some FAQ’s on Unit Linked Insurance Polices (ULIPS) & Traditional pPolicies
1. What is a ULIP?
ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs. REMEMBER THAT IN A UNIT LINKED POLICY, THE INVESTMENT RISK IS GENERALLY BORNE BY THE INVESTOR.
2. What is a Unit Fund?
The allocated (invested) portions of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund.
3. What is a Unit?
It is a component of the Fund in a Unit Linked Policy. 4. What Types of Funds do ULIP Offer?
Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and time horizons. Different funds have different risk profiles. The potential for returns also varies from fund to fund.
The following are some of the common types of funds available along with an indication of their risk characteristics.
Primarily invested in company stocks with the general aim of capital appreciation
Invested in corporate bonds, government securities and other fixed income instruments sometimes known as Money Market Funds — invested in cash, bank deposits and money market instruments
5. Are Investment Returns Guaranteed in a ULIP?
Investment returns from ULIP may not be guaranteed.” In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder”. Depending upon the performance of the unit linked fund(s) chosen; the policyholder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.
6. What are the Charges, fees and deductions in a ULIP?
ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However, it may be noted that insurers have the right to revise fees and charges over a period.
6.1 Premium Allocation Charge
This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses.
6.2 Mortality Charges
These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc
6.3 Fund Management Fees
These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV).
6.4 Policy/ Administration Charges
These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.
6.5 Surrender Charges
A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.
6.6 Fund Switching Charge
Generally, a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.
6.7 Service Tax Deductions
Before allotment of the units, the applicable service tax is deducted from the risk portion of the premium.
Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units
7. What should one verify before signing the proposal?
One has to verify the approved sales brochure for
• All the charges deductible under the policy
• Payment on premature surrender
• Features and benefits
• Limitations and exclusions
• Lapsation and its consequences
• Other disclosures
• Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.
8. How much of the premium is used to purchase units?
The full amount of premium paid is not allocated to purchase units. Insurers allot units on the portion of the premium remaining after providing for various charges, fees and deductions. However the quantum of premium used to purchase units varies from product to product.
The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units.
9. Can one seek refund of premiums if not satisfied with the policy, after purchasing it?
The policyholder can seek refund of premiums if he disagrees with the terms and conditions of the policy, within 15 days of receipt of the policy document (Free Look period). The policyholder shall be refunded the fund value including charges levied through cancellation of units subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover.
10. What is Net Asset Value (NAV)?
NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the website of the respective insurers.
11. What is the benefit payable in the event of risk occurring during the term of the policy?
The Sum Assured and/or value of the fund units is normally payable to the beneficiaries in the event of risk to the life assured during the term as per the policy conditions.
12. What is the benefit payable on the maturity of the policy?
The value of the fund units with bonuses, if any is payable on maturity of the policy.
13. Is it possible to invest additional contribution above the regular premium?
Yes, one can invest additional contribution over and above the regular premiums as per their choice subject to the feature being available in the product. This facility is known as “TOP UP” facility.
14. Whether one can switch the investment fund after taking a ULIP policy?
Yes. “SWITCH” option provides for shifting the investments in a policy from one fund to another provided the feature is available in the product. While a specified number of switches are generally effected free of cost, a fee is charged for switches made beyond the specified number.
15. Can a partial encashment/withdrawal be made?
Yes, Products may have the “Partial Withdrawal” option, which facilitates withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units.
16. What happens if payment of premiums is discontinued?
a) Discontinuance within three years of commencement – If not all the premiums have been paid for at least three consecutive years from inception, the insurance cover shall cease immediately. Insurers may give an opportunity for revival within the period allowed; if the policy is not revived within that period, surrender value shall be paid at the end of third policy anniversary or at the end of the period allowed for revival, whichever is later.
b) Discontinuance after three years of commencement — at the end of the period allowed for revival, the contract should be terminated by paying the surrender value. The insurer may offer to continue the insurance cover, if so opted for by the policyholder, levying appropriate charges until the fund value is not less than one full year’s premium. When the fund value reaches an amount equivalent to one full year’s premium, the contract shall be terminated by paying the fund value.
17. What information related to investments is provided by the Insurer to the policyholder?
The Insurers are obliged to send an annual report, covering the fund performance during previous financial year in relation to the economic scenario, market developments etc. which should include fund performance analysis, investment portfolio of the fund, investment strategies and risk control measures adopted.
What is a term assurance?
Term assurances are the purest and cheapest form of insurance. Term assurances are plans where benefits are payable only on the death of the policyholder within the term.
What is whole life plan?
Whole life plans are a special type of term assurance wherein the term of the policy is whole of the life. So it follows that benefits under the policy are payable only on death of the policy holder.
What is an endowment assurance plan?
Endowment plans are among the most popular forms of insurance as they provide both insurance coverage and act as a savings instrument. These are the plans wherein benefits are payable on death within the term or survival to maturity whichever is earlier.
What is money back plan?
Money back plans are a special type of endowment plans and are called as anticipated endowment assurance plans. Under money back plans, survival benefits are spread over the term of the policy i.e., certain percentage of sum assured is paid at regular intervals. Apart from the above death benefit continues like an endowment plan i.e., full sum assured shall be payable on death within the term irrespective of earlier survival benefits.
What is an assignment?
Assignment is a means whereby the beneficial interest, right and title under a policy gets transferred from the assignor to the assignee. ‘Assignor’ is the policyholder who transfers the title and ‘Assignee’ is the person who derives the title from the assignor.
When to assign a policy
Assignment can be made only after acquiring the policy. Assignment can be done only for consideration- for money or money’s worth or good, moral and meritorious consideration like, love and affection.
Procedure to assign a policy
Assignment can be done by mere endorsement on the policy or by a separate duly stamped deed. The proposer, policyholder, or the absolute assignee can do assignment.
Pre-requisites for a valid assignment
Assignor must be a major. Assignor must have an absolute right over the policy. Assignment must be in writing. Assignor’s signature along with a witness is a must. Notice of assignment is to be submitted to the insurer.
Types of assignments
There are two kinds of assignments.
» Conditional Assignment
» Absolute Assignment
Conditional assignment is usually effected for consideration of natural love and affection. Absolute assignment is usually affected for valuable consideration.
The rights of an assignor and assignee
On assigning the policy, the assignor (life assured/policy holder) loses his right over the policy and the assignee gets the right and becomes the owner of the policy. The assignee can further re-assign the policy and he has a right to sue under the policy.
A valid Assignment once made cannot be cancelled. It is only a valid assignment the earlier assignment is cancelled. In all the cases, Assignment automatically cancels the nomination. However, when the policy is assigned to the insurer, nomination gets affected and it is not cancelled.
Under conditional assignment, if the conditional assignee dies, the benefit under the policy goes back to the life assured if surviving. Otherwise, the benefit goes to policyholder’s nominee. Under absolute assignment, if the absolute assignee dies, the benefits under the policy go to the legal heirs of the assignee.
What is nomination?
Nomination is the process of identifying a person to receive the policy money in the event of the death of the Policyholder.
When to nominate
Nomination can be done at the inception of the Policy by providing details of nominee in the proposal form. However, if the nomination is not done at the inception of the policy, the policyholder can nominate later. This nomination has to be effected by giving notice in a prescribed form to the insurer and getting it endorsed on Policy Bond.
Change of Nomination
The Policyholder can do change of Nomination any time during the term of the Policy and any number of times. For this, the policyholder has to give a notice in a prescribed form to the insurer and getting it endorsed at the back of the Policy. Further, the Policyholder can remove Nomination any time without giving prior notice to the Nominee.
Procedure for Nomination
Only a policyholder who is a major holding Policy Bond in his own name can do nomination. In the case of Children’s Policies, Nomination is not done until the Child becomes major.
Rights of a nominee
Under Nomination, the Nominee gets only the right to receive the policy money in the event of the death of the Policyholder. Nomination does not pass on the property in the Policy. If Nominee dies when the Policyholder is still surviving then the nomination would be ineffective. Nomination has no effect if the Policyholder is surviving. If Nominee dies after the death of the policyholder but before receiving policy money, then also Nomination becomes ineffective and only the Legal Heirs of the Policyholder can claim money.
Can I take a loan on my policy ?
Policyholders are eligible to take loans on their policies subject to certain rules. The policyholder has to apply for a loan in a prescribed form and submit the Policy Bond with the form duly completed. The loan amount is calculated depending on the Surrender Value (SV) that the policy would have acquired, and approximately 85% of the Surrender Value is given as loan.
Rate of interest charged varies from company to company and time to time. A policyholder can repay the loan amount either in part or in full any time during the term of the Policy. If the loan amount is not repaid during the term of the Policy or early claim, the amount of loan plus interest, if any, will be deducted from the claim money and the balance amount will be paid to the claimant.
LIC is currently charging 10.5% interest payable half-yearly on Policy Loans. For LIC, the minimum repayment should be Rs. 50 and thereafter-in multiples of Rs. 10. If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.
If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.
How can I revive a policy?
A policy is lapsed if the premiums are not paid within the due date or the period of grace permitted by the insurance company. However, a lapsed policy can be revived and procedure varies from company to company.
In case of LIC, a lapsed policy can be revived within 5 years from the date of first unpaid premium. A policy can be revived under five different schemes.
Ordinary Revival Scheme: Under this scheme, all the arrears of unpaid premiums with interest have to be paid. Along with this, ‘Declaration of Good Health’ in Form No. 680 and medical certificate, if necessary, are required.
• Special Revival Scheme: If a person is not in a position to pay all the arrears, then, he can choose this scheme. Under this scheme, the date of commencement will be shifted so that the policy is not lapsed just prior to the date of revival, i.e., the date of commencement is advanced approximately by the period of lapse. Other requirements like those that ‘Declaration of Good Health’ and Medical certificate wherever necessary are required as in Ordinary Revival.
• Special Revival is allowed under the following conditions:
• The policy should not have acquired any surrender value.
• Revival should be within 3 years of lapse.
• Special Revival is allowed only once during policy term.
• Revival by Installment method: If a policyholder cannot pay arrears in one lump sum and if the policy cannot be revived under Special Revival Scheme, he can make use of Installment Revival Scheme. In this scheme, on the date of revival he has to pay immediately:
» 6 months premiums, if mode is Monthly
» 2 quarterly premiums, if mode is Quarterly
» 1 Half year premium, if mode is Half yearly
» Half of the yearly premium, if mode is yearly
The balance of revival amount is paid in installments spread over two years along with normal premium installments. Other requirements regarding health care, as required in Ordinary Revival Scheme.
Loan-cum-Revival Scheme: If a policy acquires surrender value on the date of revival, the policy can be revived taking a policy loan. Loan amount will be calculated treating the premiums as paid up to the date of revival. Shortfall, if any, in revival amount is called for. If loan amount is more than required for revival, the excess will be paid to the policyholder.
Survival Benefit-cum-Revival Scheme : The Survival Benefit which falls due in a money-back type of policy can be used for revival of the policy, if date of revival is later than the Survival Benefit due date. Here, if the SB amount is less than the revival amount, the short fall will be called for. If the SB is more than the revival amount, the excess is paid back to the policyholder. The other requirements for normal SB settlement and revival requirement are to be fulfilled.
What is the procedure in case of a lost policy?
The policy issued by the insurer is a valuable document and should be stored in a safe place till its maturity. In case the policy gets lost, destroyed or mutilated, then the policyholder must immediately procure a duplicate policy
The need to possess a duplicate policy arises on the following occasions:
» At the time of receiving Maturity Amount or Death claim.
»To obtain Surrender Value/Loan.
» To obtain a Duplicate Policy in other cases.
In case of LIC, the procedure involved to obtain the duplicate Policy under the above circumstances is as follows:
At the time of receiving Maturity Amount or Death, claim:
The policyholder must duly fill loss of Policy questionnaire.
» Indemnity Letter in Form No. 3815 a (unstamped) if the claim amount does not exceed Rs. 5,000 and no surety is required.
» Discharge Form is to be submitted.
» Form of Declaration of ‘No Assignment’ is to be submitted.
» A declaration by Surety having sound financial status, acceptable to LIC in appropriate Form is required, if the claim amount exceeds Rs. 5,000. To Obtain Surrender Value: Indemnity Bond in
» Form No. 3815 duly stamped and executed by the Policyholder along with Surety is to be submitted.
» Stamp Duty charges – which depend on the Surrender Value of the Policy, are to be paid.
Discharge form has to be submitted.
» Form of Declaration of ‘No Assignment’ is to be submitted.
To Obtain a Duplicate Policy in other cases:
» The Policy Document should have been lost.
» If Assigned or Mortgaged the duplicate policy shall bear the latest Assignment that is in force as on the date of issue.
» Where the Policy is due for maturity or survival benefit within 3 years and if the sum assured is more than Rs. 25,000, on advertisement in a Local Daily /newspaper having wide calculation is to be given.
» Indemnity Bond in Form No. 3756 duly stamped and executed by the policy holder on a stamp paper of appropriate value is to be submitted.
» If sum assured exceeds Rs. 50,000, declaration by Surety having sound financial status acceptable to LIC in Form No. 3807 is required.
» Duplicate Policy charges of Rs. 5 are to be paid.
» Stamp Duty charges at prevailing rates are to be paid.
What are the Tax benefits available?
Important Income Tax provisions applicable to Policyholders are:
An individual can claim rebate on premium paid on his/her life, his/her spouse, his/her children including adult children and married daughter.
Under section 88 of the Income Tax Act, certain percentage of rebate is allowed on investment in the form of insurance premium with any of the insurance company approved by IRDA. Percentage of rebate can be up to a maximum of 20% and varies depending upon the tax bracket one falls. This rebate is deductible from the tax payable by the individual. The total amount of investment in the form of insurance premium and other specified investments like PPF, NSC, etc. is restricted to Rs. 60,000 per annum.
Under Section 80 DDA, a deduction up to Rs. 40,000 p.a is allowed from gross total income, when a contribution or deposit is made with the LIC for the maintenance of a handicapped dependent.
Under Section 80 CCC, a deduction up to a maximum of Rs. 10,000 per annum is allowed from gross total income. Any sum received under insurance policy including maturity bonus etc., is non-taxable. The exceptions to this are Keyman Insurance.
What is surrender value?
The cash value payable by the insurance company on termination of the policy contract at the desire of Policyholder but before the expiry term is known as Surrender Value. A policy can be surrendered, provided the policy is kept in force at least three years. The bonus will be added, provided the policy was in force for at least 5 years, i.e., premiums should have been paid for 5 years and five years should have been completed from the date of commencement of the Policy (this condition is not applicable in respect to claims by death.)
How much life insurance should an individual own?
It is very difficult to place a monetary value on human life. Theoretically, therefore an individual can have life policies for any amount. However, in practice, it is determined based on the needs for insurance and the capacity to pay premiums regularly. Though there is no thumb rule to arrive at the exact amount of insurance, it is determined by taking six times of the annual income of the person, if such income is not fluctuating. If the income is fluctuating, it is desirable to work his average annual income and then determine the amount of insurance. From an individual’s standpoint, one should be able to save at least 10% of his annual income.
When does a policy acquire paid up value?
After payment of three years of premiums if subsequent premiums have not been paid under a policy, such a policy is said to have acquired a paid up value, though literally it is a lapsed policy. The paid up value is calculated by multiplying the sum assured by the ratio of number of premiums paid under the policy and the number of premiums payable under the policy. The value so arrived at, should not be less than Rs.250 excluding the accumulated bonus under such a policy. Such a reduced paid up policy will not be entitled to participate in future bonuses.
What is meant by “mortgage redemption policy”?
This life policy is designed to meet the requirements of individual borrowers to ensure that the outstanding loan is extinguished automatically in the event of the borrower’s death. The annual premiums depend on the schedule of outstanding loan amounts at the beginning of each year. On death of the borrower, the loan is liquidated straightaway by admittance of claim under the policy. Benefits are fixed and death benefit decreases with every year. Premium under the plan can also be paid in a lump sum as single premium.
What is the benefit of opting riders/add on?
Riders/add on are the additional benefits which can be added to the basic policy by paying marginal additional premium. Each company has their own set of rider and most common rider’s offers by insurers are:
» Term rider.
» Critical illness rider.
» Accidental death and dismemberment rider.
» Waiver of premium rider.
What is permanent total disablement?
Permanent total disablement means that the life assured is incapacitated to work or follow an occupation and obtain wages, compensation or profit. The following are considered to constitute such disability:
Irrecoverable loss of entire sight of both of the eyes
» amputation of both hands
» amputation of both feet
» amputation of one hand and one foot
Is there any maximum limit in sum assured for grant of accident benefits? Maximum accident benefit one can avail under all the policies, which he holds, is fixed and varies from company to company In case of LIC it is Rs. 5 lakh sum assured.
Can an individual have accident benefit alone?
No, the benefit is available only along with a plan of assurance wherein it is permissible.
What is meant by a ‘with profit plan’?
A policy issued under a with profit scheme is eligible to participate for bonus addition arising out of surplus revealed on conducting an actuarial valuation. Premium under a with profit plan is always greater than the rate for a without profit plan. That is while computing the structure of a premium table a bonus loading is made to the rate determined by the other three factors viz., Mortality, Interest and expenses.
At what intervals are actuarial valuations conducted?
Every year the policies that are in force are valued and the present value is arrived at. The assets are also valued as on that date and a comparison is made to ascertain the valuation surplus. 95% of the valuation surplus is distributed among with profit policyholders.
What is the system of bonus calculation?
LIC follows a system of reversionary addition to the sum assured at the rate per thousand of sum assured declared every year. Bonus vests with the policy if it is in force. Paid up policies are not eligible for bonus.
Disclaimer:
The above material is provided for general information only and do not constitute legal or other professional advice. This information is current at the date of publication but may be subject to change without notice and accordingly, may not be up to date at the time of viewing. Information specific to a product may be obtained from the concerned Insurer.
ULIP is an abbreviation for Unit Linked Insurance Policy. A ULIP is a life insurance policy which provides a combination of risk cover and investment. The dynamics of the capital market have a direct bearing on the performance of the ULIPs. REMEMBER THAT IN A UNIT LINKED POLICY, THE INVESTMENT RISK IS GENERALLY BORNE BY THE INVESTOR.
2. What is a Unit Fund?
The allocated (invested) portions of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund.
3. What is a Unit?
It is a component of the Fund in a Unit Linked Policy. 4. What Types of Funds do ULIP Offer?
Most insurers offer a wide range of funds to suit one’s investment objectives, risk profile and time horizons. Different funds have different risk profiles. The potential for returns also varies from fund to fund.
The following are some of the common types of funds available along with an indication of their risk characteristics.
Primarily invested in company stocks with the general aim of capital appreciation
Invested in corporate bonds, government securities and other fixed income instruments sometimes known as Money Market Funds — invested in cash, bank deposits and money market instruments
5. Are Investment Returns Guaranteed in a ULIP?
Investment returns from ULIP may not be guaranteed.” In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder”. Depending upon the performance of the unit linked fund(s) chosen; the policyholder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund.
6. What are the Charges, fees and deductions in a ULIP?
ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However, it may be noted that insurers have the right to revise fees and charges over a period.
6.1 Premium Allocation Charge
This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses.
6.2 Mortality Charges
These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc
6.3 Fund Management Fees
These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV).
6.4 Policy/ Administration Charges
These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.
6.5 Surrender Charges
A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.
6.6 Fund Switching Charge
Generally, a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.
6.7 Service Tax Deductions
Before allotment of the units, the applicable service tax is deducted from the risk portion of the premium.
Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units
7. What should one verify before signing the proposal?
One has to verify the approved sales brochure for
• All the charges deductible under the policy
• Payment on premature surrender
• Features and benefits
• Limitations and exclusions
• Lapsation and its consequences
• Other disclosures
• Illustration projecting benefits payable in two scenarios of 6% and 10% returns as prescribed by the life insurance council.
8. How much of the premium is used to purchase units?
The full amount of premium paid is not allocated to purchase units. Insurers allot units on the portion of the premium remaining after providing for various charges, fees and deductions. However the quantum of premium used to purchase units varies from product to product.
The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units.
9. Can one seek refund of premiums if not satisfied with the policy, after purchasing it?
The policyholder can seek refund of premiums if he disagrees with the terms and conditions of the policy, within 15 days of receipt of the policy document (Free Look period). The policyholder shall be refunded the fund value including charges levied through cancellation of units subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover.
10. What is Net Asset Value (NAV)?
NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the website of the respective insurers.
11. What is the benefit payable in the event of risk occurring during the term of the policy?
The Sum Assured and/or value of the fund units is normally payable to the beneficiaries in the event of risk to the life assured during the term as per the policy conditions.
12. What is the benefit payable on the maturity of the policy?
The value of the fund units with bonuses, if any is payable on maturity of the policy.
13. Is it possible to invest additional contribution above the regular premium?
Yes, one can invest additional contribution over and above the regular premiums as per their choice subject to the feature being available in the product. This facility is known as “TOP UP” facility.
14. Whether one can switch the investment fund after taking a ULIP policy?
Yes. “SWITCH” option provides for shifting the investments in a policy from one fund to another provided the feature is available in the product. While a specified number of switches are generally effected free of cost, a fee is charged for switches made beyond the specified number.
15. Can a partial encashment/withdrawal be made?
Yes, Products may have the “Partial Withdrawal” option, which facilitates withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units.
16. What happens if payment of premiums is discontinued?
a) Discontinuance within three years of commencement – If not all the premiums have been paid for at least three consecutive years from inception, the insurance cover shall cease immediately. Insurers may give an opportunity for revival within the period allowed; if the policy is not revived within that period, surrender value shall be paid at the end of third policy anniversary or at the end of the period allowed for revival, whichever is later.
b) Discontinuance after three years of commencement — at the end of the period allowed for revival, the contract should be terminated by paying the surrender value. The insurer may offer to continue the insurance cover, if so opted for by the policyholder, levying appropriate charges until the fund value is not less than one full year’s premium. When the fund value reaches an amount equivalent to one full year’s premium, the contract shall be terminated by paying the fund value.
17. What information related to investments is provided by the Insurer to the policyholder?
The Insurers are obliged to send an annual report, covering the fund performance during previous financial year in relation to the economic scenario, market developments etc. which should include fund performance analysis, investment portfolio of the fund, investment strategies and risk control measures adopted.
What is a term assurance?
Term assurances are the purest and cheapest form of insurance. Term assurances are plans where benefits are payable only on the death of the policyholder within the term.
What is whole life plan?
Whole life plans are a special type of term assurance wherein the term of the policy is whole of the life. So it follows that benefits under the policy are payable only on death of the policy holder.
What is an endowment assurance plan?
Endowment plans are among the most popular forms of insurance as they provide both insurance coverage and act as a savings instrument. These are the plans wherein benefits are payable on death within the term or survival to maturity whichever is earlier.
What is money back plan?
Money back plans are a special type of endowment plans and are called as anticipated endowment assurance plans. Under money back plans, survival benefits are spread over the term of the policy i.e., certain percentage of sum assured is paid at regular intervals. Apart from the above death benefit continues like an endowment plan i.e., full sum assured shall be payable on death within the term irrespective of earlier survival benefits.
What is an assignment?
Assignment is a means whereby the beneficial interest, right and title under a policy gets transferred from the assignor to the assignee. ‘Assignor’ is the policyholder who transfers the title and ‘Assignee’ is the person who derives the title from the assignor.
When to assign a policy
Assignment can be made only after acquiring the policy. Assignment can be done only for consideration- for money or money’s worth or good, moral and meritorious consideration like, love and affection.
Procedure to assign a policy
Assignment can be done by mere endorsement on the policy or by a separate duly stamped deed. The proposer, policyholder, or the absolute assignee can do assignment.
Pre-requisites for a valid assignment
Assignor must be a major. Assignor must have an absolute right over the policy. Assignment must be in writing. Assignor’s signature along with a witness is a must. Notice of assignment is to be submitted to the insurer.
Types of assignments
There are two kinds of assignments.
» Conditional Assignment
» Absolute Assignment
Conditional assignment is usually effected for consideration of natural love and affection. Absolute assignment is usually affected for valuable consideration.
The rights of an assignor and assignee
On assigning the policy, the assignor (life assured/policy holder) loses his right over the policy and the assignee gets the right and becomes the owner of the policy. The assignee can further re-assign the policy and he has a right to sue under the policy.
A valid Assignment once made cannot be cancelled. It is only a valid assignment the earlier assignment is cancelled. In all the cases, Assignment automatically cancels the nomination. However, when the policy is assigned to the insurer, nomination gets affected and it is not cancelled.
Under conditional assignment, if the conditional assignee dies, the benefit under the policy goes back to the life assured if surviving. Otherwise, the benefit goes to policyholder’s nominee. Under absolute assignment, if the absolute assignee dies, the benefits under the policy go to the legal heirs of the assignee.
What is nomination?
Nomination is the process of identifying a person to receive the policy money in the event of the death of the Policyholder.
When to nominate
Nomination can be done at the inception of the Policy by providing details of nominee in the proposal form. However, if the nomination is not done at the inception of the policy, the policyholder can nominate later. This nomination has to be effected by giving notice in a prescribed form to the insurer and getting it endorsed on Policy Bond.
Change of Nomination
The Policyholder can do change of Nomination any time during the term of the Policy and any number of times. For this, the policyholder has to give a notice in a prescribed form to the insurer and getting it endorsed at the back of the Policy. Further, the Policyholder can remove Nomination any time without giving prior notice to the Nominee.
Procedure for Nomination
Only a policyholder who is a major holding Policy Bond in his own name can do nomination. In the case of Children’s Policies, Nomination is not done until the Child becomes major.
Rights of a nominee
Under Nomination, the Nominee gets only the right to receive the policy money in the event of the death of the Policyholder. Nomination does not pass on the property in the Policy. If Nominee dies when the Policyholder is still surviving then the nomination would be ineffective. Nomination has no effect if the Policyholder is surviving. If Nominee dies after the death of the policyholder but before receiving policy money, then also Nomination becomes ineffective and only the Legal Heirs of the Policyholder can claim money.
Can I take a loan on my policy ?
Policyholders are eligible to take loans on their policies subject to certain rules. The policyholder has to apply for a loan in a prescribed form and submit the Policy Bond with the form duly completed. The loan amount is calculated depending on the Surrender Value (SV) that the policy would have acquired, and approximately 85% of the Surrender Value is given as loan.
Rate of interest charged varies from company to company and time to time. A policyholder can repay the loan amount either in part or in full any time during the term of the Policy. If the loan amount is not repaid during the term of the Policy or early claim, the amount of loan plus interest, if any, will be deducted from the claim money and the balance amount will be paid to the claimant.
LIC is currently charging 10.5% interest payable half-yearly on Policy Loans. For LIC, the minimum repayment should be Rs. 50 and thereafter-in multiples of Rs. 10. If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.
If the interest is not paid regularly every half year, then the interest is calculated on compound interest basis.
How can I revive a policy?
A policy is lapsed if the premiums are not paid within the due date or the period of grace permitted by the insurance company. However, a lapsed policy can be revived and procedure varies from company to company.
In case of LIC, a lapsed policy can be revived within 5 years from the date of first unpaid premium. A policy can be revived under five different schemes.
Ordinary Revival Scheme: Under this scheme, all the arrears of unpaid premiums with interest have to be paid. Along with this, ‘Declaration of Good Health’ in Form No. 680 and medical certificate, if necessary, are required.
• Special Revival Scheme: If a person is not in a position to pay all the arrears, then, he can choose this scheme. Under this scheme, the date of commencement will be shifted so that the policy is not lapsed just prior to the date of revival, i.e., the date of commencement is advanced approximately by the period of lapse. Other requirements like those that ‘Declaration of Good Health’ and Medical certificate wherever necessary are required as in Ordinary Revival.
• Special Revival is allowed under the following conditions:
• The policy should not have acquired any surrender value.
• Revival should be within 3 years of lapse.
• Special Revival is allowed only once during policy term.
• Revival by Installment method: If a policyholder cannot pay arrears in one lump sum and if the policy cannot be revived under Special Revival Scheme, he can make use of Installment Revival Scheme. In this scheme, on the date of revival he has to pay immediately:
» 6 months premiums, if mode is Monthly
» 2 quarterly premiums, if mode is Quarterly
» 1 Half year premium, if mode is Half yearly
» Half of the yearly premium, if mode is yearly
The balance of revival amount is paid in installments spread over two years along with normal premium installments. Other requirements regarding health care, as required in Ordinary Revival Scheme.
Loan-cum-Revival Scheme: If a policy acquires surrender value on the date of revival, the policy can be revived taking a policy loan. Loan amount will be calculated treating the premiums as paid up to the date of revival. Shortfall, if any, in revival amount is called for. If loan amount is more than required for revival, the excess will be paid to the policyholder.
Survival Benefit-cum-Revival Scheme : The Survival Benefit which falls due in a money-back type of policy can be used for revival of the policy, if date of revival is later than the Survival Benefit due date. Here, if the SB amount is less than the revival amount, the short fall will be called for. If the SB is more than the revival amount, the excess is paid back to the policyholder. The other requirements for normal SB settlement and revival requirement are to be fulfilled.
What is the procedure in case of a lost policy?
The policy issued by the insurer is a valuable document and should be stored in a safe place till its maturity. In case the policy gets lost, destroyed or mutilated, then the policyholder must immediately procure a duplicate policy
The need to possess a duplicate policy arises on the following occasions:
» At the time of receiving Maturity Amount or Death claim.
»To obtain Surrender Value/Loan.
» To obtain a Duplicate Policy in other cases.
In case of LIC, the procedure involved to obtain the duplicate Policy under the above circumstances is as follows:
At the time of receiving Maturity Amount or Death, claim:
The policyholder must duly fill loss of Policy questionnaire.
» Indemnity Letter in Form No. 3815 a (unstamped) if the claim amount does not exceed Rs. 5,000 and no surety is required.
» Discharge Form is to be submitted.
» Form of Declaration of ‘No Assignment’ is to be submitted.
» A declaration by Surety having sound financial status, acceptable to LIC in appropriate Form is required, if the claim amount exceeds Rs. 5,000. To Obtain Surrender Value: Indemnity Bond in
» Form No. 3815 duly stamped and executed by the Policyholder along with Surety is to be submitted.
» Stamp Duty charges – which depend on the Surrender Value of the Policy, are to be paid.
Discharge form has to be submitted.
» Form of Declaration of ‘No Assignment’ is to be submitted.
To Obtain a Duplicate Policy in other cases:
» The Policy Document should have been lost.
» If Assigned or Mortgaged the duplicate policy shall bear the latest Assignment that is in force as on the date of issue.
» Where the Policy is due for maturity or survival benefit within 3 years and if the sum assured is more than Rs. 25,000, on advertisement in a Local Daily /newspaper having wide calculation is to be given.
» Indemnity Bond in Form No. 3756 duly stamped and executed by the policy holder on a stamp paper of appropriate value is to be submitted.
» If sum assured exceeds Rs. 50,000, declaration by Surety having sound financial status acceptable to LIC in Form No. 3807 is required.
» Duplicate Policy charges of Rs. 5 are to be paid.
» Stamp Duty charges at prevailing rates are to be paid.
What are the Tax benefits available?
Important Income Tax provisions applicable to Policyholders are:
An individual can claim rebate on premium paid on his/her life, his/her spouse, his/her children including adult children and married daughter.
Under section 88 of the Income Tax Act, certain percentage of rebate is allowed on investment in the form of insurance premium with any of the insurance company approved by IRDA. Percentage of rebate can be up to a maximum of 20% and varies depending upon the tax bracket one falls. This rebate is deductible from the tax payable by the individual. The total amount of investment in the form of insurance premium and other specified investments like PPF, NSC, etc. is restricted to Rs. 60,000 per annum.
Under Section 80 DDA, a deduction up to Rs. 40,000 p.a is allowed from gross total income, when a contribution or deposit is made with the LIC for the maintenance of a handicapped dependent.
Under Section 80 CCC, a deduction up to a maximum of Rs. 10,000 per annum is allowed from gross total income. Any sum received under insurance policy including maturity bonus etc., is non-taxable. The exceptions to this are Keyman Insurance.
What is surrender value?
The cash value payable by the insurance company on termination of the policy contract at the desire of Policyholder but before the expiry term is known as Surrender Value. A policy can be surrendered, provided the policy is kept in force at least three years. The bonus will be added, provided the policy was in force for at least 5 years, i.e., premiums should have been paid for 5 years and five years should have been completed from the date of commencement of the Policy (this condition is not applicable in respect to claims by death.)
How much life insurance should an individual own?
It is very difficult to place a monetary value on human life. Theoretically, therefore an individual can have life policies for any amount. However, in practice, it is determined based on the needs for insurance and the capacity to pay premiums regularly. Though there is no thumb rule to arrive at the exact amount of insurance, it is determined by taking six times of the annual income of the person, if such income is not fluctuating. If the income is fluctuating, it is desirable to work his average annual income and then determine the amount of insurance. From an individual’s standpoint, one should be able to save at least 10% of his annual income.
When does a policy acquire paid up value?
After payment of three years of premiums if subsequent premiums have not been paid under a policy, such a policy is said to have acquired a paid up value, though literally it is a lapsed policy. The paid up value is calculated by multiplying the sum assured by the ratio of number of premiums paid under the policy and the number of premiums payable under the policy. The value so arrived at, should not be less than Rs.250 excluding the accumulated bonus under such a policy. Such a reduced paid up policy will not be entitled to participate in future bonuses.
What is meant by “mortgage redemption policy”?
This life policy is designed to meet the requirements of individual borrowers to ensure that the outstanding loan is extinguished automatically in the event of the borrower’s death. The annual premiums depend on the schedule of outstanding loan amounts at the beginning of each year. On death of the borrower, the loan is liquidated straightaway by admittance of claim under the policy. Benefits are fixed and death benefit decreases with every year. Premium under the plan can also be paid in a lump sum as single premium.
What is the benefit of opting riders/add on?
Riders/add on are the additional benefits which can be added to the basic policy by paying marginal additional premium. Each company has their own set of rider and most common rider’s offers by insurers are:
» Term rider.
» Critical illness rider.
» Accidental death and dismemberment rider.
» Waiver of premium rider.
What is permanent total disablement?
Permanent total disablement means that the life assured is incapacitated to work or follow an occupation and obtain wages, compensation or profit. The following are considered to constitute such disability:
Irrecoverable loss of entire sight of both of the eyes
» amputation of both hands
» amputation of both feet
» amputation of one hand and one foot
Is there any maximum limit in sum assured for grant of accident benefits? Maximum accident benefit one can avail under all the policies, which he holds, is fixed and varies from company to company In case of LIC it is Rs. 5 lakh sum assured.
Can an individual have accident benefit alone?
No, the benefit is available only along with a plan of assurance wherein it is permissible.
What is meant by a ‘with profit plan’?
A policy issued under a with profit scheme is eligible to participate for bonus addition arising out of surplus revealed on conducting an actuarial valuation. Premium under a with profit plan is always greater than the rate for a without profit plan. That is while computing the structure of a premium table a bonus loading is made to the rate determined by the other three factors viz., Mortality, Interest and expenses.
At what intervals are actuarial valuations conducted?
Every year the policies that are in force are valued and the present value is arrived at. The assets are also valued as on that date and a comparison is made to ascertain the valuation surplus. 95% of the valuation surplus is distributed among with profit policyholders.
What is the system of bonus calculation?
LIC follows a system of reversionary addition to the sum assured at the rate per thousand of sum assured declared every year. Bonus vests with the policy if it is in force. Paid up policies are not eligible for bonus.
Disclaimer:
The above material is provided for general information only and do not constitute legal or other professional advice. This information is current at the date of publication but may be subject to change without notice and accordingly, may not be up to date at the time of viewing. Information specific to a product may be obtained from the concerned Insurer.
Thursday, September 16, 2010
Higher EPFO rate to make bank FDs less attractive
Hike in interest rates on provident fund by one percentage point by the EPFO to 9.5 per cent will make fixed deposits schemes of the banks less attractive for the organized sector employees. While the retirement fund, popularly known as provident fund, will yield 9.5 per cent on deposits held with the Employees Provident Fund Organization (EPFO), those parking their funds with banks will get a maximum of 7.75 per cent on fixed deposits with maturity of three to ten years.
While the market leader State Bank of India pays 7.75 per cent on fixed deposits for maturity of eight to 10 years, largest private sector lender ICICI Bank gives the same interest rate on deposits ranging between 3 to 10 years. Senior citizens, however, get an additional rate of up to one per cent on their deposits held with the banks.
An economist at a leading private sector bank said, although the number of people contributing to EPFO is far lower than the bank account holders, there could be some diversion. However, high interest rate could drive more contribution towards EPFO, even as the lock-in period remains high in this provident fund, he said.
Industry chamber FICCI said the high rate of interest by EPFO "could also put pressure on the yield rates of some of the other competing saving instruments." Most of the public and private sector banks had raised the interest rates on fixed deposits in August following the tightening of the monetary policy by the Reserve Bank of India.
The central bank is likely to come out with mid-quarterly review of monetary policy tomorrow. Changes in the key policy rates may have a bearing on the interest rates on bank deposits.
The Central Board of Trustees (CBT), the highest decision making body of the EPFO, today decided in favour of raising the interest rate on provident fund by one percentage point to 9.5 per cent, the highest rate in the last five years. The interest rate on the provident fund deposit has been kept at 8.5 per cent since 2005-06.
The decision of the CBT to hike the interest rate, which is likely to be notified by the Finance Ministry, will directly benefit 4.71 crore subscribers.
While the market leader State Bank of India pays 7.75 per cent on fixed deposits for maturity of eight to 10 years, largest private sector lender ICICI Bank gives the same interest rate on deposits ranging between 3 to 10 years. Senior citizens, however, get an additional rate of up to one per cent on their deposits held with the banks.
An economist at a leading private sector bank said, although the number of people contributing to EPFO is far lower than the bank account holders, there could be some diversion. However, high interest rate could drive more contribution towards EPFO, even as the lock-in period remains high in this provident fund, he said.
Industry chamber FICCI said the high rate of interest by EPFO "could also put pressure on the yield rates of some of the other competing saving instruments." Most of the public and private sector banks had raised the interest rates on fixed deposits in August following the tightening of the monetary policy by the Reserve Bank of India.
The central bank is likely to come out with mid-quarterly review of monetary policy tomorrow. Changes in the key policy rates may have a bearing on the interest rates on bank deposits.
The Central Board of Trustees (CBT), the highest decision making body of the EPFO, today decided in favour of raising the interest rate on provident fund by one percentage point to 9.5 per cent, the highest rate in the last five years. The interest rate on the provident fund deposit has been kept at 8.5 per cent since 2005-06.
The decision of the CBT to hike the interest rate, which is likely to be notified by the Finance Ministry, will directly benefit 4.71 crore subscribers.
Wednesday, September 1, 2010
The Learning Curve
Asset Allocation: The key to successful investing
Saving a portion of our monthly income is inherent to all Indians. This is one of the key reasons that India is among the top countries with the highest net household savings rates. All of us save in order to fulfill our planned long-term financial goals as well as for the unforeseen contingencies that may arise.
In India, saving at an early age is a mindset. As a child, we are taught to save in bank accounts and gradually, as we mature, the focus shifts to investing in fixed deposits, bonds, life insurance products etc. However, how does one realize how to deploy money amongst various financial assets to derive? Maximum benefits? There are various asset classes such as equity, bonds, fixed deposits, etc. that have different degree of risks & returns associated with them. Investing in equity has the potential to deliver highest return but comprises of highest risk too where as investing in debt may not give very high returns and the risk taken too, is not as high. It is important to assess these asset classes before investing in them. The process of selecting assets that will generate adequate returns to meet the financial goals at the desired level of risk is known as Asset Allocation.
The key objective of asset allocation is to increase the return on the invested amount while lowering Investment risk. An ideal portfolio should have a judicious mix of asset classes.
There is no asset allocation, which will universally benefit each & every individual. It needs to be customized to suit one’s profile. It is one of the most critical elements of successful investing and needs to be utilized consciously while investing.
5 easy steps to simplify asset allocation decision
Step 1: Determine your Investment Objective:
Decide the purpose for which you are investing. Investment objective of one person may be very different from that of another. For instance, the objective of a person nearing his retirement would be to ensure a regular pension and capital preservation, while that of a young professional would be to achieve capital appreciation to buy a house.
Step 2: Determine your Risk Appetite:
Few factors that affect risk appetite are life stage, net worth, income and past investment experience. An individual who is young has more disposable income and higher risk appetite and may opt to invest in assets with higher risks. He will follow an aggressive investment strategy. Risk appetite of someone who has suffered huge losses in the market will be very low.
Step 3: Determine the Time Horizon of your investment:
An individual will retain his investment for the period. This affects the level of risk that one can undertake. If the investment period is longer, the risk is equally low. The investment period broadly depends upon two parameters, namely, the objective of the investment and the financial resources available at an individual’s disposal. E.g. if the investment objective is to accumulate for your 10 year old child’s wedding, then one can invest in assets with higher risk to generate higher returns. Individuals nearing the age of retirement will take less risk as their period for investing is much shorter. Furthermore, someone who has a reserve sum to take care of any unforeseen event will have a longer investment period as compared to someone who relies on his current income to fulfill all his needs.
Step 4: Select a Diversified Portfolio:
Based on your predetermined goal, risk tolerance and period of investment select a diversified portfolio, which includes various assets, classes namely equity, bond & money market instruments. E.g. if one’s objective is to meet near term obligations, then he may be better off by investing in money market instruments.
An aggressive investor with high-risk appetite or long-term horizon may have his portfolio skewed heavily towards equities. On the contrary, a conservative investor with low risk appetite or short-term time horizon may have his portfolio skewed towards bonds.
Step 5: Rebalancing your Asset Allocation:
One should not frequently change the asset allocation based on market conditions. It is wise to review asset allocation annually; however, rebalancing should be done only if the investment objective or risk appetite undergoes a change.
Always remember that for reaping true benefit out of any financial investment, it is essential to understand one’s investment objective, risk appetite and investment horizon. It is also important to follow a disciplined approach towards investments and avoid timing the market.
It must be noted that life insurance should be considered as a unique asset class in itself, since it creates an asset in case of an eventuality like death while also providing a lump sum amount to meet future goals. ULIPs are well crafted to address the varying asset allocation needs of individuals. They offer a basket of funds with different asset compositions to suit individual’s profile. While choosing a fund option, it is essential to assess one’s asset allocation requirements and accordingly make investments to optimize returns while assuming comfortable levels of risk. Further, the flexibility to switch fund options should be resorted to in the light of changing individual’s needs and not as a tool to speculate market movements.
Saving a portion of our monthly income is inherent to all Indians. This is one of the key reasons that India is among the top countries with the highest net household savings rates. All of us save in order to fulfill our planned long-term financial goals as well as for the unforeseen contingencies that may arise.
In India, saving at an early age is a mindset. As a child, we are taught to save in bank accounts and gradually, as we mature, the focus shifts to investing in fixed deposits, bonds, life insurance products etc. However, how does one realize how to deploy money amongst various financial assets to derive? Maximum benefits? There are various asset classes such as equity, bonds, fixed deposits, etc. that have different degree of risks & returns associated with them. Investing in equity has the potential to deliver highest return but comprises of highest risk too where as investing in debt may not give very high returns and the risk taken too, is not as high. It is important to assess these asset classes before investing in them. The process of selecting assets that will generate adequate returns to meet the financial goals at the desired level of risk is known as Asset Allocation.
The key objective of asset allocation is to increase the return on the invested amount while lowering Investment risk. An ideal portfolio should have a judicious mix of asset classes.
There is no asset allocation, which will universally benefit each & every individual. It needs to be customized to suit one’s profile. It is one of the most critical elements of successful investing and needs to be utilized consciously while investing.
5 easy steps to simplify asset allocation decision
Step 1: Determine your Investment Objective:
Decide the purpose for which you are investing. Investment objective of one person may be very different from that of another. For instance, the objective of a person nearing his retirement would be to ensure a regular pension and capital preservation, while that of a young professional would be to achieve capital appreciation to buy a house.
Step 2: Determine your Risk Appetite:
Few factors that affect risk appetite are life stage, net worth, income and past investment experience. An individual who is young has more disposable income and higher risk appetite and may opt to invest in assets with higher risks. He will follow an aggressive investment strategy. Risk appetite of someone who has suffered huge losses in the market will be very low.
Step 3: Determine the Time Horizon of your investment:
An individual will retain his investment for the period. This affects the level of risk that one can undertake. If the investment period is longer, the risk is equally low. The investment period broadly depends upon two parameters, namely, the objective of the investment and the financial resources available at an individual’s disposal. E.g. if the investment objective is to accumulate for your 10 year old child’s wedding, then one can invest in assets with higher risk to generate higher returns. Individuals nearing the age of retirement will take less risk as their period for investing is much shorter. Furthermore, someone who has a reserve sum to take care of any unforeseen event will have a longer investment period as compared to someone who relies on his current income to fulfill all his needs.
Step 4: Select a Diversified Portfolio:
Based on your predetermined goal, risk tolerance and period of investment select a diversified portfolio, which includes various assets, classes namely equity, bond & money market instruments. E.g. if one’s objective is to meet near term obligations, then he may be better off by investing in money market instruments.
An aggressive investor with high-risk appetite or long-term horizon may have his portfolio skewed heavily towards equities. On the contrary, a conservative investor with low risk appetite or short-term time horizon may have his portfolio skewed towards bonds.
Step 5: Rebalancing your Asset Allocation:
One should not frequently change the asset allocation based on market conditions. It is wise to review asset allocation annually; however, rebalancing should be done only if the investment objective or risk appetite undergoes a change.
Always remember that for reaping true benefit out of any financial investment, it is essential to understand one’s investment objective, risk appetite and investment horizon. It is also important to follow a disciplined approach towards investments and avoid timing the market.
It must be noted that life insurance should be considered as a unique asset class in itself, since it creates an asset in case of an eventuality like death while also providing a lump sum amount to meet future goals. ULIPs are well crafted to address the varying asset allocation needs of individuals. They offer a basket of funds with different asset compositions to suit individual’s profile. While choosing a fund option, it is essential to assess one’s asset allocation requirements and accordingly make investments to optimize returns while assuming comfortable levels of risk. Further, the flexibility to switch fund options should be resorted to in the light of changing individual’s needs and not as a tool to speculate market movements.
Tuesday, August 24, 2010
NPS - New Pension Scheme from PFRDA India - A Simple Analysis
With the launch of New Pension Scheme (NPS) comes the government’s attempt to offer a first of its kind social security plan. The long awaited plan was finally launched on May 1, 2009 after being in the pipeline for five years. Wealth tries to answer the 10 most commonly asked questions about this scheme.You can regularly invest your money in this and get a lump sum at your retirement and a fixed monthly income for the lifetime. It will work almost the same way as Private Pension Schemes.
Features
- No upper limit of Investment
- Annual Fees of .00009% (90 paisa for Rs 10,000) for Managing the fund.
- Tax benefit under sec 80C.
- Any Indian citizen between 18 and 55 years can invest in NPS.
Who are the Fund Managers?
There will be 6 Fund houses appointed by Government to manage the funds under NPS . You can choose any one of them to be your Fund Managers. They are:
1. SBI Pension Funds Private Limited.
2. UTI Retirement Solutions Limited.
3. ICICI Prudential Pension Funds Management Company Limited.
4. Religare Pension Fund Limited.
5. IDFC Pension Funds Management Company Limited.
6. Kotak Mahindra Pension Fund Limited.
They will take all the decisions of where the money received under NPS should be invested in the best possible way considering all the rules and regulations set by PFRDA (Pension Fund Regulatory and Development Authority) .
Who are Point of Presence (POP)?
The following entities have been approved by PFRDA for appointment as Points of Presence (POPs) under the New Pension System for all citizens other than Government employees covered under NPS.
1. Allahabad Bank
2. Axis Bank Ltd
3. Bajaj Allianz General Insurance Co Ltd
4. Central Bank of India
5. Citibank N.A
6. Computer Age Management Services Private Limited
7. ICICI Bank Ltd
8. IDBI Bank Ltd
9. IL&FS Securities Services Ltd
10. Kotak Mahindra Bank Limited
11. LIC of India
12. Oriental Bank of Commerce
13. Reliance Capital Ltd
14. State Bank of Bikaner & Jaipur
15. State Bank of Hyderabad
16. State Bank of India
17. State Bank of Indore
18. State Bank of Mysore
19. State Bank of Patiala
20. State Bank of Travancore
21. The South Indian Bank Ltd
22. Union Bank of India
23. UTI Asset Management Company Ltd
Q1. What is NPS?
NPS is a pension plan where you can invest during your working years and withdraw when you retire. Until May 1 2009, the plan was available for central government employees only. However, it is now thrown open to the citizens of the country.
The current NPS launched is of tier-I type. The typical feature of tier I type plan is that it does not allow you to make any withdrawals before 60 years. However, there can be exceptions in situations like a medical emergency or buying your first house.
If you do not like the idea of this long lock in, you would need to wait for the tier II type of fund, which is yet to be launched. D Swarup, Chairman of Pension Fund Regulatory Development Authority (PFRDA), said in an interview with CNBC TV18, "The tier II plan will be out before the end of this year."
Q2. How does it work?
NPS works like a mutual fund (MF). If you want to invest in the NPS, you can choose from three funds or a mix of funds:
Fund E: This invests up to 50 per cent in the equity market
Fund C: This fund invests 100 per cent in corporate bonds
Fund G: This fund invests 200 per cent in government securities
If you are confused about how much to invest in which fund, you can leave it to the auto selection option. Through this option, 15 per cent of your money will be invested in equity, 45 per cent in corporate bond and 40 per cent in government bonds.
However, after 36 years of age, your equity and corporate bonds exposure will reduce, but it will be compensated with higher investment in government bonds. The maximum cap in government bonds will be 80 per cent. Equity and corporate bonds will have 10 per cent each investment proportion.
Q3. Whom should I approach to invest?
These funds are managed by six asset management companies (AMC): State Bank of India, UTI, ICICI Prudential, Kotak Mahindra, IDFC and Reliance, appointed by the PFRDA. Swarup says, "You have the liberty to choose, change your fund manager every year unlike mutual fund or unit linked insurance plans where you are tied to the same fund manger throughout the term of the product."
All AMCs have to follow the guidelines laid out by PFRDA since it is the ruling authority.
If you are investing in the scheme, you will have to make a compulsory contribution of minimum Rs 6,000 annually or Rs 500 every month. Swarup, says, "You also have the flexibility to make weekly contribution, but it would involve transition cost, hence it is better to stick to minimum transactions."
The minimum age to enter the scheme is 18 years and the maximum is 55 years.
Q5. What about charges?
The best thing about this scheme is the fund management charge, which is a bare minimum of 0.0009 per cent! That is nowhere close to the charges by mutual funds or unit linked insurance companies, which range from 1.5 per cent to 2.5 per cent per annum.
The application form will cost you Rs 40 and for every transaction you make, you will have to shell out Rs 20. Switching to another fund will cost you another Rs 20. However, you cannot make more than one switch every year. Apart from this, you will have to pay Rs 350 as annual maintenance charge to National Securities Depository Ltd. (NSDL), which is the central record keeping agency for all the individual pension accounts. Just like the way you pay an annual charge in maintaining your demat account, you will have to bear a cost for NPS too.
Unlike retirement plan options, NPS does not offer tax benefits under section 80 C and that is the biggest drawback of the scheme. Currently, NPS falls under Exempt-Exempt-Tax (EET) system. This means that the maturity benefits that you will receive at the retirement stage will be taxable. However, Swarup assures that NPS will be brought at par with other schemes sooner than later.
Q7. How will I be paid on retirement?
Payments will be made once you reach 60 years of age. A part of your invested money will be paid out to you as lump sum, and the balance will be mandatorily kept back as annuity. This annuity, which is the remaining amount left in your account, will be paid out to you as pension every month or year depending on what you choose. In case of your untimely death, your nomination will receive this pension.
Q8. Should I invest?
Like any other scheme, NPS has its own advantages and disadvantages. When compared to other retirement plan options such as employee provident fund (EPF), NPS is a better choice. In addition, the reason Kartik Jhaveri, Certified Financial Planner, gives is that presently, EPF gives 8 per cent interest rate. However, if you invest in NPS, you can gain better returns because of the equity portfolio of the scheme.
Nevertheless, compared to equity mutual funds, Jhaveri says that NPS has a major drawback: it restricts equity to 50 per cent. Even if the fund management charges are lower, Jhaveri still recommends a mutual fund. "If one is voluntarily investing in NPS, then he/she might as well invest in the stocks or mutual funds (MF). It will give you better returns and you have control over your investments too."
The main reason: NPS loses its charm when it comes to flexibility and taxation, he explains. Firstly, in NPS your money is locked until your retirement age unlike MFs that do not have lock-in period except equity linked mutual funds. Moreover, annuity that you will receive at the age of 60 is taxable and so are the maturity benefits. Hence, Jhaveri cautions investors to wait for a while before hurrying to invest in it.
Q9. Where can I buy the scheme?
In order to invest in NPS, you will have to open an account with any one of the 23 point of presence (PoP). The PFRDA has appointed mutual funds, financial distribution firms, insurers, banks as PoP.
Q10. What is the procedure?
1. Visit the nearest PoP to open the account.
2. You will need residence proof, permanent account number, photograph and other essential documents.
3. Once you have opened the account, you will get a permanent retirement account number (PRAN) with internet banking access details.
4. You can then begin with your transactions and start investing money.
5. You will receive physical account statement every year that will carry you transaction details, amount invested, etc.
Disclaimer: I have made efforts to ensure the accuracy of the content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.
Monday, August 23, 2010
Indian Lawmakers get two salary hikes in two weeks
The pay and benefits of Indian lawmakers have been revised several times upwards twice in two weeks, with the Union Cabinet on Monday approving a further increase in allowances to the parliamentarians, days after it had given its nod for a three-fold hike of MPs’ salary. The latest increase was necessitated to pacify a section of agitated Opposition members who had expressed dissatisfaction at the approved hike and were demanding further increase in the salary for the Members of Parliament (MPs).
The Union Cabinet has approved a hike of Rs 10,000 in allowances in the form of increased expenses for constituency and office maintenance. The three-fold base salary hike to Rs 50,000 from Rs 16,000 remained unaltered. With Monday’s hike, the MPs would be entitled to Rs 45,000 per month towards expenses for constituency and office maintenance. Besides, they also enjoy several other benefits, including free air and train tickets with companions.
The Cabinet, under Prime Minister Manmohan Singh, will bring amendments to the MPs' salary hike bill it had cleared last week. However, the latest move is also unlikely to completely pacify the agitated members, led by Lalu Prasad (Rashriyta Janata Dal) and Mulayam Singh Yadav (Samajwadi Party). They have been demanding that the MPs’ salary be pegged at Rs 80,001, a rupee more than the highest paid government employee is. A joint parliamentary committee had also recommended the Rs 80,001 figure, but the Union Cabinet had shot it down. Though the MPs are now arguing that they need the money to meet their many expenses, the politicians fail to fare well in scales of accountability and integrity.
According to Transparency International, in 2009, India was ranked 84 out 180 countries in the Corruption Perceptions Index (CPI). As per experts, the integrity rating of 3.2-3.6 of India means the country is highly corrupt. Zero (0) is the most corrupt and 10 least corrupt.
Again, a recent survey by the Global Corruption Barometer (GCB) said the common people in India have no faith in politicians and consider them most corrupt among the various groups.
The Union Cabinet has approved a hike of Rs 10,000 in allowances in the form of increased expenses for constituency and office maintenance. The three-fold base salary hike to Rs 50,000 from Rs 16,000 remained unaltered. With Monday’s hike, the MPs would be entitled to Rs 45,000 per month towards expenses for constituency and office maintenance. Besides, they also enjoy several other benefits, including free air and train tickets with companions.
The Cabinet, under Prime Minister Manmohan Singh, will bring amendments to the MPs' salary hike bill it had cleared last week. However, the latest move is also unlikely to completely pacify the agitated members, led by Lalu Prasad (Rashriyta Janata Dal) and Mulayam Singh Yadav (Samajwadi Party). They have been demanding that the MPs’ salary be pegged at Rs 80,001, a rupee more than the highest paid government employee is. A joint parliamentary committee had also recommended the Rs 80,001 figure, but the Union Cabinet had shot it down. Though the MPs are now arguing that they need the money to meet their many expenses, the politicians fail to fare well in scales of accountability and integrity.
According to Transparency International, in 2009, India was ranked 84 out 180 countries in the Corruption Perceptions Index (CPI). As per experts, the integrity rating of 3.2-3.6 of India means the country is highly corrupt. Zero (0) is the most corrupt and 10 least corrupt.
Again, a recent survey by the Global Corruption Barometer (GCB) said the common people in India have no faith in politicians and consider them most corrupt among the various groups.
Monday, July 19, 2010
Life Insurers prefer traditional policies------ Ulip honeymoon is almost over for now!
Life insurance firms are shifting their focus from unit-linked insurance plans (Ulips) to traditional products such as endowment, money-back, pension and term plans.
After the fall in the stock markets last year, insurance firms felt that an equity-dominated portfolio was not balanced. Therefore, many firms are changing their product mix and moving towards traditional policies.
Reliance Life, Bajaj Allianz and state-owned Life Insurance Corporation of India are moving fast towards a traditional policy dominated product mix. For Bajaj Allianz, the share of Ulips is likely to be around 70 per cent this fiscal against over 80 per cent a year ago. Ulips constitute 65 per cent of LIC’s total sales.
Last fiscal, Ulips formed around 90 per cent of Reliance Life’s product mix. This has fallen to around 50 percent in the quarter ended June. However, for the full fiscal, the company expects the proportion of Ulips to be 60 per cent.
“From a customer perspective, traditional products are more relevant for middle and low-income groups in rural areas and smaller cities. So, as we increase our penetration in those areas, sale of traditional policies will be higher,” said Mayank Bathwal, CFO of Birla Sun Life Insurance.
In May, Birla Sun Life had launched endowment plans to cater to the increased demand for traditional products. Last year, Ulips had formed 90 per cent of its product mix, “which is likely to change soon”, Bathwal said.
Industry players said the stringent norms stipulated by the Insurance Regulatory and Development Authority for unit-linked hybrid products are also compelling insurers to change their product mix.
The new guidelines, which will come into force from September, will cap commission charges — a motivating factor for agents to sell certain category of policies. The first year commission charge for Ulips has been reduced to 10-15 per cent from 35 per cent. However, commissions for selling traditional plans are still 30-35 per cent.
According to provisional data by the Life Insurance Council, a representative body of life insurers in India, new business premium income during the last fiscal rose 25 per cent to Rs 1.09 trillion. Around 90 per cent of the premium came from Ulips.
After the fall in the stock markets last year, insurance firms felt that an equity-dominated portfolio was not balanced. Therefore, many firms are changing their product mix and moving towards traditional policies.
Reliance Life, Bajaj Allianz and state-owned Life Insurance Corporation of India are moving fast towards a traditional policy dominated product mix. For Bajaj Allianz, the share of Ulips is likely to be around 70 per cent this fiscal against over 80 per cent a year ago. Ulips constitute 65 per cent of LIC’s total sales.
Last fiscal, Ulips formed around 90 per cent of Reliance Life’s product mix. This has fallen to around 50 percent in the quarter ended June. However, for the full fiscal, the company expects the proportion of Ulips to be 60 per cent.
“From a customer perspective, traditional products are more relevant for middle and low-income groups in rural areas and smaller cities. So, as we increase our penetration in those areas, sale of traditional policies will be higher,” said Mayank Bathwal, CFO of Birla Sun Life Insurance.
In May, Birla Sun Life had launched endowment plans to cater to the increased demand for traditional products. Last year, Ulips had formed 90 per cent of its product mix, “which is likely to change soon”, Bathwal said.
Industry players said the stringent norms stipulated by the Insurance Regulatory and Development Authority for unit-linked hybrid products are also compelling insurers to change their product mix.
The new guidelines, which will come into force from September, will cap commission charges — a motivating factor for agents to sell certain category of policies. The first year commission charge for Ulips has been reduced to 10-15 per cent from 35 per cent. However, commissions for selling traditional plans are still 30-35 per cent.
According to provisional data by the Life Insurance Council, a representative body of life insurers in India, new business premium income during the last fiscal rose 25 per cent to Rs 1.09 trillion. Around 90 per cent of the premium came from Ulips.
Sunday, July 18, 2010
Stiff target set for insurance agents
The insurance regulator has clamped down on agents to check the rise in policy lapses.
After tightening the regulations for unit-linked insurance plans (Ulips), the insurance regulator has suggested certain performance criteria for agents.
Under the new norms, agents will be getting lower commission on Ulips sold from September this year. According to the regulator’s latest suggestions, the agents may have to part with the commission earned on sold policies if subscribers do not pay the renewal premiums in time.
Part of the first-year commission will be withheld and paid based on persistency in later years,” says the regulator. The agency license may also not be renewed if the average annual persistency ratio is less than 50 per cent.This means agents will have to be more prompt in providing after-sales services.
According to the performance parameters prescribed by the regulator, agents will have to sell a minimum of 20 life insurance policies and procure a minimum first-year premium of Rs 1,50,000 every year. This will prove to be a difficult task for agents.
At present, an agent has to sell 12 policies and procure Rs 1,00,000 as first-year premium to keep his/her license in force. Many people cannot even meet this target, which is why the industry is fraught with large-scale agent attrition leading to high growth in orphan and lapsed policies. The proposed measures by the regulator, will force many agents to quit the industry.
In an exposure draft on persistency of life insurance policies, the regulator noted that lapses for private insurers had increased steadily within the first five years of selling a policy.
The lapse rate was the highest for policies sold through brokers, followed by corporate agencies, tied agents and bancassurance. In the case of tied agents, the lapse rate after the first five years of policy sales is as high as 50 per cent.
To stop this high rate of policy lapses, the regulator is considering putting in place a regulatory framework for the performance of insurance agents.
After tightening the regulations for unit-linked insurance plans (Ulips), the insurance regulator has suggested certain performance criteria for agents.
Under the new norms, agents will be getting lower commission on Ulips sold from September this year. According to the regulator’s latest suggestions, the agents may have to part with the commission earned on sold policies if subscribers do not pay the renewal premiums in time.
Part of the first-year commission will be withheld and paid based on persistency in later years,” says the regulator. The agency license may also not be renewed if the average annual persistency ratio is less than 50 per cent.This means agents will have to be more prompt in providing after-sales services.
According to the performance parameters prescribed by the regulator, agents will have to sell a minimum of 20 life insurance policies and procure a minimum first-year premium of Rs 1,50,000 every year. This will prove to be a difficult task for agents.
At present, an agent has to sell 12 policies and procure Rs 1,00,000 as first-year premium to keep his/her license in force. Many people cannot even meet this target, which is why the industry is fraught with large-scale agent attrition leading to high growth in orphan and lapsed policies. The proposed measures by the regulator, will force many agents to quit the industry.
In an exposure draft on persistency of life insurance policies, the regulator noted that lapses for private insurers had increased steadily within the first five years of selling a policy.
The lapse rate was the highest for policies sold through brokers, followed by corporate agencies, tied agents and bancassurance. In the case of tied agents, the lapse rate after the first five years of policy sales is as high as 50 per cent.
To stop this high rate of policy lapses, the regulator is considering putting in place a regulatory framework for the performance of insurance agents.
Saturday, July 17, 2010
Axis Triple Advantage Fund NFO- A Review
SEBI has recently questioned the Mutual Fund houses for their similar & repeated products offering but the introduction of new funds is not stopping. Another mutual fund house has decided to come out with its NFO or New Fund Offer. The Axis Mutual Fund House has launched its NFO or New Fund Offer called the Axis Triple Advantage Fund NFO
In this article, I will analyse how good is this Axis Triple Advantage Fund NFO, whether this Axis Triple Advantage Fund offers anything new or unique for the investors and whether the investors should invest in Axis Triple Advantage Fund .
Axis Triple Advantage Fund NFO: Review Analysis & Details
Let us begin with some basic details about Axis Triple Advantage Fund.
What are the NFO dates for Axis Triple Advantage Fund?
The NFO period for Axis Triple Advantage Fund will open on 30th June 2010 and will close on 27th July 2010. Though nothing is specified about the regular buying and redemption start date of this Mutual fund, it is expected that it will be around after a month from the close of NFO, as is the standard.
What is so unique about this Axis Triple Advantage Fund?
Investors should note that the investment principles of this fund are to seek long terms capital appreciation and hence, as per the fund information, the investors are expected to stay invested for long. Nevertheless, please note that this does not guarantee any returns.
Now the unique thing about this fund is that it is offering you a diversified investment opportunity, where your invested capital money will be split across into 3 and invested into the following in the mentioned proportion:
- Shares/Equity and related instruments - 30-40%
- Debt Instruments (Fixed Income Securities) - 30-40%
- Gold ETF's or Gold Exchange Traded Funds - 20-30%
So overall, this Axis Triple Advantage Fund seems to be offering a good mix of 3 variety of products. The proportion of allocation also seems to be good enough. However, I think the proportion of allocation might change at the sole discretion of the mutual fund managers.
During NFO, the units of this Fund will cost Rs 10 per unit.
Ideally speaking, this fund should be looked upon by the investors who want a mix of equity, debt and gold in their investment portfolio, but want to keep the headache off by doing it themselves and are ready to trust a fund manager to do that. This Axis Triple Advantage Fund will be good option for such investors. However, one thing to note is that just because there is a lot of diversification, it does not mean that food returns are guaranteed.
The risk part remains. What if you invest 10,000 in this fund? The fund managers buy equity worth 3500, debt worth 3500 and gold worth 3000. After 5 years, the returns from equity are down by 30%, returns from debt are up by 10%, and returns from gold are up by 15%. Equity portion will then stand at 2500, Debt at 3850 and Gold at 3450. Therefore, your net value will be 9,800 - i.e. less than your invested 10K.
Now the above is only an example to illustrate that just by investing in a diversified fund does not guarantee returns. In addition, the more different instruments one invests in, the more brokerage charges and commission is to be paid. That adds to the cost and reduces the profit and returns. Investors should keep these things in mind while making investments in any funds or any financial products.
Are there any alternatives to Axis Triple Advantage Fund?
Yes, Taurus Fund House has also come out with a similar product: Taurus MIP Advantage Fund NFO: However, there may exist other products.
Another option to consider is buying these different financial assets on your own. Then you will have to take the buy sell decisions and timing them will be your responsibility.
Mr. Chandresh Nigam and Mr. Ninad Deshpande will be the fund managers.
The Axis Triple Advantage Fund will be benchmarked to a composite S&P CNX Nifty, CRISIL Composite Bond Fund Index and INR Price of Gold
Minimum Investment:
Purchases: Rs. 5000/- and in multiple of Re. 1 thereafter.
SIP or Systematic Investment Plan is available. - No Info
No Tax Benefit is available in the Axis Triple Advantage Fund
Investment Options for Axis Triple Advantage Fund:
- Growth
- Dividend (Payout and Reinvestment)
The entry load for Axis Triple Advantage Fund is as follows:
Entry Load for Axis Triple Advantage Fund:
Zero Entry Load
Exit Load for Axis Triple Advantage Fund:
1% if the amount sought to be redeemed or switched out is invested up to 1 year from date of allocation.
Final Thoughts about the Axis Triple Advantage Fund?
This fund can be a good investment for investors willing to bet on the skills of the Axis Fund Managers and who believe that diversification can offer good returns as well as risk control.
In this article, I will analyse how good is this Axis Triple Advantage Fund NFO, whether this Axis Triple Advantage Fund offers anything new or unique for the investors and whether the investors should invest in Axis Triple Advantage Fund .
Axis Triple Advantage Fund NFO: Review Analysis & Details
Let us begin with some basic details about Axis Triple Advantage Fund.
What are the NFO dates for Axis Triple Advantage Fund?
The NFO period for Axis Triple Advantage Fund will open on 30th June 2010 and will close on 27th July 2010. Though nothing is specified about the regular buying and redemption start date of this Mutual fund, it is expected that it will be around after a month from the close of NFO, as is the standard.
What is so unique about this Axis Triple Advantage Fund?
Investors should note that the investment principles of this fund are to seek long terms capital appreciation and hence, as per the fund information, the investors are expected to stay invested for long. Nevertheless, please note that this does not guarantee any returns.
Now the unique thing about this fund is that it is offering you a diversified investment opportunity, where your invested capital money will be split across into 3 and invested into the following in the mentioned proportion:
- Shares/Equity and related instruments - 30-40%
- Debt Instruments (Fixed Income Securities) - 30-40%
- Gold ETF's or Gold Exchange Traded Funds - 20-30%
So overall, this Axis Triple Advantage Fund seems to be offering a good mix of 3 variety of products. The proportion of allocation also seems to be good enough. However, I think the proportion of allocation might change at the sole discretion of the mutual fund managers.
During NFO, the units of this Fund will cost Rs 10 per unit.
Ideally speaking, this fund should be looked upon by the investors who want a mix of equity, debt and gold in their investment portfolio, but want to keep the headache off by doing it themselves and are ready to trust a fund manager to do that. This Axis Triple Advantage Fund will be good option for such investors. However, one thing to note is that just because there is a lot of diversification, it does not mean that food returns are guaranteed.
The risk part remains. What if you invest 10,000 in this fund? The fund managers buy equity worth 3500, debt worth 3500 and gold worth 3000. After 5 years, the returns from equity are down by 30%, returns from debt are up by 10%, and returns from gold are up by 15%. Equity portion will then stand at 2500, Debt at 3850 and Gold at 3450. Therefore, your net value will be 9,800 - i.e. less than your invested 10K.
Now the above is only an example to illustrate that just by investing in a diversified fund does not guarantee returns. In addition, the more different instruments one invests in, the more brokerage charges and commission is to be paid. That adds to the cost and reduces the profit and returns. Investors should keep these things in mind while making investments in any funds or any financial products.
Are there any alternatives to Axis Triple Advantage Fund?
Yes, Taurus Fund House has also come out with a similar product: Taurus MIP Advantage Fund NFO: However, there may exist other products.
Another option to consider is buying these different financial assets on your own. Then you will have to take the buy sell decisions and timing them will be your responsibility.
Mr. Chandresh Nigam and Mr. Ninad Deshpande will be the fund managers.
The Axis Triple Advantage Fund will be benchmarked to a composite S&P CNX Nifty, CRISIL Composite Bond Fund Index and INR Price of Gold
Minimum Investment:
Purchases: Rs. 5000/- and in multiple of Re. 1 thereafter.
SIP or Systematic Investment Plan is available. - No Info
No Tax Benefit is available in the Axis Triple Advantage Fund
Investment Options for Axis Triple Advantage Fund:
- Growth
- Dividend (Payout and Reinvestment)
The entry load for Axis Triple Advantage Fund is as follows:
Entry Load for Axis Triple Advantage Fund:
Zero Entry Load
Exit Load for Axis Triple Advantage Fund:
1% if the amount sought to be redeemed or switched out is invested up to 1 year from date of allocation.
Final Thoughts about the Axis Triple Advantage Fund?
This fund can be a good investment for investors willing to bet on the skills of the Axis Fund Managers and who believe that diversification can offer good returns as well as risk control.
Lord, bless us but invest not - Court denies deities right to open demat accounts Lord
The gods cannot play the stock markets.
That’s the upshot of a verdict handed down today by Bombay High Court which threw out a petition seeking to open demat trading accounts in the names of Lord Ganesh — the popular god of wealth and prosperity — and four avatars of lesser deities.
That’s the upshot of a verdict handed down today by Bombay High Court which threw out a petition seeking to open demat trading accounts in the names of Lord Ganesh — the popular god of wealth and prosperity — and four avatars of lesser deities.The petition was moved by a Sangli-based private religious trust named Ganpati Panchayatam Sansthan. The other four deities are Chintamaneshwardev, Chintamaneshwaridevi, Suryanarayandev and Laxminarayandev.
The trust had contended that if the deities could be granted PAN cards — a key tax-filing requirement for the large assets that temples and trusts own in the name of the ruling deities — they could not be barred from trading on the bourses. A PAN card is a basic requirement for opening a demat account.
The National Securities Depository Ltd (NSDL) had rejected the private religious trust’s request to open demat accounts in the name of the deities, sparking the unusual case where the gods — or at least the mortals who manage their considerable assets — started showing an undue interest in playing the markets.
“Trading in shares on the stock markets requires certain skills and expertise and to expect this from deities would not be proper,” said Justice P.B. Majumdar and Rajendra Sawant while tossing out the petition that challenged NSDL’s refusal to open demat accounts in the names of the five deities.
The trust had applied for the five demat accounts in the names of the deities through a private bank.
In its petition, the trust maintained that verdicts handed down by the Supreme Court and several high courts had upheld the right of deities to own property.
Uday Varunjkar, the counsel for the trust, said that shares, debentures and mutual fund units were also regarded as property under income-tax laws and, therefore, the deities could not be barred from placing their celestial bets on stocks.
NSDL chose to rely on a legal quibble to fob off the Patwardhans and their pantheon of deities.
S. Ganesh, a senior officer of NSLD, filed an affidavit in court saying only deities of registered public trusts could acquire property.
He argued that the Sangli-based trust was a private religious trust that was not registered under the Bombay Public Trust Act. Therefore, it could not acquire property in the name of the deities.
The NSDL official said private trusts could own or acquire property, including shares and debentures, in the name of trustees but not in the name of gods.
It is not known whether the deity of any public trust has ever applied for a demat account to trade in shares.
To open a demat account, the prospective account holder needs to show proof of identity (passport, driving licence, ID card issued by a central or state government, membership of professional bodies or credit cards), proof of address, passport size photograph and a copy of the PAN card.
It is not known how many of these documents the trust was able to submit along with its application for opening demat accounts on behalf of the gods.
A couple of years ago, NSDL was sucked into a controversy when it was accused of conniving with several banks and unscrupulous people to open bogus accounts to help certain people corner share allotments arising from initial public offerings (IPOs).
The racket was unearthed in 2005 and had run unchecked for two years. Over 40,000 fake demat accounts had been opened by the banks and the two depositories — NSDL and Central Depository Services (India) Ltd.
Both depositories were indicted in two interim reports that were produced during former Sebi chairman M. Damodaran’s tenure. NSDL was cleared of all charges after C.B. Bhave took over as Sebi chairman.
source : The Telegraph,Kolkata. 17/07/2010
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