5 Things To Keep in Mind Before You Invest Your Hard Earned Money

What care should YOU take while investing?

Understand the investment product

Whichever investment product you go for whether stocks, Mutual funds. FDs, real estate, make sure that you understand its intricacies and the risks involved. For example FDs which are normally considered safe, have the risk of giving lower return than the inflation rate which will imply that you end up having negative return. Let’s say your FD gives you a return of 8% per annum whereas the inflation is 10%. That means your FD gives you -2% returns. Similarly you should also consider you time horizon while investing. If you have shorter time horizon less than 3 years, you should invest in debt oriented products. On the other hand if your time horizon is longer you should consider investing in equities through mutual fund route. Investing directly in equities is best left to the experts and professional. Other important point to consider while investing is you should consider your risk profile and risk tolerance. Will you be ok if the markets go down tomorrow or will you lose your sleep over it? If you consider all such factors you improve your chances of winning in the game of investing.

Understand the costs and benefits

You must know the costs and benefits of your investment. Most of the investments have certain charges involved. For example, mutual funds charge management fee to manage the fund. Similarly if when you buy or sell stocks, you pay the brokerage, STT, stamp duty etc. All these charges affect you rate of return. Other thing to keep in mind is the opportunity cost. Opportunity cost in general terms is defined as the cost of an alternative that must be foregone in order to pursue a certain action. Similarly opportunity cost in investment term may be defined as the difference in return between a chosen investment and one that is necessarily passed on. Let’s say you invest in a bank FD and earn rate of return of 8% whereas similar investment in mutual fund yields 10% return. So in this case the opportunity cost is 2%.

Know the liquidity and safety aspects of the investment

Liquidity means cash or cash equivalent. It means how easily you will be able to liquidate your investments at the right valuation if any such need arises. For example real estate investments are quite illiquid asset class as you may not be able to sell it quickly or get the right valuation as well. Similarly, equities are very easy to liquidate but you may not get the right price in bad markets. This is a very important point to keep in mind while going for investment. Similarly you should know the risk factors associated with your investments. Risk factors include liquidity risk, market risk, business risk, political risk etc.

Diversify your investments

There is very famous saying that you should not put your all eggs in one basket. And nothing can be truer than this as far as investing is concerned. In fact diversification of your investments can be one single most important critical factor that will determine your success or failure as an investor. Most people either go for too risky investments or too conservative investments resulting either losing the money or earning far less returns than what they could have achieve with right kind of mix of investments. You should have the right mix of equity and debt investments in your portfolio to get the optimum returns out of your investments.

Do goal based investments

You must have a clear purpose before putting your money into any investment e.g. whether your purpose is capital protection, regular income or higher returns from your investment. Similarly your investments should be able to meet your future needs, goals and aspirations. For this purpose, you should do proper financial planning. Financial planning not only takes care of your day-to-day needs but also offers you the security against uncertainties and emergencies and helps you to meet your future financial needs. These days there are professional financial planners offering their services at a very reasonable fee. A professional help can make a huge difference in the quality of your financial health and the results you get from your investments.

Be Smart & Intelligent With Your Money.

Your Life! Your Money! Your Way!

Source: YourMoneyYourWay.in

Why Do People Lose Money?

Lack of fundamental knowledge

People generally invest their money without understanding the investment product and the risks associated with it. For example, people mostly invest in stocks to make quick money when they have little or no idea about what a stock is. They do not understand or know the company when they invest in its stock. They fail to understand that the valuations of a stock of a company depends upon factors like the quality of its management, its business model, its present earnings, the future growth prospects etc.

Investing on ‘hot tips’ by friends/neighbour/colleague

People often invest their money on ‘hot tips’ given by their friends, neighbours or colleagues rather than based on any strong research. It mostly happens when the markets are rising and everybody seems to be an expert. People follow the tips blindly without realizing that when the tide will turn, it can cost them very dear. And they find them sitting on the losses and dud investments. Internet is the other medium where there is lot of information is available freely and people rely on it without checking its authenticity, legitimacy and the reliability.

Mis-selling by institutions as well as individuals

Mis-selling of financial products by financial institutions like banks selling third party products on commission basis as well as individuals is quite rampant. In fact it has become a matter of grave concern as big scams keep unfolding now and then and the innocent people are taken for a ride. People are often sold wrong products and they are not told about the hidden charges or the risk associated with the products or often given the wrong information about the financial products.

Investing on impulse without having proper plan in place

One important factor responsible for the losses is that people often invest on impulse in haphazard manner without having any plan in place. For example traders lose money because they do not keep the stop-losses or targets for their trades. Similarly people do not have defined time horizons for their investments. For example people invest in equities or mutual funds and expect immediate returns. And if the markets go down, people either sell their good investments at loss or keep sitting with bad investments with mounting losses.

Be Smart & Intelligent With Your Money.

Your Life! Your Money! Your Way!

Source: YourMoneyYourWay.in

How to reduce your car insurance premium

 

You can plan to reduce the insurance premiums paid on your vehicles. According to the Motor Vehicle Act, a vehicle cannot be driven on the road unless and until it is insured. The insurance is renewable each year. Vehicle insurance is a pre-requisite to vehicle ownership.

If a vehicle's insurance policy is not renewed, driving that vehicle is illegal. Also, if the vehicle has an accident, the insurance company will not pay out any claims.

All no claims bonuses will also be forfeited. You can renew your auto insurance with another insurer, including the bonus accrued at your earlier insurer.

The risks covered by a third party policy include death or injury to a third party and damage to third party property. Liability in the case of death or injury is unlimited.

A comprehensive motor insurance policy provides cover against damage caused to your vehicle due to man-made or natural calamities too.

A motor insurance policy covers your vehicle against:

Natural calamities

Man-made calamities

Personal accident

Third party legal liability

Any permanent injury /death of a person

Any damage caused to property previously, the premium was mainly based on geographical zone, engine capacity, price and age of the vehicle. Now, a number of other factors are also considered to arrive at the premium. One can avail a discount on the premium and reduce it by up to 25-30 percent.

Discount on premium

The most important discount is the no claim bonus. In case you haven't made a claim against your vehicle insurance in a given year, you get the benefit of no claims bonus in the form of a specific percentage reduction in your premium in the subsequent year.

No claim bonus increases with each claim-free year. It may go as high as 50 percent on the 'own damage premium' component of the vehicle insurance premium.

Voluntary deductible discount

In addition, the insurance companies also offer a discount on your vehicle premium if you bear a certain amount of loss associated with each claim.

Voluntary deductible is the amount that you agree to pay yourself towards a claim before the insurance company pays up the balance. The higher the voluntary deductible that you agree for, the lower your premium will be.

The discounts associated with this feature range between 20 and 35 percent of the premium, subject to a maximum of Rs 3,500.

However, you need to review the amount of voluntary deductible against thediscount to ensure the discount amount will actually be higher than the voluntary deductible.

Premium depends on make, model

Premiums depend on the make and model of the vehicle. Each model has its own claim record and the insurer prices the vehicle based on its claim experience.

Some models may be more claim prone because of their structure or usage, and the premium will factor in all these facets. Some models have high repair costs and the premium is affected by this.

Source: Economic Times

How to choose the right health plan

Don’t get baffled by the policies that health & life insurers offer. Here’s how you can identify the plan best suited for you.

Medical costs are ballooning by the day — even a minor surgery can cost you anywhere between Rs 20,000 and Rs 50,000. Similarly, a cardiac treatment can set you back by Rs 5 lakh, depending upon the city and the hospital you choose. Save, invest, do whatever you want — there can be no dispute over the need for mediclaim to offset the impact of rising healthcare costs.

Given the plethora of options in the health insurance space, it is difficult to make a rational choice. With life insurance companies entering the health insurance space, customers are spoilt for choice. ET chalks out the differences between traditional mediclaim policies offered by general insurers and the new generation health covers offered by life insurers. Here’s a low-down on the key components of a comprehensive mediclaim:

Defined benefit & reimbursement plans

There are two kinds of medical policies available in India. The first is the indemnity policy, which is the traditional mediclaim policy that general insurers offer. These are largely reimbursement plans, which cover expenses related to hospitalisation. The claims are settled by the insurer either on a cashless basis through a tie-up with hospitals or by reimbursing bills. Then, there are defined benefit plans, offered by life insurers, which include critical illness policies and payment of a lump sum on the diagnosis of any of the named critical illnesses in the policy document.

“If the insurance company is stipulated to pay Rs 5,000 for a certain critical illness, the company will pay Rs 5,000 irrespective of the size of the claim,” says Rahul Aggarwal, CEO, Optima Insurance Brokers. However, critical illnesses such as cancer, stroke, renal failure or major organ transplants are not standardised and may vary from insurer to insurer. However, the insurers will not cover any of these illnesses if they get diagnosed within 90 days from the effective date of the policy.

Difference in premium

“The premiums of both versions of health covers are comparable but life insurers still outsource the service of claim settlement to TPAs. Among general insurers, most private sector companies have changed this practice and carry out the claim servicing business within the company itself.

In a way, the company becomes directly responsible for claim settlement. Earlier, even when the TPAs carried out the business of claims servicing, the onus was on the insurer to ensure a hassle free claim settlement for the policyholder,” says Sanjay Datta, head, Health Insurance, ICICI Lombard General Insurance.

Tenure of the cover

“The main difference between health covers offered by general insurers and those of life insurers is the tenure of the cover. The mediclaim has to be renewed annually whereas health covers (offered by life insurers are renewable after three years or more, depending upon the choice of insurance and insurance company).

The premiums are likely to remain unchanged in the three-year period. If the insurer wants to increase the premium within three years, the insurer has to seek the approval of Insurance Regulatory and Development Authority (IRDA). If the insurer wants to increase the premium after three years, it works like a regular mediclaim policy which usually revises premiums on an annual basis,” Binay Kumar Agarwala, senior V-P, health business, ICICI Prudential.

Size Matters

You should look at the annual limit of your policy. According to experts, if you hail from a small- or mid-sized town you should look at a cover of Rs 2-3 lakh. If you reside in a metro, then you should not look at covers less than Rs 4-5 lakh.

Look For The Clause On Sub-Limits

Insurers have introduced sub limits in mediclaim policies to tackle the rise in healthcare costs. The most common sub-limits are room rents, doctors’ fees and diagnostics. If you have a sum insured of Rs 1 lakh and the insurer has capped your room rent at 1-1 .5% of the sum insured then your room rent cannot exceed Rs 1,000. If it exceeds the specified amount, then you have to pay the balance from your pocket.

“If there is a sublimit on the room rent or the doctors’ fees, the ultimate payout will be much lesser than the sum assured,” Datta adds. Similarly, insurers also impose a sub-limit on doctors’ fee at 25-30 % of the bill amount. Check to see that the policy states the date the policy will begin paying (some have a waiting period before the cover begins) and what is covered or excluded from coverage. Moreover, it always makes sense to have an additional mediclaim even if you are covered under your employer’s mediclaim scheme.

Co-Payment Clause

This refers to the portion of claim that a policyholder agrees to bear, while the insurance company undertakes to chip in with the rest. “Co-payments happen only in certain reimbursement covers to make the insured more responsible for judicious payments. 

This clause is seen mostly in health covers designed for senior citizens. It is also common in group mediclaim covers offered by employers, which covers the employees and his/her family members. The co-payment clause is applicable mostly to the family members of the employee,” Aggarwal adds.

The Pre-Existing Diseases Clause

There are mediclaim covers which do not cover pre-existing diseases for four years whereas some which do not cover it for three years. Similarly, ensure there is no ambiguity in the renewal clause of the policy. For example, under an individual mediclaim policy, Apollo Munich covers pre-existing diseases after three continuous policy years.

The New India Assurance, on the other hand, covers pre-existing diseases only after four years and covers hypertension and diabetes only if you pay extra premium.

The Ideal Choice

The defined benefit plan could be a handicap for an individual who has signed up for a less sum assured. But it could be a plus for an individual who has signed up for an adequate sum assured. Moreover, you will know how much you will earn from your cover in advance. Similarly your mediclaim could have caps and limits, which can be well augmented by the health cover.

But that doesn’t imply that a stand alone health cover can substitute a mediclaim in your financial kitty,” Aggarwal adds. You can top up your existing mediclaim if you want to increase the sum assured. Indemnity or reimbursement cover should be the ideal base cover for any policyholder as that would come close to the final bill amount of the hospital.

But there are various expenses which include commuting to the hospital, buying medicines post hospitalisation and so on, that fall outside the purview of a traditional reimbursement plan. In such cases, you could top up a traditional reimbursement plan with a defined benefit plan to be able to tackle all the medical-related expenses. After all you have the option of claiming a tax benefit of up to Rs 15,000 under Section 80D.

The health pack: General insurers

General insurance companies offer indemnity policies or reimbursement health plans Mediclaim has to be renewed on an annual basis. The company can increase the premium at renewal Look for the clause on sub-limits. The most common sub-limits are room rents, doctors’ fees and diagnostics Individuals from a small town should go for a cover of 2-3 lakh, and in metros up to 5 lakh.

Life insurers

Defined benefit plans, mostly offered by ife insurers, pay a lump sum on the diagnosis of any of the named critical illnesses listed in the policy document Insurers usually do not cover the specified critical illnesses if they are diagnosed within 90 days from the effective date of the policy Premiums are usually revised at renewal, which is usually three years or more If the company wants to increase the premium within three years, the insurer has to seek IRDA’s approval

Source: Economic Times

The Ultimate Success Formula

Today I am going to share with you "The Ultimate Success Formula". You can apply in any area of your life and be successful. It's a very simple 4 steps formula but very effective and powerful:

Step 1: Decide what you want

 Be clear and specific what you want to achieve. For example, many people wish to be rich or the want to have "lot of money" but this is very vague. There is no clarity. If you want to be rich how much money you want to have. What will make you feel that you are rich. Be specific about the amount of money, kind of car, kind of house and so on. Once you have clarity about your goals you will feel more empowered and you will know what it is that you are trying to achieve. Remember, Clarity gives you power.

Step 2: Take Massive Action

The next step is to take the massive action. Action is the father. Action gets the result. Massive actions will get the massive results.

Step 3: Review Your Progress

Only taking massive action is not enough. You should also review the results that your action produce. Whether the results are as you expected or not. If you do not review your results you may be going in circles again and again without moving forward towards your goals.

Step4: Be Flexible With Your Approach

If you are not getting the results you want, it is important to change your strategy and take new action. Remember, be flexible in approach while being firm to achieve your goals.