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| After all what’s the purpose of this
hike in interest rates? What impact does it have on the common
people? Probably, it’s the most frequently asked questions
lately. To begins with, the immediate hike in the repo rates*
resulted in increased interest rates. Basically, the repo rate
was increased with the intention to dampen the inflationary
expectations. |
The
immediate consequence of this hike has been the rise in the
interest rates. The direct impact is seen on the home loan rates.
Following this hike, the banks have also increased their interest
rates, the brunt of which is faced by the common man.
In the last month’s newsletter, an article was written
about the rise in Federal Interest Rates by 25 basis points.
Around two more hikes are expected to happen again this year.
The Fed will continue to raise the interest rates and there
is a possibility of a 25bps rate hike. This is likely to be
in range of 5.55-5.75.
Three leading government owned banks, SBI, Punjab National Bank
and Bank of Baroda, increased their lending rates by 25 to 50
basis points. This action will set the trend for other banks
and financial institutions. Industry sources believe that the
rise in interest rates would see a decline in the home ownership.
On the flipside, the rising interest rates have bought fixed
deposits back in to the limelight, which for a long time was
ignored. Bank fixed deposits, RBI bonds, post office schemes,
fixed income mutual funds and other such savings instruments
still exist and are good saving options. Some of these investments
offer interest upto 8%.
Bank Deposits
Bank deposits were the favorite investment option among the
older generation. A majority belonging to the older lot invested
in banks but with dipping interest rates, it no longer attracted
many investors. Now, with the hike in interest rates, it’s
back into focus.
Post Office Deposits
Post office deposits are good saving tool. The minimum investible
amount can be as low as Rs. 200. The interest rate ranges from
6.25% to 7.5% depending on the tenure you want to choose.
Kisan Vikas Patra (KVP)
This is a one-time investment wherein the investors’ money
is locked in for a period of eight years and seven months. During
this time, the money gets doubled.
RBI Bonds
RBI bonds offer an interest rate of 8% on the investment made.
The lock-in period is for six years. The forms are available
in any branch of RBI Bank, State Bank of India (SBI), etc.
National Savings Certificate (NSC) and Public Provident
Fund (PPF)
NSC offers interest rate upto 8%, provided the money is locked
in for six years. The forms are available at the post office.
NSC qualifies for tax benefits upto a limit of Rs. 1 lakh.
Similarly, PPF is also eligible for tax benefits but the limit
is capped at Rs.70,000. The tenure of PPF is 15 years, but
can be extended for five years at a time. The interest rate
is 8%.
*Repo Rate is the credit management tool used by the Reserve
Bank of India to regulate liquidity. The bank borrows money
from the Reserve Bank to cover its shortfall. It makes a certain
amount of money available and this determines the repo rate.
If the bank requires more money than what is available, this
will increase the repo rate - and vice versa.
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| Investing in Mutual
Funds (MF) has suddenly become the new rage among investors.
Good returns and investing in funds suiting your risk taste
is something that has caught the attention of the investors
lately. Perhaps, the ones with good risk appetite are more inclined
towards making a hasty investment in mutual funds. Now, if you
are perplexed on how to go about investing in MFs, then this
piece of writing should help in sailing your boat to its right
destination. |
On
a regular basis, huge write-ups on Systematic Investment Planning
(SIP) appear in financial papers, magazines, websites, etc.
explaining how SIP is an excellent method of investing in stocks.
However, it is surprising to know that many are still unaware
of this unique investment planning. To begin with, lets understand
the concept of mutual funds.
In simple terms, a mutual fund is a special type of company
that pools together money from many investors and invests it
on behalf of the group. Mutual Funds raise the money by selling
shares of the funds to the public. It is quite similar to any
other company that sells stocks to the public. Funds then take
the money they receive from the sale of their shares along with
any money made from previous investments and use it to purchase
various other investments, such as stocks, bonds and money market
instruments.
You have the option of investing in mutual funds in lumpsum
or through Systematic Investment Planning. SIP is just
a method of investing in MFs. It basically makes the payment
of money more flexible. You have to pay the fixed amount at
fixed intervals. In plain words, it means to manage your investments
systematically.
Why SIP is considered to be an ideal way of investing
1. SIP is advisable because it an impossible
task to time the share market. The NAVs of the fund are not
constant since it keeps changing. It is for this reason that
it is recommended to invest via SIP route. The loss that you
could have probably suffered gets minimized to a greater extend.
2. Second of all, SIP inculcates a disciplined
practice of investing. It forces you to set aside a fixed
amount.
3. Your risks get even out. When the market
travels its southward journey, the costs of the units are
low, so you can buy more units. Similarly, when the markets
are at its all time, the units become expensive. SIP helps
you out with the right kind of investment.
4. The longer you stay invested; SIP works
increasingly in your favour.
Market experts advise to stay invested for atleast a period
of 3 years to get the maximum benefit from SIP method. This
enables you to arrest all the ups and downs that you might
have faced while being a part of the market.
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| Always being on your toes, crazy working hours,
meeting important deadlines, reaching home late-sounds similar?
That’s what has been the new lifestyle of the new working
crowd. The attention on family life has minimized just because
the focus is more on the kind of lifestyle that is being led.
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The
need to earn more probably comes at the cost of missing to see
your child grow, attending the monthly meetings at school, going
for family picnics, etc. By the time you realise, it probably
might be too late. So, what can you do? Read on, to find out.
It is every worker bee’s dream to laze around on a bright
day, relaxing on a hammock and enjoy the view of nature. No
hurry, rush for any project or deadlines. Just a long break
from the hectic work.
But sadly, today’s high tech life demands a lot from you.
A mere handful salary is just not sufficient to meet the rising
needs. It becomes a firm conviction with rising inflation rate.
And with all these worries, how can you plan an early retirement?
If you have the following in place, it should not be a problem
to retire early.
1. Insurance
First and foremost, it’s important to have your insurance
in place. What it requires is early planning for it. If you
have already enough money bundled to take care of your future
years. That's excellent.
Annuities are also the best options available. They are steady
and the certainty of regular flow of money makes it a positive
choice. Today, there is so much emphasis on retirement that
it has resulted in numerous retirement insurance plans, schemes,
etc. Some of the policies offered by the Life Insurance Corporation
of India (LIC) are Market Plus, New Jeevan Suraksha-I, Jeevan
Nidhi, Jeevan Akshay IV (annuity plan).
However, while planning your retirement, do not forget to keep
in place other needs like health, travel, which demands a good
amount of cash outgo.
2. Security
Take the plunge of early retirement only after you have drawn
your resources well. Adequate financial backing is what is needed
before quitting a source that promises regular flow of income.
To make it easier to understand, it is important to have a rough
calculation done. Lets assume, you decide to retire at the age
of 45 years. The first requirement that you should take care
of is how much money would you need in a month. If you have
answered it, then you are safe.
3. Plan your
withdrawals
After having accumulated the desired amount, it is important
to do a fairly good assessment of how much money you would want
to withdraw every month/year. It is advisable to plan your needs
for income and estimate how long your money will last. If you
have saved Rs. 30 lakhs and assuming a withdrawal of Rs. 2 lakhs
per annum then your money should last for 15 years. Also note,
your money depends on a host of other features like inflation
and the interest rates.
4. Keep your loans
at bay
As far as possible, keep your car loans, credit loans miles
away from you. Home loans can be considered for it offers tax
benefits. Having a loan to take care of means good outgo of
money. It becomes a burden when your sources of income are unsure.
Instead, have your moolah organised for other essentials like
mediclaim, unforeseen events, etc.
5. Invest Smartly
It is always advised to invest in equities when you are young
since bearing risks becomes simpler. If you were to invest your
hard earned cash at an age when you can no longer bear the brunt
of losses, the consequences of it can be beyond your hope. Invest
your monies smartly so that you do not have to juggle with inflation-rates.
You never know the kind of adjustments that it may take. |
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| A few months ago, I came across a friend who
was proud of having a good insurance cover. To his bad luck,
he met with an accident. The hospitalisation bills made a hole
in his pocket. He had to pay Rs. 1,00,000. He had made provisions
for his family in case of his early death but insuring his health
surprisingly, skipped from his mind. After all what’s
the purpose of having a mediclaim? |
| This question
was answered to him soon after the accident. So, what does
a mediclaim plan do? Simply put, mediclaim is needed to protect
you from future health problems, accident, etc.You have to
protect yourself against these ailments, the only best way
is mediclaim.
The process of buying a mediclaim is similar to that of a
life insurance policy. The premiums that you pay towards your
mediclaim policy depend on your age and other factors like
existing illness, ailments. The older you are the higher premiums
you have to pay. The premium is the amount that is covered
for an entire year that goes towards your insurance company.
In case, there has been no hospitalisation or cover for any
diseases or illness, the policyholder will have to renew their
respective policy. A part of the premium that is paid gets
transferred from your policy towards the next year. However,
there are insurance companies like ICICI Lombard that offers
mediclaim, which runs for two years.
Age factor
The premium is the amount that you pay every year to the insurance
company. This is the cost of the cover. The cover is the actual
amount that you are insured for and the premium will depend
on your age and the cover. The older you are, the more expensive
the premium gets. See the example below.
| NAME |
AGE |
DOB |
Sum Assured (Rs.) |
Premium Due |
| Mr. Sawant |
45 |
11/01/1966 |
20,000 |
298 |
| Ms. Sawant |
35 |
10/05/1970 |
50,000 |
677 |
| Mr. Nihkil Sawant |
13 |
20/10/1992 |
20,000 |
274 |
| Ms. Nisha Sawant |
11 |
18/05/1995 |
20,000 |
274 |
Total Premium: Rs. 1,523.00
Service Tax: 12.24%
Family Discount: Rs. 152.30
Total Premium Outgo: Rs. 1,371
In the above example, Mr. Sawant is medically insured for
Rs. 20,000 and his wife for Rs. 50,000. His children, Nikhil
and Nisha have been covered for Rs. 40,000 together. In all
the family gets a discount of Rs. 152.30. So, Mr. Sawant will
have to pay a premium of Rs. 1,523 inclusive of service tax.
When you take your mediclaim policy, you have to note that
your pre-existing diseases (the illness which you already
have) are not covered. The older you grow, the higher premiums
you will have to pay. The benefit lies in the fact that the
younger you are, the lesser the illnesses or sicknesses you
have, so most of it can be covered.
The following are the four subsidiaries of General Insurance
Corporation of India from where you can buy you health insurance.
National Insurance Corporation
Oriental Insurance Corporation
United India Insurance Corporation
National India Assurance Corporation |
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I'm One of Them
You ought to feel highly honored," said the businessman
to the life insurance agent, "so far today I have had my
secretary turn away seven insurance agents."
"Yes, I know," replied the agent, "I'm one of
them."
Fire Sale
The man wanted to buy some insurance for his car, so he went
to the insurance company and asked for the list.
First there was anti-fire, which has a Rs. 2000 premium. Then,
there was anti-theft, which had a Rs. 1500 premium. At the end,
he noticed that there was an anti-fire and anti-theft policy
for only Rs.500!
So, he asked the receptionist, 'Why in the world do you price
the policy for two problems less than that for one problem?'
So, the receptionist replied, 'Because nobody steals a burnt
car.'
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