Most of the people who put their money in the market, do not know if they are long term investors in the market or if they are short term traders. There are couple of differences between traders and investors that one should understand before putting any money into the stock market (via equities or mutual funds).
Traits of Investors
- Investors invest based on company fundamentals and have a deep knowledge about company fundamentals like its business model, its growth potential, quality of the business and the management etc.
- Investors are usually contrary by nature- they buy value when others are selling in panic. They don’t believe in timing the market.
- Most of the good investors run concentrated portfolios and don’t have more than 20-30 stocks in their portfolios. This allows them to do deep research into few names rather than buy the complete market.
- Most of the investors hold the stock for a long period of time-usually more than 2-3 years. They are willing to suffer massive drawdowns (upto 50% of their capital) during bear market phases. As a matter of fact, they might add to their positions during downturns.
- Their market edge lies in picking good stocks and holding them for really long term. So imagine holding an infosys for 15-20 years and taking all those 2008 type corrections in your stride!
- The risk with fundamental investing is holding on to “wrong stocks” for long period of time. In the current scenario imagine the difference between holding PSU banks for last 5-7 years and holding private sector banks like Yes Bank/IndusInd Bank for 5-7 years
Traits of Traders
- A stock trader usually trades based on price action and rides the market trends. His holding time can be few hours to few months.
- A Trader is essentually a market timer and tries to time the market in various time frames. He usually uses technical analysis tools/charts as well as macro factors to take his trades. Many successful traders employ mathematical algorithms to make buy and sell decisions.
- A trader is not akin to using levearge to enhance his/her returns during trending markets.He main objective is to ride the upside/downside momentum in stocks.
- A trader practices strong risk managment and is quick to get put of losing positions. He is a master student of probability and is alsways listeing to the market sentiment.
- A trader is always looking for risk adjusted returns and is always looking to limit his drawdown during bear markets. Some traders might even go short during bear phases to profit from the same!
- His biggest strength is his ability to cut his losses which gives him an edge over the investing crowd!
So are you a trader or an investor? Many times we enetr a market for short term gains but when we see a loss we turn into an investor and then end up owning dead stocks for long periods of time.On the other times- we say we are a long term investors but don’t have the patience to keep our good stocks for really long periods of time.
So it is important to undersatnd your goals and objectives before you put any money into the market. And remember- no strategy will work all the time in the market.
Are you still buying traditional insurance plans for investment?
I am still appalled to find many people still buying life insurance policies( especially endowment/single premium/money back) for the purpose of investment. When you are investing your money, you want to have returns that beat inflation for a longer period of time. When you are buying life insurance, you are doing so to protect your family against financial distress in case of your sudden death! The two objectives have nothing in common.
In India , financial advisors ( read insurance agents) sell these policies in name of tax saving,bonuses,long term returns etc. If you see the hard fats, most of such policies won’t yield you more than 5% in the long term. Let me give you an example:
Lets look at a benefit illustration of LIC Endowment Plan:
http://www.licindia.in/New_Endowment_Plan_benefits_illustration.html
As you can see, a 30 year old health male is paying about 2900 per Lakh of insurance. So what does the person get @4% returns- 2.4 lakhs. (don’t even bother to look at 8% returns as LIC bonuses range between 3-5%). Now when people sell you this policy, then 2.4 lakhs looks like a huge amount at maturity but actually you’d have actually put about 90,000 as investment in this plan and you won’t even double your investment in 35 years! ( The reason for the same is the fact that the bonus is not compounded and the bonus rates are too low- thats double whammy for any long term investment!). Also not to forget- you can’t sell your investments for 35 years(unless you are willing to take a loss on your investments for a surrender value)
Money back policies are even worst in terms of returns but play on the investor psychology of “getting his money back”.
Now look at the insurance bit- by paying 2900 per annum, you are getting a cover of just 1 lakh whereas a similar sum can buy you a 25-50 lakhs of term insurance cover! Get a quote here.
So next time when someone coaxes you to buy a traditional/endowment plan- ask him/her these hard questions. This might be a good time to take a fresh look at your insurance and investment portfolio. Also remember that money decisions are not to be taken based on emotions but based on data and your financial goals. You work hard for your money, let it work even harder for you.
Also see- Are Endowment plans any good for wealth creation?
PPF rates cut- Is there more to go in terms of reduced interest rates on FDs and EPF/PPF?
Recently there was a lot of hue and cry when Govt cut the PPF rates to 8.1%. Also long term FD rates are coming down drastically in the system. Currently 5 years FDs are fetching about 7.5%( might go even lower after RBI rate cuts in April). Now this is bad news for the savers and those who take unrealistic assumptions for PPF/EPF returns in their retirement planning.
So what is the way forward for interest rates?
If we look at the global interest rates, India still has one of the highest interest rates in the world. See this table and you will realize that Indian interest rates are bound to come down as 70-80% of world economies are having interest rates less than 3-4%. US is at 0.5% and while Japan and EURO area are having negative interest rates ! Indian interest rates as set by RBI is currently 6.75%. This is with inflation currently around 5.1%. With the formation of new MPC, RBI Gov. Rajan has been given the mandate to keep the inflation between a band of 2-6%. Considering that, 7-8% should be peak for interest rates in the economic. And if Global deflation continues, we might see even lower rates(as low as as 3-4%) in the economy.
While lower interest rates are good for the industry and the economy, for savers and retirees it is bad news. Imagine how savers are managing in developed economies where interest rates are zero or below zero!
This also implies that you can’t afford to be all 100% in debt, you will have to assume some risk and get into equities. Although it is very difficult to say that you will be adequately compensated for taking that risk in equities. Even equity returns would fall from 15-17% CAGR to about 10-12% CAGR(or even lower) for longer periods of time.
So when you are planning for your retirement 20-30 years down the line, keep in mind such return assumptions. Don’t assume lofty returns of 10-15% on your portfolio!In the short term(say 1-2 years), equities might zoom because of global liquidity so it might make sense to be slightly overweight on this asset class. But if global growth doesn’t pick up in next 1-2 years, it will be very difficult to get returns from any asset class except Gold as people will just turn to Gold for security. Hence, it is always prudent to keep at least 10% of your portfolio in Gold.
Quick Review- Max Life Insurance Online term Plan
HDFC Click2Protect Plus Term Plan Review
HDFC Click2Protect Plus Term Plan
About HDFC Life Click 2 Protect Plus Term Insurance Plan
Eligibility Criteria:
HDFC Term Plan is available for people between 18 and 65 years. And the minimum and maximum maturity age limit is 28 and 75 years. The policy term is available between 10 – 40 years. The minimum sum assured for Click 2 Protect Plus is Rs 25 Lacs whereas there is no ceiling on the maximum limit.
HDFC Life Click 2 Protect Plus gives you 4 cover options:
- Life Option – Lump sum payout of Death Benefit
- Extra Life Option (Accidental Death Benefit) – Lump sum payout of Death benefit in addition
- Extra Sum Assured in event of death due to accident.
- Income Option – Part of Sum Assured payable on death and rest payable as monthly income for 15 years
- Income Plus Option – Sum Assured paid on death & monthly income paid for next 10 years. The monthly Income can be chosen as Level or Increasing at 10% p.a.
Key Features
- Death benefit for single premium policy is 125% of single premium or sum assured, which ever is higher
- For a regular premium policy, the death benefit is 10 times the annual premium or 105% of all the premiums paid till death or the sum assured; whichever is higher
- Under Life Option the death benefit described above is paid as fixed amount.
- Under Extra Life Option, along with death benefit the beneficiaries are eligible for a benefit equal to the sum assured in case of death due to an accident.
- Under Income Option 10% of the assured sum is paid as lump sum and the remaining amount is given as monthly income for the next 15 years
- Under Income Plus Option 100% of death benefit is paid as lump sum upon death, along with a monthly income equal to 0.5% of the sum assured is also paid for 10 years.
- There are tax savings under section 80C and 10D
Our view:
- PLUS- HDFC Life term plan has one of the the best IRDA Claim Settlement Ratio ( among private players) above 90% . Check here for comparison with others.
- PLUS- HDFC Life term plan has the Lowest customer churn of about 5%. Implies that customers are renewing their policies. Excellent customer support as most of the complaints are resolved within 30 days.
- MINUS- Slightly expensive than Religare Aegon or Aviva Life Insurance or Max Life ( about 25-30%) but not quite a lot.
To compare your life insurance premium and other data for life insurance companies in India, get a quote delivered to your email.
Guide to investing in ELSS funds for tax saving
ELSS Funds
What is ELSS?
The indisputable purpose of an investment is to save tax and realize growth in the invested money. In the recent years tax saving has become all the more important with the tax saving ceiling under section 80C raised to 1.5 lacs from 1 lac. The task of investing is often times viewed as daunting effort by many. The reason is not surprising, most of the people are unaware of the benefits that accrue with the kind of investment they are making and are also less familiar with the tax breaks that they can enjoy. Equity Linked Savings Scheme (ELSS) is a kind of investment, which offers the same tax-saving benefit and also offers an opportunity to make profit in Indian equity market. ELSS funds are akin to a diversified equity mutual fund investment.
Benefits of investing in ELSS Funds
ELSS is a great way of saving tax under section 80C. The investor can get a tax exemption up to Rs. 1.5 Lacs and at the same time gets a lucrative chance of investing in the equity market. One of the biggest upsides of investing in ELSS is that there is no tax on long-term profits from the investment. The benefits are not limited to the reasons above only; another benefit is that the lock-in period for ELSS investments is only 3 years. And to top it all, there are no taxes on withdrawals since long-term equity gains are exempt from taxation. Also unlike other investment plans and PFF, the investor does not need to commit to multi-year investments. Even if the investor makes a one-time investment, which could be even an amount as small as Rs. 500 can be held for the term of the investment. In most other investments the investor has to make at-least one payment in a year or else pay a penalty.
Below is a brief comparison of the benefits with other kinds of investments.
| Parameter | PPF | NSC | ELSS |
| Tenure | 15 years | 6 years | 3 years |
| Returns | (Compounded Annually)
8.80 % ^ |
(Compounded
half-yearly) 8.60 to 8.90 % ^ |
Not assured dividends/ returns |
| Minimum investments | Rs.500 | Rs.100 | Rs.500 |
| Maximum investments | Rs.1,50,000 | No limit* | No limit* |
| Amount eligible for
deduction under Section 80C |
Rs.1,50,000 | Rs 1,50,000 | Rs 1,50,000 |
| Taxation for interest | Tax free | Taxable | Dividends and capital gain tax free |
| Safety/ Rating | Highest | Highest | High Risk |
Source: SBI Tax Saving
ELSS Caveats
ELSS investments are equity mutual funds and have all the risks associated with the equity market. With a lock-in period of 3 years the risk factor seems augmented in case of ELSS, but diversification of funds over a long period of time mitigates the associated risks. The good news is that the recent market analysis paints a much better performance picture for ELSS funds than the other diversified funds. ELSS funds have given an annual return of over 15%, whereas the diversified mutual funds over the same range of time have performed marginally lower than ELSS funds, at 14.3% annual returns (Source: TOI).
Also, 3-year lock-in period means less liquidity for the investor but it is a matter of solace for the fund manager who are reliable in making long term investment decisions. These decisions invariably turn out to be beneficial for the investor.
Some people like to take SIP route for their ELSS investment. In such an event, each SIP installment is regarded as a separate investment and each of these monthly installments is locked for a period of 3 years. For example, if you make a SIP payment in January of 2016 then you will be eligible for a withdrawal only in January 2019. And for your next SIP installment in February 2016, the withdrawal time will be February of 2019. So if there is no constraint on how much you can invest, then investing a lump sum annually or quarterly is a better choice than to go for the SIP option.
Growth and Dividend Option
The investor has the choice of opting for either the growth option or the dividend option. Under the growth option there is a cumulative growth in the funds until the investment reaches maturity or is redeemed by the investor. The dividend option on the other hand, pays a dividend from time to time to the investor when the NAV performs positively and rises. These dividends paid to the investor are tax-free.
There is in fact another option, the dividend reinvestment plan. In most circumstances it is best to avoid such an option, as the dividends payout are reinvested in the equity market to buy more units which again have a lock-in period of 3 years. So every time a dividend is reinvested a lock-in period of 3 years is enforced on the reinvested amount. Making an exit under such a plan can be a big hassle as some amount will always be locked-in.
ELSS or Some Other Investment
ELSS being an equity fund comes with a higher risk factor and there is no guarantee on investment return. But taking into consideration the historical data and performance, the long-term performance benefits of ELSS have over-shadowed investment options like PPF, EPF and tax saving Fixed-Deposits. Long-term ELSS almost comes with an assured performance benefit. It is a recommendation of most experts to invest in ELSS.
Example –
Amount invested Rs. 1 lakh in an ELSS scheme for highest tax bracket
Income Tax saved = Rs. 30,000 (30% tax slab)
Net amount Invested = Rs. 70,000/- (Rs. 30,000 is deducted here since you are getting back this via tax benefits. So technically, you invested Rs. 70,000)
Average rate of investment growth -15% per annum
Investment sum for 1st year- 1,15,000/-
Investment sum for 2nd year- 1,32,250/-
Investment value for 3rd year- 1,52,087/-
Profit earned for 3 years- Rs. 82,087/- (Considering Rs. 70000 investment)
Profit percentage = 117% (For 3 years together)
Returns % per year = 39%
So effectively, this is really one of the best investments you can opt for!
Top ELSS Companies
Below is a table for the top 15 mutual funds performers that can be considered for ELSS funds. Results for 3 year growth are tabulated.
| Mutual Fund Scheme | 1 Year | 2 Year | 3 Year |
| ICICI Long Term Equity Tax Saving-DP-G |
4.5% |
26.1% |
19.8% |
| Tat Long Term Equity Fund – Direct (G) | 14.0% | – | – |
| Tata Long Term Equity Fund – Reg (G) | 13.0% | – | – |
| Escorts Tax Plan – Reg (G) | 10.5% | 32.9% | 16.7% |
| Birla SL Tax Relief 96 – Direct (G) | 10% | 30.9% | 23.0% |
| Escorts Tax Plan (G) | 9.8% | 32.9% | 17.5% |
| Birla Sun Life Tax Plan – Direct (G) | 9.3% | 29.9% | 22.1% |
| Birla SL Tax Relief 96 (G) | 9.2% | 30.1% | 22.3% |
| Tata Tax Advantage Fund – 1 (G) | 8.6% | 25.8% | 18.6% |
| IDFC Tax Adv. (ELSS) – Direct (G) | 8.4% | 24.8% | 21.2% |
| Birla SL Tax Savings (G) | 8.3% | 26.7% | 17.8% |
| Birla Sun Life Tax Plan (G) | 8.3% | 28.8% | 21.2% |
| Birla SL Tax Saving – Direct (G) | 8.2% | 27.3% | 18.6% |
| Tata Long Term Equity Fund – Reg (D) | 8.0% | 24.3% | 16.3% |
| Religare Invesco Tax Plan – DP (G) | 7.7% | 29.7% | 22.6% |
Source: ELSS Top Performers
Conclusion
Tata and Birla mutual funds are among the top performers. If some one is interested in investing ELSS funds and make good gains in the long run then investing in established mutual funds like those of Tata’s and Birla’s is a good choice. There is a double-digit percentage gain for 2 or more years of investment.
Best Retirement and Pension Plans in India
Best Pension Plans in India
Retirement is a phase to enjoy freedom from work, engage in leisurely activities, pursue hobbies, embark on travel expeditions and basically do everything that you wanted to do but couldn’t because of your active working years. But, to live a king-size life during your golden days, you need to start your retirement planning as early as possible. According to The Aegon Retirement Readiness Survey 2015, Indian workers expect that they will need an average of 58% of their current income in retirement. However, they also believe that they are on track to achieve only 71% of the retirement income they need. Do you think you are on right track to financial planning for retirement?
What you should focus is on creating a sound, well-balanced investment portfolio to meet your retirement goals. There are several investment products such as fixed deposits, stocks, mutual funds, life insurance, real estate, commodities and precious metals, among a few others available in India. However, pension plans are recently gaining popularity as they are specifically targeted to meet retirement goals. So, it makes a wise decision to allocate a certain portion of your investment towards pension plans.
What are Pension or Retirement Plans?
Pension plans are a type of investment product that encourages you to create a retirement account. That is, you can build a huge corpus over a period of time in order to receive a fixed payout when you retire.
The pension plans broadly cover two phases:
- Accumulation: During this phase, you focus on making investment to accumulate the funds you need post retirement. This is the period between your current age and retirement age.
- Distribution: During this phase, you start withdrawing an amount to fetch a regular income from your retirement corpus. This period begins from your retirement age.
If a pension plan is taken from an insurance company (discussed below), you are entitled to an annuity. Annuities refer to the stream of income an insurer pays at regular intervals to the investor until his death or at the end of tenure he may have opted for. The corpus at the end of the accumulation phase will be paid out in two parts – 1/3rd in the form of lump sum, with the remaining will be converted into annuities.
Let’s take an example of how annuity works. Shirish is a 35 year old IT professional who wants to retire at the age of 65. He invests Rs1 lakh per annum in a pension plan for a period of 30 years. The total premium he pays over 30 years is Rs30 lakhs. Assuming that his investment grows @8% per annum, his corpus will accumulate to around Rs93 lakhs by the time he retires. So, he can withdraw Rs31 lakhs as lump sum amount upon retirement and receive a pension of around 6 lakhs per annum as pension (annuity) from the balance 2/3rd amount for the rest of his life.
The annuity based pension plans can be classified into two categories:
- Deferred Annuity: Here, you invest a fixed amount till your retirement age. The withdrawal or benefits will commence only upon attaining the retirement age.
- Immediate Annuity: Here, you invest a lump sum amount to commence annuity with immediate effect. Ideally, this is suited for those who are nearing the retirement age or prefer lump sum investment.
Types of Pension Plans
Surprisingly, for a country like India, where elderly population aged 60 years and above is expected to rise from 77 million in 2001 to 179 million in 2031 and further to 301 million in 2051, there aren’t still many pension schemes available. In fact, only 12% of India’s workforce is covered under government administered pension schemes.
Currently, there are following pension plans available in India.
- National Pension Scheme (NPS)
- Traditional Retirement Plan
- Unit Linked Pension Plan (ULPP)
- Mutual Fund Linked Retirement Plan (MFLRP)
- Employee Pension Scheme (EPS)
We will discuss each of the above pension plans in detail.
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National Pension Scheme (NPS)
NPS was launched in April 2004 by the government of India and regulated by Pension Fund Regulatory and Development Authority (PFRDA) to meet the following objectives:
- To help people plan their retirement income
- To encourage the habit of savings
- To bring pension reforms
Who are eligible for NPS?
- Central government employees
- State government employees
- Employees of corporate entities
- Individuals between the age group 18 to 60 years
- Employees of unorganized sector
The NPS subscriber gets a unique Permanent Retirement Account Number (PRAN), through which the minimum amount of Rs6000/- can be invested annually in the following accounts:
- Tier I Account: The amount can be withdrawn only after the retirement age – there is a lock-in period till the age of 60. After that, 60% lump sum upon attaining the age of 60 and the balance 40% in the form of annuity.
The investment in Tier 1 account can be claimed for deduction up to Rs1.50 lakh, along with other investments that fall under Section 80C. However, the interest accrued on the total investment and the amount used by the subscriber to buy the annuity is taxable.
- Tier II Account: The subscriber can withdraw funds periodically from Tier II account. However, there are no tax deductions available.
There are 3 fund schemes available under NPS.
- Scheme E, where 50% of investment is put in equity.
- Scheme C, where investment is made in fixed income instruments other than government securities.
- Scheme G, where investment can be made in government securities.
In spite of its long lock-in period, NPS is gradually climbing the popularity chart of pension products due to its low cost (maximum 0.25%) and healthy returns (see the chart below) features.
(Source)
Visit www.india.gov.in/spotlight/national-pension-system-retirement-plan-all to know more about NPS.
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Traditional Retirement Plan
Traditional retirement plans are offered by insurance companies. Under these plans, the insurance companies usually invest the amount in government bonds or securities grades with a high credit rating. However, the investment portfolio and costs are not disclosed to the investor. The investors get a minimum guaranteed return here. They may also get additional returns in the form of bonuses, depending on how well the fund has performed. There is a death benefit too, since these plans are primarily insurance plans.
Traditional retirement plans are a good option for conservative investors who have a short-term horizon or look for safe risk-return trade-off. However, these plans offer very low returns (around 5 – 7%) and do not even meet the service tax and inflation costs. Further, withdrawals are not allowed before maturity.
Both types of annuity options – deferred and immediate are available under these plans. Currently, most insurance companies offer traditional retirement plans. For example, LIC Jeevan Akshay VI, ICICI Prudential Forever Life and HDFC Life Personal Pension Plan are deferred annuity plans. While, LIC New Jeevan Vidhi, ICICI Prudential Immediate Annuity and HDFC Life New Immediate Annuity are immediate annuity plans.
These plans are eligible for tax benefits under Section 80C on the premium paid up to Rs1.50 lakhs. The lump sum amount withdrawn on maturity or death is non taxable while the annuity amount is considered as taxable income.
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Unit Linked Pension Plan (ULPP)
The basic structure of ULPPs is similar to Unit Linked Insurance Plans (ULIPs) – the investment amount (premium) is invested in equity after deducting certain expenses and charges. The investors have complete transparency how their plan is being managed. There is a lock-in period of 5 years. Depending on the market performance of funds, the corpus accumulates over a period of time. The investor gets life cover also as there is an insurance component attached to the ULPPs.
ULPPs an advantage over traditional retirement plans as it allows the investors to participate in the equity, based on their risk appetite and investment goals. The investors can switch between equity-debt funds to earn better returns.
If you survive the tenure of the plan, you get a guaranteed maturity benefit equivalent to 101% of the premiums paid or the fund value, whichever is higher. 1/3 of the corpus is paid in the lump sum. With the balance amount, you require to purchase an annuity which can start immediately. There is also an option to use the entire corpus to buy a single premium deferred pension product.
The amount invested in ULPP is deductible under Section 80C up to Rs1.50 lakhs annually. The lump sum amount (1/3rd of corpus) received on maturity is tax free. However, the annuity taken from the remaining 2/3 amount is taxable.
HDFC Life Pension Super Plus, Max Life Forever Young Pension Plan and ICICI Prudential Easy Retirement are some examples of ULPPs.
Let’s take an example how a ULPP works. Amit is a 35 year old married male. He decides to invest Rs1,00,000 every year towards ICICI Pru Easy Retirement Plan to retire at the age of 65 years. His asset allocation is balanced fund, in which up to 50% investments will be in equity and equity related securities. The rest will be invested in Debt,
Money Market & Cash instruments. Now, upon attaining retirement age, he is entitled to a corpus of around 1.95 crores, assuming the returns on the investment were @ 8%. After withdrawing 1/3 of the total corpus at the time of maturity of the plan, he can choose to receive pension from the balance amount for the remaining years of his life.
(Source)
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Mutual Fund Linked Retirement Plan (MFLRP)
Interestingly, you can also buy pension plans from mutual fund companies in India. Till 2014, pension plans from only two fund houses – Templeton Pension India from Franklin Templeton and Retirement Benefit Pension Unit Trust of India (UTI) were available. However, after Finance Ministry and Securities Exchange Board of India (SEBI) approved new MFLRPs, Reliance launched its first MFLRP known as Reliance Retirement Fund. Other fund houses like like HDFC, Axis, Reliance, SBI and others are still waiting for approval, but they will in the markets soon.
MFLRPs allow the investors to maintain an aggressive portfolio while accumulating corpus for their retirement years. They can invest in equity, equity-related instruments, debt and money market instruments, among others. The investors can also choose the asset class and equity – debt ratio of the portfolio as per the age or risk – appetite. Higher equity exposure at a young age and lower as the person nears the retirement age. Further, unlike traditional and unit – linked retirement plans, it is not mandatory to buy an annuity in MFLRP. They primarily concentrate on the accumulation phase of a pension plan. The investor can withdraw 100% of amount at the time of the retirement age.
The lock-in period varies from one MFLRP to another. However, premature withdrawals are penalized in the form of heavy exit load charges. Also, since these pension plans are market-linked, there is no assurance or guarantee of returns.
Currently, investment in MFLRPs up to a limit of Rs.1.50 lakhs is eligible for a deduction under section 80C. The lump sum amount withdrawn on maturity or death is non taxable while the annuity amount is considered as taxable income.
Which Pension Plan is Better?
It actually depends on your retirement goals and various factors like age, risk profile and personal circumstances. Pension plans are long – term products with an aim to create wealth for retirement. Hence, the flexibility of premature withdrawals is low. If you are in the age group 25 – 45, you can afford to be an aggressive investor by diversifying your funds into a higher percentage of equity in ULPP, MFLRP or NPS. If you are nearing retirement or a late investor, you may go for traditional retirement plans or else switch to debt-oriented funds in ULPP, MFLRP or NPS.
A comparative chart between all pension plans should help you to take the right decision.
Riders on Term Insurance Plans
Riders in Insurance
IRDAI defines riders as “ add-on options (Benefits) that can be added to a basic Life Insurance Policy – to provide additional coverage”. Riders can help to customize your insurance policy based on your personal needs and coverage requirement. You can take riders at the time of taking the basic policy, however, some insurance companies allow to opt for them during the tenure of the policy. Riders come with a cost, so they increase the total premium to be paid on the policy. Some riders are in-built in the base policy, while others are offered as stand-alone from the base policy.
The premium paid on riders is added to the base premium of the policy and, thereby, it becomes eligible for deduction under section 80C.
There are several riders available on all types of insurance policies. Here, we will discuss the ones that are available on a term insurance plan and recommend which one should you take.
Term Insurance Riders
Term insurance is the purest form of insurance. That is, there is only death benefit – if the policyholder dies, the sum assured is given to the nominee. There are no maturity or survival benefits in terms of returns or bonus. When a term is bought with rider(s), the nominee gets an extra sum over and above the sum assured in case of policyholder’s death.
Let’s understand which riders a policyholder can opt with the a term insurance policy. A detailed know-how of these riders would help you to take a wise decision.
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Accidental Death Benefit (ADB)
Under this rider, if the life insured dies in an accident, the nominee will get an additional amount, apart from the sum assured. Now, most term insurance buyers often think unless they take this rider, the nominee will not get the sum assured in the eventuality of policyholder’s death due to accident. Well, the fact is that term insurance covers accidental death, whether this rider is taken or not.
Here is an example. Shlok purchased a term insurance policy of Rs30 lakhs. His friend Ashok purchased the same policy for the same amount, but with an ADB rider of Rs10 lakhs. Now, in the unfortunate event of their death in a road accident, Shlok’s nominee will get only Rs30 lakhs while Ashok’s nominee will get Rs40 lakhs (Rs30 lakhs sum assured + Rs10 lakhs ADB amount).
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Critical Illness Benefit (CIB)
This rider gives an additional amount (usually equal to sum assured) in case the life insured is diagnosed with a critical illness as specified in the policy document. Generally, most insurance companies cover cancer, heart attack, kidney failure, stroke, major organ failure, paralysis and Coronary Artery Bypass Graft Surgery (CABG), among a few others scope of critical illnesses.
CIB can be taken as a standalone rider or as an accelerated rider. In standalone CIB rider, when the life insured is diagnosed with a disease mentioned in the document, then a lump sum amount is paid to the life insured and the policy continues with the base sum assured or lesser coverage amount. In an accelerated CIB rider, the death benefit (even if the life insured is alive) is paid and the policy is terminated. So, when you are taking a CIB on your term policy, do ensure that you know whether you are opting for a standalone or an accelerated rider.
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Disability Income Benefit (DIB)
The basic premise of term insurance plan is based on the fact that the sum assured is paid if and only the life insured dies. However, if a DIB rider is taken, the life insured will get a regular income from his policy in case he becomes disabled. Hence, this rider is also known as Partial and Permanent Disability rider.
This rider assumes that the life insured is no longer in physical capacity to earn due to disability which can be partial or total. The policyholder a fixed percentage of the sum assured at regular intervals for a fixed period of time to replace the loss of his income. Depending on the severity of disability, the policyholder may also get full sum assured as lumpsum and the policy will get terminated.
The definition of disability varies from one company to another. Please ensure you understand the definition before taking this rider.
Many insurance companies club this rider with ADB rider, so do your research properly.
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Waiver of Premium (WOP)
If the life insured is diagnosed with a critical illness or becomes disabled, he might be in a position to pay future premiums as his regular income will cease to generate. The insurance company will waive of the payment of future premiums without changing the sum assured and other features of the policy. So, not only there is a waiver of premium during the survival of the life insured, there will be also death benefit for the nominee in case of life insured’s death.
We compared the riders offered on term plans by 14 life insurance companies. Surprisingly, only 7 insurance companies offer riders. Let’s take a look.
The term plan from Aegon Religare offers four riders:
- Critical illnesses benefit for cancer, open chest CABG, first heart attack and stroke
- Waiver of premium benefit on critical illnesses listed above
- Women critical illness benefit for women only.
- Disability income benefit where life insured becomes permanently disabled due to sickness or accident.
Even if you don’t take the critical illness rider, this term plan provides an in-built benefit on the diagnosis of any terminal illness, an amount equal to 25% of the base sum assured will be paid subject to maximum of `100 lakhs and the death benefit will be reduced by an amount equal to the benefit paid under this clause. No premium will be charged after company accepts the terminal illness claim.
The term plan from Bharti Axa offers two riders:
- Accidental death benefit
- Hospital cash benefit which allows payment of a fixed benefit for each day of hospitalisation. It also offers a fixed amount benefit if you are admitted in an Intensive Care Unit or a lumpsum benefit in case of surgery.
The term plan from HDFC Life offers two riders:
- Accidental death benefit
- Income benefit on accidental disability which offers monthly Income of 1% of the rider sum assured in the event of total permanent disability due to an accident for a fixed period of 10 years.
The term plan from ICICI Prudential offers three riders:
- Accidental death benefit
- Critical illness benefit
- Waiver of premium on permanent disability due to an accident
However, accidental death benefit and waiver of premium are in-built in the plan. There is another an in-built terminal illness benefit, which gives the death benefit on diagnosis of terminal illness. After the claim of this benefit, the policy terminates.
The term plan from Kotak offers two riders:
- Accidental death benefit
- Waiver of premium benefit in case of permanent disability.
The waiver of premium is in-built in the plan.
The term plan from Max Life offers one single rider:
- Comprehensive accident death benefit which provides additional protection benefit in the event of an accident, leading to an unfortunate dismemberment (listed impairments) or death. The benefits under this riderare payable over and above the base plan benefits.
The term plan from Max Life offers only one rider:
- Accidental death benefit
Comparison Chart
Which Rider is the Best for You?
The type of rider and the sum assured on the rider you take depends on your age, occupation, frequency of travel and medical history. Your financial capacity to pay extra premium over and above the base premium should also be taken into consideration.
We always recommend simple term plans with NO riders. For critical illness and accident coverage it might be prudent to compare the price of these riders with personal accident insurance as well as critical illness plans sold separately by many general insurers like Bajaj Allianz or Apollo Munich or HDFC Ergo.
How To Apply For Personal Loans With Bad Credit History
Personal Loans Bad Credit History
A credit history is a report on the past loans that a person takes. It depends on various factors like amount of loan, amount of credit left for repayment and number of times borrower has defaulted in repayment.
One gets a personal loan bad credit history due to one or more of the following reasons:
- When the borrower defaults in making any of the repayments
- When a person misses making a bill payment
- When a borrower makes a credit application but it is not approved
- When the borrower has never taken a loan in the past and the lender is unsure if he will be able to make payments in time
When a borrower fails to make timely repayment of the loan installments for any reason, they get a low credit score. With low credit score it becomes difficult for a borrower to get loans in future. The financial institutions always check your credit score before they lend out. A low score would mean the borrower has had defaults in the past and thus they are skeptical in lending you the money.
Credit Score or CIBIL Score
Whenever one needs to borrow a loan, the financial lending institutions like bank do a financial background check on the borrower to ascertain if she/he is capable of making the payments and clearing their loan. CIBIL (Credit Information Bureau Limited) score is a number in the range 300 – 900. Higher the number, higher is your chance of availing a loan and also at a better interest rate. Each person is assigned a CIBIL score and all the banks and financial institutions in India recognize this number. The loan approval is very much dependent on this score. Maintaining a healthy CIBIL score is absolutely essential, so one must make EMI payments and credit card payments on time. CIBIL score is determined by one’s home loans, credit card loans, vehicle loans etc. It is a cumulative of all these loans. Paying your loan payments on time augments your score where as defaulting on payments will bring it down.
How to find CIBIL Score?
CIBIL score can be obtained online. The request form for CIBIL score is available online at CIBIL’s website. The form requires minimal personal information along with a nominal charge. One can fill up the form and submit the fees for CIBIL score online, and can expect to get the credit report in their email within a day. The personal information needed is like one’s name, address proof, date of birth, phone, income, identity proof etc. The fee for the process is about Rs.500.
What Do CIBIL Score Numbers Mean And How To Maintain A Good Score?
CIBIL score lies between 300 on the lower side and 900 on the higher side. Anything above 750 is considered to be a good score, and you are likely to get loan for most of your needs from almost every bank. On the flip-side, if your score is below 350 then it is considered to be a bad or poor score and most of the banks and financial institutions would be reluctant to offer you a loan.
Your payment history affects your score. So try keeping a clean and healthy history by making on-time payments. Do not try to have to have too many revolving loans or too many credit cards. This impacts your score negatively. Unsecured loans can also bring down your score.
What Is Bad Credit Loan, When Can You Apply For Them And What Is Their Status In India?
Borrowers with bad credit history are offered bad credit loans. These come at higher interest rates than the normal rates prevailing in the market. When a person has a bad credit history and is badly in need of cash for any reason, there is no other option but to apply for a bad credit loan. Since the rate of interest changed on these loans depends on discretion of the lender, he/ she usually charges high rates as the risk involved is high for him/her. Thus it is always advisable to compare rates being charged by various financial lenders and apply for the one, which is the lowest.
Unfortunately there are no bad credit loans available in India. Financial institutions do not usually offer you loan if you have bad credit history. For people requiring immediate loan, bad credit history makes the chances very dim. If anyone applies for a loan at this point and it gets rejected, it would lower his or her credit score further. It also has an adverse effect on their credit history.
Do You Still Stand A Chance Of Applying For Loan With Bad Credit History?
Anyone can fall into unavoidable financial crunch, which might lead to default in repayment. This undoubtedly lowers your credit score. However that does not mean you will never get approval for future credit loans.
Options To Consider Before Going For A Personal Loan Again:
Use Fixed Deposits
If you have any fixed deposit that you can break now, then use it for your need rather than going for a loan of the same amount.
Borrow From Friends And Relatives
If possible then borrow from your friends or family who understand you better than a financial lender. You might also extend the repayment period depending on your situation, as they are more considerate. Rather than repaying the entire amount together, try to repay in installments.
Borrow From Co-operative Society/Religious Institutions
In some cases the co-operative society that you belong to might give loans to its members. Try to find out what are their terms and conditions. They usually do not consider credit score and offer loans on basis of your reputation and existing member reference and other member approval. Some religious institutions also offer loans to ones who need it in difficult times. You can also approach them and put forward your case, as they are more considerate in case of repayments than financial institutions.
There are certain cases when bad credit loan applications are considered:
Improve Your Credit Score
If you have good terms with your bank then you should talk with your relationship manager and explain him/her why did you make a default in the repayment. In certain cases the bank might offer you ways to repay remaining of your loan. If you now diligently make all payments on time or before time then that increases your credit score and makes you eligible for the next loan.
Get Loans Against Fixed Deposits With Bank
Sometimes if you have fixed deposits in the bank, they might offer you loans amounting to the value of these deposits. This way the banks interests are secured by your fixed deposits amount as they can recover the money from there in case you fail to pay.
Get Credit Cards Against Fixed Deposit Amounts With Banks
If you have fixed deposit with banks then they might issue you credit cards that you can use for your immediate cash requirements. Though the withdrawal limit is less but it takes care of some of your cash requirement. However do take care not to cross the limit set by the bank otherwise it might adversely effect your credit score again. Credit card rates vary from 10% and go up to 30%. HDFC offers a range of credit card loans like insta-loan, which is within your credit card limit and for low EMI’s.
Existing Long-Term Customers Are Given Preference
If you have an account for a long period and maintained a steady account balance in the past then bank might talk to you as their preferred customer and talking with your relationship manager might help them consider your case. They might work out some arrangement beneficial to you and the bank as well.
Get Loans Against Security
If you have some property in your name that you can keep the papers with the financial institution then they might consider giving you the loan. In this way the lender secures his/her risk if you are not able to pay. You have to be very careful with the terms and conditions while going for this kind of loan option and make repayments on time as defaults might cost you to part with your property.
Collateral Loans
This is a great product offered by most of the banks. One can borrow or take out a personal loan against life insurance, shares and securities if one has a bad CIBIL score. One can get a loan against gold or gold jewelry as well. Banks do not do a whole lot of credit history check for such kind of products. Surprisingly, the interest rates from most of the banks against gold and securities are not exorbitant. Some of the banks like Axis and SBI will give you loan against these products for about 11% – 13%. The exact rates for a particular situation can be obtained from the banks. Below are some URLs where you can get some idea about such loans.
https://www.sbi.co.in/portal/web/interest-rates/gold-loans
http://www.icicibank.com/Personal-Banking/loans/gold-loan/interest-rate-and-charges.page?#toptitle
http://www.axisbank.com/personal/loans/loan-against-shares/loan-against-shares-fees-charges.aspx
Secured Loans Are The Best Option For Loan In India For People With Bad Credit History
The borrower has to keep one of his/her properties as security with the financial institution to avail the loan. It benefits the borrower as he gets to negotiate the rate of interest and get quick loan and the lender gets his/her money secured. In this type of loan credit history does not play much of a role.
Below Are The Features And Benefits Of A Secured Loan:
- Loan is given against a security thus you get a loan even if credit history is bad
- Interest rates are lower and amount of loan depends on value of asset
- You can choose between fixed or variable rate of interest depending on your need
- The loan approval process is quick
- You can apply for different loans for different purpose
- Third party guarantee is not required
- Interest paid is tax free
- Most of the banks and financial institutions offer these loans
- You can either visit the branch or apply online
Get Back Your Credit Score
You can get back your credit score by paying off your existing loan. Talk to the existing money lending institution and work out a way where they might give you extra time to pay it off. Do wait for few months before approaching for another personal loan. Once you get back your credit score you can apply for personal loans again with normal market rates.
No Credit Check Loans
This is a loan type that is quite similar to the concept of P2P or peer to peer lending in U.S. Here, you can take loans from websites that house vendors with some extra cash, which they don’t mind lending out. So if you want quick loans for a short term, this really works great. But interest rates touch the sky. In case of long-term loans, be prepared to shell out at least 36% per annum, which is a whopping number.
Conclusion
When you fall into a bad credit history there are many lenders who promise to give you loan against high-interest rates. Do not fall prey to these shark lenders and think twice before approaching them. If your need is urgent then you can consider getting a secured loan. However it is advisable to wait for some time and get your credit score back in good track by paying off your existing loan. Collateral loans are the best option since the rate of interest associated with such loans is reasonably low.
A Guide On Getting The Best Personal Loans in India
Personal Loans
Personal loans, as the name indicates, are not associated with any specific kind of loan but are a great way of dealing with emergency situations or for those cases where normally loans are not available.
Some facts and benefits of personal loans:
- Personal loans are usually not secured; they do not require any kind of collateral security.
- One can use a personal loan for any purpose. There is no obligation from the bank for any specific need.
- Personal loans are offered both by banks as well non-banking financial institutions.
- These personal loans are helpful for sponsoring a child’s education or buying a piece of land or for marriage or even for holidaying.
- Personal loans are usually on the higher side and these rates vary across the banks.
- Personal loans, apart from being useful for personal purposes, also have the added advantage that their disbursement take very less time and they require minimal documentation for the processing purpose.
- Unlike home loans, personal loans come with a short-term tenure and are usually given for a period of 1 to 5 years.
What to consider before applying for a personal loan?
Everyone wants to get the best deal when applying for a personal loan. Here we will do a comparison of personal loan rates for different banks. This will help you in getting an evaluative view of the loan, which suits your requirements the best.
The rates for personal loans for any bank are not fixed but variable. Rates can be different depending on two major factors:
- The amount of loan needed
- The term period of the loan
Apart from the above, some other factors that are considered by banks include:
- Bank’s pet! Banks offer special personal loan rates for their preferred customers.
- Sometimes, it has been observed people with higher salaries and multiple investments with a bank are offered a lower rate for personal loan.
- Along with these factors, banks will take into account the company employment status and borrower’s credit standing or credit history. So it is important that you pay your credit card bills and loan EMIs on time.
- Another thing to bear in mind while applying for a personal loan is to consider the other loans that you might be holding. Your eligibility for a personal loan will certainly be impacted if you already have other loans going for you.
- Personal loans are usually not offered if you are a student or have retired from active service.
How to find out the best deal for you?
There are many financial institutions that offer personal loans. It can be a tedious task trying to find out the best or the most suitable one for your personal need. We have provided a brief comparative analysis of personal loan for some of the top banks and financial institutions like ICICI Bank, HDFC, SBI, Fullerton India, Kotak Mahindra Bank etc.
There are many different parameters of comparison. We will consider some of them here:
#1. Rate of Interest
The most obvious parameter is the rate of interest itself. The table below shows the most recent personal loan interest rates updated in November 2015.
| Bank | Interest Rate |
| ICICI Bank | 13.49% – 17.50% |
| HDFC Bank | 12.99% – 20.00% |
| SBI | 17.80% |
| Kotak Mahindra | 11.50% – 20.00%, Special Offers of 11.5% for 15 lac + 1 lakh Salary P.M |
| Axis Bank | 15% – 20% |
| Bajaj Finserv | 15% – 17% |
| Standard Chartered | 14% – 18% |
| Fullerton India | 16% – 32% |
| IndusInd Bank | 14% – 16.5% |
(Source: Best Loan Providers)
#2. Processing Fee
All the banks have a certain minimum-processing fee attached with personal loan. Most of the banks have processing fee varying from 1% to 3%. A break-up of latest processing fee is tabulated below:
| Bank | Processing Fee Rate |
| ICICI Bank | 0.8% – 2.0% |
| HDFC Bank | 0.99% – 2.0% |
| Bajaj Finserv | 2.0% – 2.5% |
| Kotak Mahindra | Rs. 500 – 2.0% |
| SBI | 2.0% – 3.0% |
| Axis Bank | 2.0% |
| Standard Chartered | 1.0% |
| Fullerton India | 2.0% |
| IndusInd Bank | 1.0% – 2.0% |
(Source: Best Loan Providers)
#3. Prepayment Charges
There are certain banks that levy a pre-payment charge on personal loans. There are many banks that do not charge anything if you want to payoff your personal loan well in advance. If you think that there is a possibility for you to use the prepayment option at some point of time during your loan payment then it is important to consider and compare banks that charge prepayment penalties. Sometimes the prepayment charges can be as high as 4% – 5% and you would want to be careful before considering a personal loan from such financial institutions. Below are the prepayment charges for different banks.
| Bank | Processing Fee Rate |
| Bajaj Finserv | Nil |
| Axis | Nil |
| SBI | NA |
| Standard Chartered | 0 – 5.0% |
| HDFC | 4.0% |
| Fullerton India | 4.0% |
| Kotak Mahindra Bank | 3.0% – 5.0% (Nil after 12 Months for Loan amount above 10 lacs) |
| ICICI Bank | 5.0% Or Nil (For Loan Amount More Than 10 Lacs) |
| IndusInd Bank | 4.0% |
(Source: Best Loan Providers)
Online EMI calculators help to decide the personal loan amount
There are many online EMI calculators available that can help you decide what amount of personal loan you can comfortably apply for within your budgetary constraints.
The following picture gives a brief description of how the EMI calculator can help you decide the personal loan amount based on your budget. For example, if you can afford to pay an EMI up to Rs.12000 for 5 years for an amount borrowed at an interest rate of 15%, then you can safely apply for Rs.500000.
(Source: EMI calculator)
You can clearly see that on a borrowed amount of Rs.5 lacs @15% rate, one would have to pay almost 30% of the borrowed amount as interest payment. EMI calculators help you show you at a quick glance what are the various financial parameters at play so that you can easily decide what suits your needs the best. These financial calculators can be used for any bank. All one has to do is to plug in the rates and adjust the loan and tenure fields and the calculators will tell you exactly your EMI payments.
Apply for a Personal Loan
Below are some of the bank sites where one can apply for a personal loan online:
Axis Bank
http://www.axisbank.com/personal/loans/personal-loan/personal-loan-features.aspx
SBI
https://www.sbi.co.in/portal/web/personal-banking/sbi-saral-personal-loan
ICICI Bank
http://www.icicibank.com/Personal-Banking/loans/personal-loan/index.page
HDFC Bank
http://www.hdfcbank.com/search/personal-loans/index.asp
Similar website URLs are available for other banks and financial institutions which offer personal loans.
Conclusion
The personal loan offers from various institutions are quite competitive. Banks like ICICI, HDFC, Axis and SBI stand apart a bit from the other banks with respect to their interest rates, processing fee and prepayment charges. ICICI, Axis and HDFC banks have variable range of interest rates and the lower interest rates are certainly an attractive feature for those who qualify. If one wants fixed interest rate, then SBI is the best choice although it’s a bit on the higher side. These four banks offer a good deal on processing fee as well with most of them having a higher limit of 2%. SBI has its processing fee higher limit of 3%. In prepayment charges SBI and Axis bank levy no charge, where as HDFC charges 4% and ICICI 5%. ICICI does not charge any prepayment fee for personal loans in excess of 10 lacs.