Monday, June 23, 2008

Bajaj Allianz New Family Gain Equity Index Fund II (ULIP plan)

Recently my friend told me about an excellent plan he has taken from Bajaj Allianz. He says it gives insurance as well as investment benefits and he was very excited about it.
He showed me the policy booklet along with all the rules and regulations.

Following are the exact details of that plan.
Premium to be paid per annum : Rs 12000.00
Sum Assured : 4,08,000 (15 years) (His age is 31 yrs)
Allocation : 30% (97% from 2nd year onwards)
Net investments : Rs. 3600.00
Unit Price : 15.227 (as on 4/4/2008)
Number of Units : 236.4221

Mortality charges : -59.50 = -3.9075 units
Service tax charges : -10.37 = -0.6810 units
Rider Premium Charges: -24.48 = -1.6077 units
Policy Admin Charges : -50.00 = -3.2836 units
Total : 226.9423 ( 226.9423 * 15.227 = Rs. 3455.6504)
(Fund management charges is 1.25% per annum for equity fund)

Now you can decide for yourself how good is this policy when your first years premium of Rs. 12,000 is converted to an actual investments is just of Rs 3455.65
Rest of the money which is (12000 - 3455.65 = Rs8544.34) is expenses.

Even at the rate of 12% this will take approx more then 11 years to even reach original amount Rs. 12000.

TIPS: If you have already taken this policy then you can continue with it because the worst is over in the first premium itself. For people who are still looking at such policy you can go for a Term Cover for insurance and do an SIP into a good Large cap Mutual Fund. If you are less averse to risk then you can opt for a Balance fund.

Monday, June 9, 2008

Mutual Funds portfolio is showing a loss ! what should I do in this markets ?

Markets by there very nature will always either go UP or go DOWN. Its a know fact over the years market will surprise most of the times to most of the people. I knew of people who predicting the markets will touch an index 25000 in january 2008 when it was around 20000 now the same people a predicting doom, they are predicting market will go down to 5000 . This may be true or may be not, but the point is markets will always surprise and you need to have patient and understand that it will behave the way it is.

The following are few Rules to follow during tough times.

1) The smartest set of investors are those who even in this trying times dont stop there investment Plans. You should continue doing your SIP in good funds.

2) Analyze your Mutual Fund portfolio or get it analyzed by a Financial professional.
Get rid of the non-performing funds. (The funds which has given comparatively lesser returns then the benchmark or it's similar comparable peer group of considerable amount of time)

3) Get rid of aggressive funds and move more of your allocation to more stable large cap funds.

4) If you cannot accept too much risk then opt for a Balanced Funds.

5) STICK to you Financial plans; do not change your investing plans with short term fluctuations in markets.

This ups and downs are more of an opportunity for us to buy things at a cheaper price.
Try to look for oppurtunity in every adversity !

Thursday, June 5, 2008

ULIP's better product or Mutual Funds

ULIP's or Unit Linked Insurance Product are as the name suggest provides insurance as well as Investment avenue both combined into one product. Most of us human being by nature want more. so we feel very happy when we take an ULIP because it has insurance also.
but BEWARE Most of the ULIPs currently in the market has heavy upfront charges of as high as 25% to 50% of your first year premium. This products are always good only for the agent who sells them because they get high commission.

If you need an insurance then always opt for a pure vanilla Term Insurance which is the cheapest of all kinds of insurance. If you want to save money and create wealth then you can do an SIP in mutual funds (Mutual funds have and entry load of only 2.25%) which is much much less then 25% to 50% charged by ULIPs.

Wednesday, June 4, 2008

Start Investing Early !

Investing in any savings instruments must be done in a planned manner. You should always start investing as soon as possible. There are two friends Sachin and Vinod, Sachin was mature and way ahead of his time even when he was in 12th he started saving money by doing part time job and from his pocket money and he started investing Rs. 2000 per month in Mutual Funds. Vinod on the other hand was our regular college going student enjoying life and friends and those care free youthful days of colleges. soon after both of them graduated and Sachin told vinod about his investment plans that in 3 years from 12th to 15th, Sachin was able to save Rs. 2000 * 36 = Rs 72,000. plus some returns. Vinod also liked the idea and he also started investing Rs. 2000 per month in Diversified Equity Mutual Fund.

Both of them married happily and had kids and family and were busy in there professional life. After 20 years they met each other at IPL 2008 final match between Rajasthan Royals Jaipur and Chennai Superkings. It was such and coincidence and amazing feeling to meet your old college friends. Life is so much complicated that you really get a high when you meet your old college buddys. Vinod was dying all this years to meet Sachin and thank him for his advise that his suggestion of saving Rs. 2000 per month for 20 years at rate of 15% has generated him a kitty of Rs. 30,31,909.95 which was quite big amount and he was able to send his son for his higher education for his Masters Degree.

Sachin was equally happy and satisfied to see that his suggestion has helped someone achieve dreams. Sachin said he also had continued his plans of saving Rs. 2000 every month and now his kitty in 23years at the rate of same 15% has grown to Rs 48,33,095.72 . Vinod was pleasantly surprised to see that his friends had made Rs. 18 Lakhs more then him. even though he started just 3 years after him.

Sachin explained to him that since he was smart and wise and started investing ahead of Vinod by 3 years and that is the reason why by doing the same thing he was making Rs. 18 lakhs more then him.

Start Investing as early as possible !

NOTE: Even one month delay in investing could cost you (48,33,095.72 - 47,71,427.88 = Rs. 61,668 ) so every time you delay your investment plan to next month you are loosing big time money in long run.