Category Archives: Blog

How to Buy Term Insurance

Term insurance is a relatively new concept in life insurance. It was introduced to the Indian market as late as 2003 when the sector was opened up to private players. The concept, however, had been in existence in the US for many years. In fact over two to three decades ago there was a movement in the US where the concept of “Buy term, invest the rest” was promulgated. Here is a primer on term insurance relevant to all of us.

What is term insurance?

Term insurance provides coverage for a specific time period. The death benefit is paid only if a person dies during the policy tenure. In that sense these are pure risk covers. Coverage terms and conditions are standardized across insurers. The only exclusion allowed is suicide in the first year of the insurance. You can compare the cost of term plan across insurers and choose the insurer with low costs, provided their claim settlement is over 85%. These settlement ratios are published in the insurer’s public disclosures and the Insurance Regulatory and Development Authority’s annual report.

What are the main things to check when selecting a term insurance policy?

The three most important factors to consider in a term insurance policy are the sum assured paid on death, the premium and the claims settlement ratio.

The quantum of death benefit payable can be increasing, decreasing, or flat over the term of the plan. I prefer the flat sum assured. As a rule of thumb I recommend buying insurance that is 10 times your current annual income. This will ensure that if you die your family will have financial security for several years. If, in the future, you need to increase your insurance you can always buy an additional term cover. Since product benefits are standardized, premium becomes an important criterion. Pick the cheapest plan that meets the claims payment track record.

What are the important riders that can be bought with a basic term life plan?

Common riders available with a term life plan include: accidental death, permanent disability, and critical illness. Critical illness rider with a term plan is recommended. This helps avoid a separate pre-issuance medical check-up for a critical illness plan, and the premium is fixed for the term of the policy. The other two benefits—disability and accidental death—are better bought independently, in an individual accident insurance policy. Individual accident insurance policies have several advantages—no pre-issuance medical tests, fixed premium at any age, and lower rates than rider premiums charged by life insurers.

Are there term plans that come with money-back options?

There are term plans available with a return of premium option. These work as standard endowment plans. In such plans, if there is no claim till the end of the policy term, the entire premium paid is refunded. However, these plans are expensive and do not justify value for money. The effective return in these plans is low, and if the incremental cost of such a plan is deposited in a bank fixed deposit or mutual fund, your return is likely to be higher.

A standard term plan is better than return of premium plans.

How to purchase term insurance-offline or online?

With most insurers there is no price difference whether you buy the product online or offline. If you are certain about the insurance, you want and comfortable handling the paperwork yourself then buy it online. Otherwise work with our financial fitness expert to help you through the main questions – How much sum assured? Which are the lowest premiums? And what are the claim settlement ratios of different term insurances? A good advisor will also step in if a claim needs to be paid. She can help with the paperwork and follow-up with the insurer.

In summary, term insurance is by far the most key life insurance for your portfolio. The sooner you buy this the better.

Author Bio: Mr.Kapil Mehta has over 20 years of experience in insurance, consumer goods, consulting and M&A in India. He is the Co-Founder of SecureNow Insurance Broker Pvt. Ltd, an award-winning insurance broking firm, set-up in 2011. SecureNow was a top three Asian Insurance Broker of 2015, awarded by the Asian Insurance Review.

Kapil is a top 10 writer in the world on Quora for insurance matters. He writes regularly on insurance in the Mint, specifically on matters that effect individual insurances like life and health. Connect with Kapil here.

Investment advice for Working Women

The moment I was asked to write on investment advice for working women, I went back to my initial days of earning back in the year 2006 when I joined my job and started saving and not investing. Let me confess, at that time, I was clueless on the topic of investment and not even aware on how to invest. Forget about knowing the exemplary and enormous options available in the market for investment. And all this amidst the confusing discussions of my friends about Investment advice and portfolio management. Nevertheless, I did thought about it and here is my Investment advice for working women.

Understand Investing

Investing is placing your money into any investment products which give you higher return than saving. Keeping your money in saving account will not fetch you more than 5-6%, in case the balance is more than 1 lakh.

Importance of Investing

According to me, being working women itself is an achievement. In this era of globalization, we have to go one step further competing with men and have the financial thoughts better than them.

Building wealth depends on investing at the right time in right options and not on saving. There is no point in just saving. If you want to make it big, save for investment and then invest wisely. I quite liked the fact that SBS Financial Advisory is especially active in providing financial education to working women and hand holding them on the path of financial freedom.

Working women should start building the wealth by investing from the day of earning. I strongly feel that working women should make themselves financially educated; and then they shall further pass on this habit to her children as well. Married working women can compliment her partner by investing as per the financial goals set by both the partners. Working women generally does not carry responsibility of contributing their income to family liability, that could be an individual choice but even then investment is always recommended over savings.

For single woman the investment plan has major role to play in life. For them the saving in the form of emergency fund would take preference than investment.

Being a banker for over a decade now, I could further bifurcate my advice on investments as below:

Investment options (categorized accordingly for the purpose of Tax Saving)

Tax saving investments

Non Tax saving Investment

  • Mutual Fund (Lump sum or SIPs)
  • Shares
  • Securities
  • Recurring deposit
  • Normal Fixed Deposit
  • Fixed Maturity Plans
  • ETFs Electronic Transfer Funds
  • KVP Kishan Vikas Patra

The options should be chosen based on your duration of your goals, risk taking capacity, expected returns etc. Also, retirement planning shall be done well in advance and that should essentially be included in long term investments like NPS. We usually take this up under Goal Based Planning whether it is a Tax saving investment or Non- tax saving investment.

However, I would say that following financial products cannot be considered as investments. But I truly feel I would recommend these in my investment advice for working women.

Life Insurance Plans (Traditional and ULIPs)

Please remember insurance plans might eat your money and might not turn out good option for getting return. Your insurance is only required when you have some loans / liabilities to pay on your name. Keep insurance separate from investment.

First home

First property can-not be considered as investment since it might fall in basic need. Second home can be considered as Investment.

I have been investing since last 5 years and would acknowledge the following as few factors which affect investments:

Inflation: Inflation should also be taken care off while investing. The amount of return should be minimum 10% per annum to balance the inflation and also get the return.

Market Risks & Returns: Depends on how market is behaving but the long term investors shall not worry about this.

Duration of Goals

  • If you are looking for fulfilling long term goals (more than 10 years) you may please go ahead with putting your money in Mutual fund, shares. Research has shown that women are more risk-averse when it comes to trading,
  • The investment options available for Mid term goals (5- 10 years) are
  • However short term goals can be achieved with making an investment in Fixed deposit, recurring deposit, bonds etc.

If I have to brief in 5 points, the way to build wealth, I would say:

  1. Monitor your expenditure: The investment for any woman starts with saving, saving and saving. The reason behind this is save first and then spend. Researchers says that woman are better in saving money.
  2. Regular monitor your investments: Don’t forget after putting your money in any of the investment.
  3. Keep emergency fund aside: I always recommend that we should keep a buffer aside for running expenses for at least 3 months.
  4. Keep your debt little: Loans or credit cards should be kept minimal.
  5. Discipline: Don’t be lenient with investments, make it a habit.

Also please note that, this is only general information/advice written from self experience and collected from my own experience & application. I got real new insights after my first session with Rashi @ SBS Fin and I feel more confident & informed as an investor now.

The author is serving at a leading Bank for over a decade. And this is what she had to share when we asked for an Investment advice for working women in India.

How To Find The Right Mutual Fund?

What do we do when we think of purchasing big ticket items like property or car? Do we rush out and buy it? Not really. We analyze, we compare, we do bit of research, we hire agents who help in searching the best and once we are satisfied, we make the purchase. So, why this process be any different when thinking of investing in mutual funds?

Everytime we are working on a suggestive portfolio, the clients come and ask us – How to find the right mutual fund?  How will you assess the wrong and right mutual fund? If there is an option, what parameters will help in choosing the right mutual fund investment?

When you’re considering buying a mutual fund, you have to dig down a little bit deep to examine the type of holdings that are powering it, how much it costs, which agent can help you drive it, his past performances etc. Sometimes investors make the mistake of selecting mutual funds only on the basis of performance and that too just the recent performance. That should be avoided. There are also some investors who consider only the star ratings given by various research agencies. These ratings can be one of the factors to look at, but there are many other parameters that one should look into before finalising a mutual fund portfolio. But picking the best mutual fund scheme doesn’t always mean the best in returns. It could be best in terms that suit your profile and goals. Here are four things to look for in a mutual fund before you buy.

1. Look At Your Goals First

The foremost thing an investor thinking of acquiring shares in any fund should do is identify his or her goals and desires for the money being invested. Are you looking for a long term lump sum income or a current additional income? Are you looking for an investment that will fund your retirement or that will help you pay off a debt? These are the basic answers that an investor should look for before investing. Identifying a goal is important because it enables one to choose wisely. Once you identify your goal, it will also help you choose the time period of investment. So that you can get the return at the right time to fulfil your goals. Ideally, investors should have an investment horizon with at least five years or more.

2. Look At A Fund That Suits Your Goals

Now, there are various types of fund that an investor can invest in. The ideal way is to pick the ones that are directly related to your goals. For instance, if an investor intends to use the money in the fund for a long term need then he should look for a long term capital appreciation fund. These types of funds typically hold a high percentage of investor’s assets in common stocks. Although this involves a fair amount of risk but good return can be expected from these types. On the other hand if an investor is in need of current additional income, he should acquire shares in an income fund like Government or corporate debt. These could be in the form of fixed deposits, recurring deposits etc.

3. Look For Past Records And Results

Investors should research a fund’s or fund manager’s past results. There are few basic things to look into while digging these records like whether the fund manager has delivered results that were consistent with general market returns or whether the fund that you wish to invest in is too volatile or was there an unusually high turnover. All this information is important as it will give the investor insight into how the fund manager performs under certain conditions, as well as what historically has been the trend in terms of turnover and return. But past records may not guarantee future returns. So it’s best to review the investment company’s literature to look for information about anticipated trends in the market in the coming years.

4. Look For Tax Savings

Like it or not, investment instruments come with a certain element of tax. And mutual fund schemes are no different. As an investor, one should always be conscious about the tax implications. So, evaluation of tax implication is very important before investing in mutual funds. Let’s take for example equity schemes, debt schemes and gold schemes which have different tax treatments. Out of which with debt or equity, one can enjoy better tax treatment as such schemes offer superior post-tax returns. For instance, investing in Equity-linked tax saving scheme qualifies under section 80C, where one can save up to 1.50 lakhs in a financial year. Dividends are tax-free in the hands of the investor and the scheme involves no long-term capital gain tax.

Selecting a mutual fund may seem like a daunting task, but knowing your objectives and risk tolerance is like winning half the battle. And if you want us to guide you and help you find the right mutual fund than write to us. Our experts will get in touch with you in no time.

Financial Literacy – the way out for Women Professionals

Hey Women! Did you ever thought as to why the world celebrates an International Women Day? Well! I would not go into the history of it but I am sure it is about making you feel special. And on this special occasion, team SBS Financial Advisory has decided to inspire and empower women to take their own financial decisions. Before you read on further, here’s wishing you a Happy International Women’s Day

 

In the 21st Century more and more Indian women are working, carving out their own identities in the Corporate world, earning and contributing to household expenses. But sadly, when it comes to managing money we still are dependent on our Fathers, Brothers and Husbands and are clueless when it comes to savings and investments.
In my 15 years of experience I have come across many women friends and relatives who are financially illiterate even if they are working. Clients whose husbands use to take care of everything and some unforeseen event shook them off and few even faced a sudden demise post retirement phase etc and that comes as a rude shock to them. They are not aware of the financial affairs,investments and various documentation leave alone understanding of various financial products, tax implications.

 

While writing the blog I checked with my Mom why I haven’t seen her taking interest in financial matters. She may not be a bread earner but as a housewife who does the job at least 3-4 people she had every right to be a part of family financials. She dryly replied to me that she never felt the need. Before marriage my Nana ji took care of her needs and later after marriage whenever she required anything my Dad would buy for her. Its ingrained in our culture males are bread earners and females are care givers and for them financial matters are not feminine.

 

This question bothers me time and again, that is, if women can work and make our own money, why we are not the one who is involved in investment process and decision making. Isn’t it important to equip ourselves with the necessary tools to be able to handle any life situation. Times are changing life can take unexpected turns. It is better we stay prepared.

 

So what’s stopping us? Our dependency, our culture, our historical training that engaging with money is unfeminine, complicated financial jargons, lack of financial literacy. Answer is probably combination of all.
The art of managing money is simple, once you take a few steps to understand it. Believe me it is no rocket science. Infact women have far better understanding of financial goals, savings, inflation etc. They are running the domestic chores based on the same line – may be through a n unexplored conscience.

 

Remember, how our grandmothers use to save money in cookie jars and stash them here and there in the kitchen. This is modern day bucketing which lot of advisors use and teach their clients. It is not about just investing, it is about managing money well and using it appropriately to achieve our life’s goals. Understanding investments and own financial health in general, will help us chart out our financial journey in a better manner.

 

There are some common situations for which one may need to seek financial advice and should have awareness so that we are caught by unexpected turns of events (Remember Financial literacy means empowerment)

Savings from Salary

There are benefits of being a woman including having a lower tax rate and life insurance premium than men, one may receive added benefits from financial planning. A strategic financial plan can help maximize your cash flow and attain long-term financial security.

Higher Education

The cost of education in India and abroad has increased significantly over the past couple of years. This coupled with a higher cost of living may make it difficult to continue your education without proper planning. If you are planning to continue your education in future, it is important to start saving today especially if you do not want to burden your parents with these high expenses.

Planning for Marriage

Getting married is one of the most exciting events in a woman’s life. However, weddings can be very expensive. Whether you want to have a dream wedding ceremony, a designer outfit, or luxurious jewellery and do not want to trouble your father with these high expenses, these aspirations could still turn into reality with some financial planning.

Homemakers

Managing household expenses can be complicated. Apart from spending wisely, you may struggle to save. With financial education, you can learn how best to optimize the funds at your disposal.

Planning for a Family

Children bring such joy to a parent’s life, but they also come with additional responsibilities & expenses. It can be challenging and expensive to meet the ever increasing needs of children. Don’t compromise on your child’s needs and start planning your finances early.

Luxury Shopping

Wouldn’t you like to buy that designer handbag you saw the other day at the mall? Or those designer shoes? Some financial planning may help you to buy those luxury goods without facing the embarrassment of asking your spouse or parents.

Planning for Retirement /Golden Years

Saving for retirement can be a stressful task but one which should be planned proactively. Unfortunately, historically women tend to earn less, live longer than men and thus are likely to enter retirement with fewer resources than men. If you start investing early, due to the power of compounding, you should be able to accumulate the necessary funds for retirement.

Inheritance

Today, many women are beneficiaries to an inheritance from their parents and husbands. To be able to optimize the return on these assets, it’s important to understand your options.

Unexpected & Unfortunate life events

•Divorce

Unfortunately, life is not a fairy tale. Divorce is one of the most unexpected and unfortunate events which can be an emotional and financial drain. Not only is your life in turmoil, but also your finances are out of order. When you are going through a divorce, lack of specialized financial expertise can lead to mistakes resulting in long-lasting, devastating consequences.

•Widowhood

In the midst of dealing with the grief and pain of the loss of a spouse to death, it is important to be prudent with one’s inheritance.

The list goes on but one simple reason for which you must put Personal Financing & Investment Planning on priority is YOU. Do it for yourself, for your family & your loved ones. And on Women’s Day – drop in a mail to rashi.bhargava@sbsfin.com with just one line, ‘ I am in Rashi, let us talk further’. and 10 lucky entries will get a Free Consultation & Suggested Investment Document for the new Financial Year. You can also reply & comment on our social channels to participate.