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5 myths related to medical insurance

A medical insurance is a simple but powerful product. It reimburses all your expenses if you or your family members are hospitalized due to an illness or accident. You can cover all your family members in a single ‘floater’ policy and pay an annual premium to keep the policy active.

There is a wide range of options and plans available to buy your medical or health insurance. Here are a few of the most common mistakes one makes while buying a health insurance.

Myth #1: Young and healthy people need not buy health insurance

A popular belief among the youth is that they are healthy and are not going to benefit from health insurance. While age may be on their side, ignoring the future and associated health ailments is going to lead to an unprepared financial and mental shock. Given the modern lifestyle choices, quite contradictory, the youth today are more vulnerable to health ailments. Moreover, health insurance covers accidents also, which can obviously impact people of any age. It is always wise to start early while healthy to benefit from lower premium and optimum coverage.

Myth#2: All plans are the same

Quite often, people tend to buy a health insurance which their relative or friend may have bought. Does one size fit all? If no, why would the same health insurance plan be optimum for all? It is very important to buy a health insurance according to their situation and need.

The most important factors are – number and age of family members, pre-existing diseases (if any), and if the coverage has any limits on expenses.

Myth #3: It is best to buy the lowest premium plan

Of what use is a health insurance which costs a low premium but does not offer adequate coverage? Low coverage is as good as no coverage. Imagine a scenario where one suddenly contracts a serious ailment and then gets to know that, despite paying the premium for years now, he/she is not covered for that particular ailment. This is not a good situation to find yourself in. It is always advisable to compare plans and coverage before choosing the health insurance.

Myth #4: My employer offers group health cover, so I need not buy one

Many organisations offer a group health insurance cover. However, it is in your interest to buy a personal cover for your family as well. For one, you may not continue in the same job forever, so you do not want to have the uncertainty of continued cover if you switch your job. Secondly, the earlier you start your personal cover, the lower the premium and wider the diseases covered. If you start late and have a pre-existing disease by that time, many of those complications will not be covered.

Myth#5: My agent recommended plan X; might as well go with that

An agent works for a particular company and has incentives tied to the plan he sells. Is it not obvious that he/she will try to sell a plan that gives him highest incentive irrespective of how much it would benefit you? Another issue would be the lack of options as there might be a case where the company, which the agent represents, does not have a plan to suit your needs. A smarter approach would be to compare plans across various insurance companies in an online portal and choose the plan that suits you best.

1. ULIP or 2. term insurance plus mutual fund investment: Which is Better?

Are ULIP products the best to invest in? Find out.

Thanks to a lot of sales push, you must have, at some point, been coaxed into buying a unit linked insurance plan (ULIP). As the super-friendly insurance agent would tell you, these plans combine the best of both worlds by taking care of your insurance as well as investment requirements. And don’t we as busy people always yearn for that quick solution? In this article, let us see how good this bundled solution is for your finance & whether better solutions exist.

What is ULIP, how does it work and its limitations

A ULIP is an insurance product that has an investment clause too. So, say you pay Rs. 10,000 as an annual premium for a ULIP policy. Here, Rs. 1,000 will go towards “mortality charges” (i.e. charges for your life insurance cover) and the rest Rs. 9,000 will go towards investment in an in-house mutual fund of the insurance company. Sounds good till now, however, following are the limitations of a ULIP policy:

  • The amount of life insurance cover that you get in a ULIP for a given premium is very low. If you carefully analyse your life insurance requirement & come to realise that you need Rs. 1 crore insurance cover, and try buying a ULIP policy for that, the premium will certainly be out of bounds for you.
  • Even if you try to evaluate ULIP from a purely investment angle, the real killer are the myriad charges like premium allocation charge, policy administration charges, switch charges etc. that reduce the overall return from the investment.

So, long point short: the product design of ULIP product is such that it fails to address any of your requirements properly be it insurance or investment. In this context, the question is: Is there a better alternative to ULIP for investing your hard earned savings?

Term Insurance + Mutual Funds: A better option

Answer is YES! Instead of bundling your requirements in a ULIP, you can decide to keep insurance and investments separate and follow the below given approach:

  • Buy Pure Term Insurance for your insurance needs:

    Calculate how much insurance you need and buy a pure term insurance, period! This ensures that you pay only for the risk cover. Now, because this is a pure risk cover, there is no “investment” involved in the premium amount (and you don’t get anything on maturity), the premium is a fraction of what you pay in a ULIP. Which otherwise means that for the same amount premium, you get a MUCH higher life insurance cover. Isn’t that great?

  • Invest your savings in Mutual funds:

    Unlike complicated and expensive ULIPs, mutual funds are among the simplest and lowest cost investment products. Mutual funds are well suited for retail Indian investors. Over a long term , low charges contribute to higher returns. Also, unlike ULIPs, mutual fund is very flexible which allows you to shift from one scheme to another effortlessly, in case of drop in performance etc.

Always remember:

There are some things that just don’t go together. Insurance and investment are like that. Mixing them through ULIPs is not such a great idea. Buy large enough pure term insurance for your life insurance requirements. As for your savings, invest consistently in good mutual fund schemes.

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Non-Convertible Debentures: What To Know

What you need to know about NCD .

This article has been published in “THE FINANCIAL EXPRESS” on 22nd September 2016

With the recent stir created by the DHFL Non-Convertible Debentures (NCD) issue being oversubscribed by 6.33 times, fixed income investors seem to be eyeing NCDs as the next shiny object.

For those who are still wondering what an NCD is, here’s a gist of the concept. It is almost like a fixed deposit offered by a company (as against a bank).

A debenture is a type of debt instrument which offers a fixed rate of interest for a specified tenure. Simply put, debentures are loans taken by the companies from the general public. A debenture can be classified as either convertible or non-convertible. A convertible debenture can convert into an equity share of the company, thus giving it rights to participate in the company’s profit. However, such debentures usually yield lower interest rates. An NCD on the other hand, does not have the option to convert into equity and hence, yield relatively higher interest rates.

An NCD typically has a credit rating to reflect the expected credit performance of the company. A secured NCD isfurther protected by assets collateralized. Usually, companies that have a lower credit rating offer higher interest on the NCD. Often, issuers offer a higher interest rate to the company’s shareholders or senior citizens.

Tax implications on NCD are same as Bank Fixed Deposits if held till maturity. Interest is taxed as ‘other income’ and charged at applicable tax rates. However, if you sell the NCD in the open market before maturity, the capital gains/loss will be taxable as per standard taxation for capital gains.

The following table illustrates the comparison between a 3 year SBI Fixed Deposit and 3 year DHFL NCD, considering annual payout and same initial investment for both.

SBI Fixed Deposit DHFL – NCD August’16
Amount Invested (Rs) 1,000 1,000
Period 3 years 3 years
Rate of Interest/Coupon p.a. 7% 9.20%
Annual Payout (Rs) 70 92

The higher payout of the DHFL NCD simply reflects its higher risk compared to SBI.

Should you invest

Market interest rates are on the way down – for instance, 10-year government bond yields dropped by almost 0.5 percent points in the last 3 months. This means interest rates on fixed deposits and small savings could come down soon. In such a scenario, it is sensible to invest a portion of the short-term savings into NCDs and lock in a high-interest rate. It is, of course, important to stick to highly rated companies or secured NCDs so that the risk is mitigated.

Equities or equity mutual funds are preferred options for long-term investments. This is since they have a better chance of delivering higher returns and beating inflation. NCDs are most useful as a shorter term option to complement bank fixed deposits or liquid funds.

Common mistakes in life insurance and ways to avoid them

Often underestimated, but understanding the right way to buy a life insurance can go a long way.

This article has been published in “The financial express” on 18th August, 2016

Due to poor awareness and an abundance of mis-selling in the market, many people make some big mistakes while taking a life insurance policy.

Everyone recognizes that life insurance is a must-have. Yet, due to poor awareness and an abundance of mis-selling in the market, many people make some big mistakes while taking a life insurance policy. Given that such policies are expensive and cover a long period of time, such mistakes are costly and almost impossible to undo.

The following are the most common mistakes, and suggested ways to avoid them.

Mistake 1: Not taking enough insurance
The insurance industry talks in terms of premiums. This is great for the insurance companies and the brokers who make their money from premiums collected. But what you as a customer should worry about is the amount of insurance cover.

An unmarried person without dependents should aim for a life cover that is 5 times her annual income. A married person or one with dependents should aim for a life cover 10 times her annual income. Most people fall far short of these numbers, and hence end up under-insured.

The rationale for these thumb-rules is simple. The idea is for the family to approximately maintain the same lifestyle if the earning person is not around.

Mistake 2: Mixing insurance and investments
This is probably the biggest mistake of all – trying to take a single plan that offers both investments and insurance. In the process, you end up having much less insurance than necessary, and the investments give very poor returns. For instance, most endowment and whole-life policies give less than 5% return – even lower than the humble fixed deposit!

Such combined plans are popular only because they offer the broker more commissions. As a discerning customer, it is wise to stay clear of these schemes. A term insurance (pure insurance product) would serve the purpose better. Term insurance products have a very low premium. For instance, a 30-yr old can get a Rs 50 lakh life cover for as low as Rs 6,000 per year. Contrast this with an endowment policy which will cost over Rs 1 lakh per year of premium for a similar life cover.

Mistake 3: Buying through brokers or banks, without comparison
The vast majority of insurance brokers, agents and banks sell insurance of only a single provider. Thus, you as a customer are deprived of the benefit of comparing premiums of different providers and deciding the cheapest plan.

Term life insurance is a simple product, and you should have the benefit of comparing premiums of all the plans in the market. The difference is not trivial – it can be as high as 50 per cent. Since this premium is locked-in on day one, you can end up with a more expensive product for life, if you do not do your homework. Fortunately, there are several online sites available where you can compare premiums and buy the best (cheapest) plan.

Secondly, buying direct or online is a lot cheaper than buying through brokers or banks. Broker commissions are often 30 per cent-40 per cent of your first year premium, so you can save that by going online. In any case, all service thereafter is provided by the insurance company directly, so the broker is of no value to you.

Mistake 4: Insuring the wrong person(s)!

This may seem like a trivial point, but it’s surprising how many insurance policies have children and retired persons as the life insured. This is often due to lack of awareness among the customers, and agents pushing them the wrong products.

The earning member should be the policy holder. Other family members can be nominees. The idea is that life insurance substitutes the earning potential of the policy holder, in the case of any unfortunate event. Since children or the retired are not earning, by definition life insurance in their name is a waste.

Fixed Deposits v/s Debt Funds: 4 Compelling Reasons to Switch

Fixed Deposits may be your preferred choice, but is it really a wise choice?

This article has been published in “The financial express” on 25th August,2016

As against a case where bank penalizes early exit from FD (generally 1%) if you close it early, the beauty of liquid funds (a category of debt funds) is that there is no exit load on withdrawal.

Fixed deposits (FDs) are a perennial favorite among Indians given the certainty of return and a near zero risk of losing money. However, with time, a new and better product category has emerged which does the same work but in a much more tax efficient and flexible manner. Welcome to debt mutual funds. In this article, let discuss some reasons why debt funds are better than FDs & you should consider them in your investment portfolio.

1: Debt funds are more tax efficient
As per the Income Tax Rules, interest earned from FD is treated as “Income from Other Sources” and it is taxable every year. Hence, in case you are in the 30 per cent tax bracket, your effective return from FD is only 70 per cent of the total interest paid out by the bank.

In case of debt funds, the gain, which is taxed under “Income from Capital Gains”, becomes taxable only at the time of the sale of units, rather than every year. If you hold a debt fund for more than 3 years, the tax rate is 20% with the benefit of indexation. This effectively brings down the tax rate to below 10 per cent.

Another point is that in case of resident Indians, the bank will deduct TDS @10 per cent on FD interest if it is greater than Rs 10,000 in a financial year. In case of debt funds, there is no such hassle.

So, long point short: given the tax angle, a debt fund helps you get a bigger bang on your buck as compared to FD, and is highly recommended option for high earners in the 30 per cent tax bracket.

2: No penalty for early withdrawals
As against a case where bank penalizes early exit from FD (generally 1%) if you close it early, the beauty of liquid funds (a category of debt funds) is that there is no exit load on withdrawal. This means, you have the freedom to redeem your units whenever you need the money, without worrying about penalty costs.

3: Debt funds often provide higher returns
Returns on fixed deposits (except for senior citizens) are often lower than well performing debt funds. This is because the bank retains for itself a fat margin of safety for providing you the ‘assurance’ of a return.

For example, 1-year fixed deposits in most reputed banks today yield 7-8 per cent. Most debt funds (income funds, liquid funds) have yielded over 8 per cent in the past year. While this is of course not a guarantee of future returns, you can often expect debt funds to do better than fixed deposits in most cases.

4: Debt funds are easier to manage
Think about this: every time you save money, you create an FD. At the end of a couple of years, you will be saddled with 10 different FDs with differing maturity dates and interest rates. When you need the money, you may get confused as to which FD you should redeem first. Add to that, there is an ever present hassle of tracking the FD renewal date. Debt funds do not suffer any of these disadvantages. Just open one folio and start investing. When needed, take out the exact amount required and it gets credited to your bank account next day. Simple!

Many of us still carry the legacy of our parents forward and invest in fixed deposits but do not realize that given the dynamic financial landscape, there are better options available now. Debt funds are a perfect mix of flexibility, tax efficiency and convenience and hence a much better alternative than fixed deposits.

3 Rules To Successful Financial Planning

This article has been published in “The financial express” on 11th August, 2016

leading a financially successful life is a lot easier than you think, no matter how much you earn. You just need to ensure you save adequately, and make sure the saved money works for you over a long period of time.

 For those in India’s vast and growing middle class, it seems to be a lifetime balancing game between the ever-increasing financial goals (and associated expenses) and income. Many have ambitions of owning a nice home, a fancy car and the latest gadgets – but wonder if it’s possible with their income.

Our years of experience with money and wealth management suggest that this is very much possible – if one adheres to 3 simple rules:

Rule 1: Lead an ‘appropriate’ lifestyle

Needless to say, wealth can be managed, only if surplus money is created in the first place! This needs an ‘appropriate’ lifestyle – but what is appropriate?

A few thumb-rules can help you decide if the lifestyle you lead is appropriate or not.

-Save adequately

  • If you are single/have no dependents, save at least 30 per cent of your income
  • If you are married or have dependents, save at least 15 per cent

-Keep track of (major) expenses – it’s easier to budget and cut down, only if you know where the money is going in the first place
-Avoid credit cards or EMIs – they encourage you to spend more than you can afford
-Avoid loans, except for assets like home and education. Avoid personal loans, auto loans or loans for buying electronics

Rule 2: Prepare for uncertainties
Everyone faces uncertainties in life. But there are simple things you can do to make sure your financial boat isn’t sunk by one of them:

Take a (term) life insurance
The ‘term’ insurance policy is the only useful policy there is – it has a very low premium. All other ‘endowments’ or ULIPs or whole-life plans only enrich the broker, not you!

-Ensure you have a life cover 8-10 times your annual income, if you have dependents
– Take a life cover only on the earning member(s) of the family – not on children or the retired
-Take a family medical policy
-Use the ‘family floater’ medical insurance to cover all members of the family in a single policy
-A cover of between Rs 3 lakh to 5 lakh is usually appropriate
-Ensure money equal to 6 months of expenses is kept in a place that’s easy to take out when needed

Rule 3: Beat inflation
You may save a large amount of money, but you grow wealthy only when the money works for you. This happens when money earns for you, more than what inflation (price-rise) eats away.

The only products that beat inflation over a long period of time are equity (or equity mutual funds), real estate and gold. Everything else – from bank deposits, PPF, post office schemes to insurance policies – returns less than inflation and hence destroys your wealth over a period of time.

Of these, equity is the best place – it allows you to start small and invest regularly, has the lowest tax rate and also makes withdrawal very easy. But given the risk involved, you need to take care of a few things:

Invest only for the long term (>5-7 years), never trade

  • Use the mutual fund route to invest, to take advantage of the experts
  • Put money every month, rather than lump-sum. There is something called ‘Systematic Investment Plan’ (SIP) to facilitate this
  • Bank fixed deposits are useful, but only if you want to park money for the short term (<5 years). Over longer periods, their returns are less than inflation and hence your money loses value. Insurance policies give even poorer returns, and carry a longer lock-in.

In summary, leading a financially successful life is a lot easier than you think, no matter how much you earn. You just need to ensure you save adequately, and make sure the saved money works for you over a long period of time.

To give an example, say you had invested Rs 10,000 every month from Jan 2001 till end of 2015 (i.e. Rs 18 Lakh in all over 15 years). Your money in any good mutual fund today would have been worth over Rs 1.2 crore! In contrast, it would be only a third of that amount in PPF or in a fixed deposit.

ELSS : Why Wait For The Year-End Scramble To Save Tax

It is common among the salaried community to go through a rush for tax-saving around Jan-Feb each year.

Does fixed deposit give you the best returns?

Does fixed deposit give you the best returns?

Usually, no! FDs are the best only if you fall in the lowest tax bracket or are a retiree.

While bank fixed deposits are undoubtedly safe, their returns are poor. In fact, over a long period of time, they tend to return lower than inflation – so your purchasing power actually reduces if your money is stored in fixed deposits over long periods of time. Fixed deposits are useful only if you need the money within the next three years.

Over the long term, there is no alternative to equity if you want to stay ahead of inflation. You can either directly invest in stocks, or, if you lack the time & expertise, take the mutual fund route.


Fixed deposits give assured returns. So, traditional investors have parked their savings in FDs. However, three things which need to be considered:

  • Fixed deposit returns are lower than inflation. Your money loses value over time.
  • Breaking fixed deposit or premature withdrawals always comes with a cost. It will be an inconvenience when money is required during an emergency.

At present, interest rates on fixed deposits are between 6% to 8%,depending on the time period of investment.Retirees, persons in the lower tax bracket or those needing money within 3 years can opt for fixed deposits.

Fresh at fisdom

The latest release of fisdom app has been redesigned to make it more intuitive and user-friendly than before.

In response to popular demand of different investor segments, the new fisdom release offers a pioneering option to select advanced investing options to suit very specific needs.
The various themes introduced under this option include recommendations for sectoral funds, mid/small-cap funds, arbitrage funds, balanced funds, index funds and monthly income plans.

The updated fisdom app has a much more robust and enhanced reporting system. You can now view your fund-level information in much more detail as well as monitor the performance at a glance with the performance-tracking graphs.

This international women’s day, fisdom reached out to successful women investors to know more about their thoughts on investing and empowerment. Click the banner below to know what they said.


Here’s what smart women have to say about investing