BasuNivesh moved to it’s own Domain “www.basunivesh.com” !!!

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I feel very happy to announce that “BasuNivesh” moved from this existing domain to new own domain www.basunivesh.com successfully. It is like moving from rental house to own house for me ūüôā

For readers- you will not loose any old contents but you feel some new changes in coming days. I am still working on the changes. All posts are available as it is in new domain. But I request all subscribes to do subscription once again to this new domain. You will receive mail regarding the same from official BasuNivesh mail soon.

I selected wordpress.org for creation of my new domain. I feel great freedom in all aspect than wordpress.com. I am thankful to all who helped me in this moving activity. Especially my brother, Abhinav, and BigRock team.

Do you have “Orphan Life Insurance Policies”?

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

First let us look at the meaning of “Orphaned Policies”. It is common in Insurance business that today who used to say as full time agent or adviser of particular life insurance company may switch his profession due to¬†competitive¬†business¬†or finding any other lucrative profession than Insurance advisory. In that case persons who took policies through him may some time miss the premium paying cycle. If the premiums are not paid within the grace period then policy will be in lapsed condition. It is not only premium paying reminders which you may miss but also the services he used to provide like; switching in ULIPs, surrender, loan, nomination change, address change and claims in case of policy holders untimely death. So agents or advisers role is very much important when it comes to after sale service in insurance policies. But if agent who sold you the policy, either left the industry or terminated from the insurer whom he is representing then your policy will miss that service part. Such policies are called “Orphaned Policies”. For your information around 3,38,891 agents left the life insurance industry in the year 2011 (IRDA report 2010-11)

To serve such policies and reduce the lapsation ratio of insurers, IRDA came up with guidelines. Let us look at these guidelines and how they can be useful for you.

1) From now onwards your insurance company is allowed to allot such “orphaned lapsed policies” to another agent. But that allottee agent’s agency must be completed atleast 2 years (means he must be in insurance industry for atleast 2 years). But remember your policy must be in “orphaned lapsed policy” condition to get new agent to serve you. So if you are paying premium regularly within the grace period then even though your agent is no more in this industry, you will not get such facility by your insurance company. As per IRDA lapsed policies are those policies where premiums not paid even after six months from the due date.

2) Single premium Life Insurance policies, Life Insurance policies on which no further premiums are due for payment and online policies (as their is no agents role is required) are not eligible to avail such facility.

3) This allotment to new agent will be informed to you. New allotted agent may canvass new policies to you and get new business from you. But if you surrender the allotted policy before revival then the allotted agent will not be eligible to get the new business for next 6 months from the date of surrender. This measure is taken to serve the orphaned policies rather to close existing policy and get new business from you.

4) New allotted agent will get the future commission on the premium what you pay. Also he is eligible for the commission on the arrears what you pay to reinstate the lapsed policy.

To allot these orphaned policies to new agents for your service, IRDA given few guidelines to insurance companies too. Few of important guidelines are as below.

A) The number of policies that were allotted to this new agent shall not exceed 20% of the total number of policies that were introduced by him and in force as on the date of allotment.

B) Insurance companies need to check this new agents track record for complaints registered against him before allotting orphaned policies.

C) If the allotted policy is not revived within 6 months then insurance companies have rights to re-allot to the new agent.

In my view IRDA taken a good initiative to reduce the lapsation of policies.  But I have not found a single guidelines related to  for example-what will happen if your allotted agent not help you in other service related issues. IRDA only concentrated on premium collection and reducing the lapsation ratios of insurance companies. But servicing to policies will also includes like; providing good service during the time of surrendering the policies, getting loans, switching in ULIPs, nomination change, address correction and death claims.

Gold-10 interesting facts which you may not know.

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

Below are the few interesting findings about gold which I think will surprise you or make you knowledgeable about gold related facts.

1) Southern states of India (Karnataka, Tamil Nadu, Andhra Pradesh and Kerala) constitutes around 40% of India’s gold demand. Western states constitutes around 25% to 30% , northern states around 20% to 25% and Eastern states around 10% to 15%.

2) 7%  of Indian household saving is in the form of Gold (RBI data 2009-10). But CMIE (Center for Monitoring Indian Economy) suggests around 36%.

3) 90% of the consumed gold in India is imported.

4) Gold and Jewellery constitutes around 30% to 50% of total marriage expenses.

5) Hence weddings generate around 50% of Indian gold demand. Gift range varies from 5 gram from poor families to 4-5 KG from affluent.

6) Despite this high demand, Indian gold jewellery consumption on per capita base is  (0.4 gram) below countries like USA and Italy (2009).

7) RBI’s 7% of total reserve is in the form of gold. Whereas USA have 72% and Europe have around 58% of gold as their reserve in their respective central banks (June 2010).

8) Currently India & China together account for approximately 25% of annual gold demand. But Indian above the ground gold stock is around 11% of global stock.

9) 40% to 50% of gold price movements since 2002 were dollar related.

10) Higher Real interest rate (Central Bank’s lending rate-Inflation) leads to lower demand in gold and lower Real Interest rate leads to higher demand in Gold. Equation suggests that a 100 basis points fall in real interest rate will result in an initial 1.5% rise in the price of gold.

When you need to come out from your equity investments?

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

Every Financial Planner advise you to invest in Equity market to get good returns. Also it is proven thing that equity outperformed other asset classes over long run. But have you ever thought what will happen to your equity investments when you face the situation like 2008-09 recession exactly nearer to your financial goals? It is devastating effect on your investments. It may not¬†erode¬†your whole investments but to the extent it may harm your financial goals. Then what is need to be done? Is Equity worst investment? No…..But need cautious planning like when to enter equity and when to exit from it.

When you actually look at USA’s historical recessions, you notice that they took minimum from 6 months to maximum 4 years to recover. Same things may reflect over other countries too. So we can’t predict now the future recessions time span and when they can affect our economy. Instead if we plan our equity investments in a good way then we can atleast reduce the impact. Below are the few points to remember about entry and exit of equity market.

1) When to enter equity market-When you look at majority of investors who invested in equity related instruments, you will find that they lost more than profit making. Reasons are many. Few of them are-lack of knowledge, short term¬†strategy, based on hot tips, based on friends advise who told them to invest as that friend generated huge profit from equity investments, entering market when actually investors are booking their profits, based on TV shows (my next post will on these funny shows). So you need to enter market based on your goal’s time horizon. When your goal is long term like more than 5 yrs it is always best to park your investments in equity. Do your research like in what way you want to enter, either direct equity (if you are expert and time to manage them) else mutual funds route. Again while selecting direct equity or mutual funds you need to do lot of research or take the advise of well qualified adviser. Once you¬†finalized¬†the products then enter with SIP route. SIP is best proven method of entering into equity instead of one time investments. You may have noticed during bearish market trend that few news papers or media will publish data and shows you that SIP not worked well during the time frame they considered. But never judge the performance by merely looking at short term like 6 months to 1 year. Give enough time to equity and equity will¬†definitely¬†provide you a good returns.

2) When to exit equity market-As I told above, it is the timing of your exit from equity market will also make you easily achieve financial goals. It is common practice by most of financial planners that they recommend clients to invest for full term of their goal horizon into to equity. For example, suppose you have 1 year old kid and you are planning to start investment for your kid’s education, which you need to¬†accomplish at your kid’s age of 18 years. Then your adviser or planner will design you a plan where you need to invest for the all remaining 17 years into equity market through SIP route and they will not in contact with you or never look at your investments how they are doing during that 17 years period. But it is wrong what they are doing. Best practice is to evaluate your equity performance on regular bases like once in 3yrs or 5 yrs. Slowly try to reduce your equity exposure to debt. Suppose in the beginning of your investments if your equity exposure is 90% and debt 10% . But when you are about reach your goal then the exposure towards equity need to be 10% or less and debt 90% or more. Which will automatically protect your investments from such recessions or market down trend. ¬†This activity is called re-balancing of your portfolio. One more¬†strategy to secure your investment is, move your all equity investments to secured investment when you are about to reach your goals like 3 yrs to 4 yrs earlier.

Hope you got a few inputs like when you need to protect your equity investments. Happy investment !!! ūüôā

LIC’s Whole Life Plan-Best for Estate creation

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

It is common practice by almost all agents to sell the products which they actually know. But I noticed during my search for LIC’s plans that Whole Life plans are I think untouched or neglected plans. Hence thought to give inputs how well they are and what are the drawbacks of these plans. First let us look at it’s feature.

In LIC’s whole life plans their are two¬†variants. One is the plan where you need to pay throughout your life span. Another is called Limited Payment, where your premium paying is restricted for few years only (like 15,20,25,30 and 35 yrs). Below are the few important features of these two plans.

Whole Life-Premium Payment throughout life Whole Life-Limited Payment
Min. Age 15 Yrs 12 Yrs
Max. Age 60 Yrs 60 Yrs
Max Maturity Age 80 Yrs 80 Yrs
Min. SA Rs.50,000 Rs.50,000
Max. SA Unlimited Unlimited
Loan Available Available

Maturity Benefits-Under first variant, policy get matured after the policy holder attaining the age of 80 yrs or after the completion of 40 yrs from the commencement date of policy. For second variant, policy will get matured after the policy holder attaining the age of 80 yrs. In both cases you will get Sum Assured+Accrued Bonus+Final Additional Bonus. One more benefit offered is, if policy holder can postpone his/her maturity proceeds later dates too. In that case he will continue to enjoy the benefit of available bonus rate till he takes back the maturity proceeds.

Death Benefits-If death occurs during the period of policy term then nominee will get Sum Assured+Accrued Bonus till the date+Final Additional Bonus.

Now the positive points of this plan are, lower premium compare to other LIC’s plans and enjoys the highest Bonus rate. So automatically you can enjoy high returns than other plans. Let us take example of 30 yrs old person who opt for limited payment 35 years. I took 35 years because in this plan maturity will be at policy holder’s 80 yrs of age. So instead of paying high premium better to lower it and opt for higher Sum Assured. Sum Assured I opted is Rs.25,00,000 and the yearly premium for him will be Rs.66,375.

Let us look at returns how much he can get if he attains the age of 80 yrs. Overall he pays Rs.23,23,125 for the whole 35 yrs of premium paying period. Maturity amount he will receive will be Rs.25,00,000 (SA)+ Rs.87,50,000 as Bonus (Calculated at the current rate of Rs.70 for SA of Rs.1,000)+Rs5,62,500 Final Additional Bonus (Calculated at current FAB for more than 25 yrs term policy and SA  more than 2 lakhs which is Rs.225 for SA of Rs.1,000). So total he will receive Rs.1,18,12,500. Overall IRR (Internal Rate of Return) workout to be 4.71%. Now few may say who will live till the age of 80 yrs.

Suppose if he lives only till the age of 60 yrs ( I considered 60 yrs because most term plans maximum maturity age is 60yrs) then from his current age of 30 years to his age of 60 yrs he will pay Rs.19,91,250. If we consider his untimely demise in that year means his nominee will get Rs.25,00,000 (SA)+ Rs.52,50,000 Bonus (Calculated at the current rate of Rs.70 for SA of Rs.1,000)+ Rs.5,62,500 as Final Additional Bonus (Calculated at current FAB for more than 25 yrs term policy and SA  more than 2 lakhs which is Rs.225 for SA of Rs.1,000). So totally his nominee will receive Rs.83,12,500.  In this case IRR works out to be 8.54%. So infact this shows good returns than the 80yrs of maturity returns.

So compare to other traditional plans and when you are buying insurance with the sole intention of creating some corpus for your dependents then it is best to park few % of your portfolio into this plan. Eventhough returns looks low, in first case it is 4.46% ¬†(probability of attaining 80yrs of age less :))and in second case 8.54%, but when you are looking for secured returns with bit of life risk cover then better to park here. This plan also holds good for few people who think Term Insurance as waste product where you will not get anything in return during the life time and in case of death only SA.¬†Hence I recommend you to have this high Bonus plan for creating wealth for your dependent. But as usual I am cautioning not to park all investment into this product instead some % of your portfolio. Happy Investing ūüôā

How you can achieve Financial Goals by small sacrifices?

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

Starting this post with good news. BasuNivesh which started it’s journey on 9th December 2011, have crossed 10,000 hits within the span of 6 months !!!. Thanks for all who visited and encouraged me for this milestone. Hope you support me in future too.

It is often believed that to start for investing means first need to check your¬†affordability then start investing. That thinking and deciding process usually may takes from days to years. Which will automatically harm your financial goals. In simple terms “Investment” also called as¬†sacrificing¬†your current expenses for the better future expenses. For example, if you are living a lavishing life style (Which Financial Planners need to say because you never say you have lavishing life style :)) and need not thinking at this stage about your retirement, will automatically spoil your retirement life. Instead with few simple¬†sacrifices¬†of current expenses if you start to invest for your retirement at the earliest then you can enjoy planned and dignified retirement life without depending on others. So let us see few examples how with small sacrifices you can build your corpus for our financial goals.

1) Avoiding your weekly family dinner in Hotels-I consider you have family of four members where you, your spouse and two kids are staying together and usually enjoy your weekends by having dinner in hotels on every weekend. Approximately it may cost you around Rs.1,000 for each week (I am taking approximate cost vegetarian food as I am being veggie dont know the costs of non-vegetarian items :)) . What we can do by sacrificing dinner instead of every weekend to monthly once? You can approximately save around Rs.2,500 to Rs.3,000.  If you start to invest this Rs.2,500 in any normal equity oriented mutual fund which will fetch you around 12% CAGR for 25 years term then your accumulated amount will be Rs.  46,97,116 (Aprox half crore) !!!! I am not saying here to totally avoid your dinner outing. I am just giving you the figure, with just avoiding every weekend dinner in hotels if you plan for monthly then how much you can accumulate.

2) Quit Smoking-Smokers usually know the health risk attached with this habit. But unable to quit it as it became habit for them. But with strong commitments you can quit it and by this you can save your health as well as money. Let us take one example of person who’s daily expenses on smoking is around Rs.50, so monthly it will be around Rs.1,500. If you quit or started to lower your smoking habit and investing the same then you can accumulate around Rs.52,42,446 after 30 yrs with the approximate return of 12% CAGR. Half Crore ¬†within 30 years by quitting one of your bad habit !!! ūüôā

3) Using Bike instead of Car-For few people it became a necessary thing to use car even when they are travelling lone. It is imperative to go by car when you have few members with you. But when you are going lone and instead of using car if you use your bike or go by public transport then you are indirectly reducing the noise and air pollution of your city. Also indirectly you are saving few bucks which can atleast can be used your current educational expenses of your kids.

4) Avoiding unnecessary talk through phone-In today’s trend of mobile savvy world where you will get new versions of handsets each day, it became a habit to change your handsets like changing your clothes daily. But have you ever thought what will be the value when you sell the same handset next day?? It will depreciate instead¬†appreciation. It is not my recommendation to go with high featured handsets. But purchase the sets where you will get the features what you daily use. In this way you can save the wastage of money. Also by just avoiding few¬†unnecessary calls, monthly you can save few hundreds of rupees. With that saving you can easily take Term Insurance for you life and protect your family’s finance in the case of your untoward demise.

5) Electricity Saving-With using the electric power when you actually need and switching off the instruments when not in use, you not only save the electrical energy but also save few bucks which again make you think how you can utilize this saved amount.

I used the 4th and 5th example particularly for the people who argue Term Insurance is waste product as they can’t get returns during their life time. But with just simple saving techniques of your life you can easily cover your life.

Eventhough above examples which I mentioned looks like funny things but when you actually work out and follow the systematic saving and investing approach, you can easily accumulate the good amount of wealth. Hope from now onward you think twice and act. It is not my intention to make you “KANJOOS”, but just making you aware of easy steps of wealth creations. Also with above mentioned examples you not only creating few bucks of savings but also contributing to¬†society, environment and to your health.

What is “Investor Protection Fund” of BSE and NSE?

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BasuNivesh now available in it’s own domain¬†www.basunivesh.com¬†from 22nd June 2012.

What will happen to you when you will not receive securities you purchased or when you not receive payment towards your sale of securities from the Broker member of NSE or BSE, who is ¬†declared as defaulter or expelled his membership?? To protect the investors from such untoward incidents, NSE and BSE have set up the fund called “Investor Protection Fund”. Now let us look at it’s features.

1) Collection of Fund-The members of stock exchanges at present contribute to this Fund Re.0.15 per Rs.1 lakh of gross turnover, which is debited to their general charges account. The Stock Exchange contributes on a quarterly basis 2.5% of the listing fees collected by it. Also the entire interest earned by the Exchange on 1% security deposit kept with it by the companies making public/rights issues is credited to the Fund. As per the SEBI directive, auction proceeds in certain cases, where price manipulation / rigging was suspected, have been impounded and transferred to the Fund. Also, the surplus lying in the account of the defaulters after meeting their liabilities on the Exchange is released to them after transferring 5% of the surplus amount to this Fund.

2) Current Compensation available-Presently the maximum compensation available for investor is Rs.10,00,000 but it will be reviewed as and when so desire. For example compensation was Rs. 5,000 in the year of 1988 but now it stands to Rs.10,00,000.

3) Management of Fund-The Investors’ Protection Fund as above shall be held in trust and shall vest in the Exchange or any other entity or authority, as may be specified by the Relevant Authority from time to time. The Investors’ Protection Fund shall be managed by the Trustees appointed under the Trust Deed created and executed and in accordance with the provisions contained in the Trust Deed and the Rules, Bye-laws and Regulations of the Exchange. Interest earned on such fund may be utilized fully or partly according to the discretion relevant authority for the purpose of imparting education or training to investors, for creating awareness among investing community or for any research connected with this.

4) How claims settled-The arbitration award obtained by investors against defaulters are scrutinized by the Defaulters Committee, a Standing Committee constituted by the Exchange, to ascertain their genuineness, etc. Once the Defaulter Committee is satisfied about genuineness of the claim, it recommends to the Trustees of the Fund for release of the award amount or Rs.10.00 lacs, whichever is lower. After the approval of the Trustees of the Fund, the amount is disbursed to the clients of the defaulters from the Investor Protection Fund.

5) Few important things about settlement of claims- A) Claim will be settled after producing the relevant proof of transactions like payment or delivery. Hence proof of document is a must.

B) But for orders or trades recorded on the ATS of the Exchange, may also be treated as the proof of transactions and for which no other proof presentation is required.

C) Claims are settled for actual loss which includes any difference receivable by the claimant arising out of the transactions. But you will not receive any amount for the damage, interest or notional losses.

D) Claim must be furnished in the prescribed form which is available at the time of claiming.

E) Where a claim is not considered for compensation, whether in part or in full, the Relevant Authority may cause a notice to be served on the concerned claimant, stating details for such disallowance.

These are few important features of this fund. Hope it may be useful for you.

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