Monday, January 23, 2012

Do Not Buy LIC's Jeevan Ankur

LIC has come out with a new conventional insurance plan called as ,'Jeevan Ankur'. As per LIC,  ' LIC’s Jeevan Ankur is a conventional with profits plan, specially designed to meet the educational and other needs of your child. If you are the parent of a child aged upto 17 years, LIC’s Jeevan Ankur is the most suitable insurance plan for you which ensures that your responsibilities are met whether you survive or not and without depending on anyone else.'

The fact that you need not buy this plan is obvious from more than one reason. Let me put reasons one by one:

1) There is no doubt that you need to give protection to your child and you must buy insurance to fulfill this commitment. But, it is not at all essential to buy any child insurance plan. Buy term plan which comes at a lower cost and can buy you larger insurance protection at a very low cost.

2) Those who oppose term insurance say that in event of survival of the person assured, term insurance does not give any return. Yes, it is true but that is how insurance is designed. 

3) LIC Jeevan Ankur does not assure any guaranteed addition and hence is worse than other plans where you have guaranteed additions.

4) Bonus or loyalty addition does not earn compounded return unlike PPF or NSC and hence suffers from weakness of simple interest paid on such conventional products. 

5) It has been repeated time and again that insurance is not an investment product. If you want assured return for your child start a PPF scheme for him or invest in bank fixed deposits. Additionally buy a term insurance.

Jeevan Ankur is old wine in the new bottle and it is better to avoid this policy

Sunday, January 22, 2012

Shun Your Fund Manager, Start Your Own Systematic Investment Plan (SIP)

If you ever thought that your mutual fund is indeed an expert on market and can do wonders for you, it is time for rethink. Rethink! Yes indeed. Mutual fund managers fail to outperform the index against which their schemes operate. In India, failure rate is as high as 65% which means 2/3 of fund managers do not perform even as good as the benchmark.

So what should you do? The answer is simple. Start your own SIP i.e. Systematic Investment Plan. The method to be used is simple. Set aside Rs. 10000. You can even start with Rs. 5000 but it better to start with 10000 as the options increase and you can get good diversified portfolio with this kind of money. After you have made, the first investment, all subsequent investment needs to be in multiple of Rs. 5000. You can have this investment every quarter, if you cannot afford it monthly. But it is better to have it monthly.

How would your asset allocation look like? I am suggesting an asset allocation to start with which should be like this:

Investment (In Rupees)
Weight age
Rs. 2000
Rs. 2000
Rs. 2000
Rs. 2000
Rs. 2000

This asset allocation can help you a portfolio which is driven by common sense and looks at the strength of business and does not depend on business valuation. Please remember to stay invested for at least three years. This asset allocation will ensure that you end up having a good return of 15% to 20% even in adverse market conditions as these stock have been found to be doing well in all phases of market.

Five Critical Parameters for Selecting a Stock

Wanna select a stock for investment without much hassle. Feel it is indeed difficult. Not sure if you will be able to do it or have a feeling that you need to be an expert in finance to select stocks for investment. It is time to have change in the thought process. Selecting stocks for investment is one of the easiest thing. Let us look at parameters that you need to investigate before you buy a stock:

1) Look at the Business in which a company operates: It is important to understand the business in which a company operates. If you do not understand the business, do not buy the stock. Believe me, it is very easy to understand business and requires just common sense approach. Look for example India. India as an economy will grow and this will result into growth of companies. These companies will issue new debt and equity instruments. Since these instruments will need to be rated, the country will require credit rating agencies. No wonder, I will like to buy one of the leading stocks in credit rating domain. No wonder, my first preference is CRISIL as a stock. Same logic can be applied for other stocks.

2) Look at growth of the Company: Two aspects of business growth are sales growth and profitability growth. The first is called as topline growth and second is known as bottomline. Go through profit and loss account of a company and you will easily find, growth data for these two variables.Look at compounded annual growth rate and deviations in growth over a period of five years. This will give insight into growth trend.

3) Be a long term Investor: It is better to be long term investor. There is no definition of long term and J.M. Keynes once said that in long run we are all dead but it is better to hold stock for two business cycles which can range from 7 to 10 years.

4) Look at Return on Equity: This is called as the return of owners of business. This data is available for companies on internet and to find it yourself you need to use the formula: ( PAT/ Shareholders Capital plus reserves and surplus). This will give an indication about how much return shareholders are generating for their own investment.

5) Follow the business : Though you should invest for long term, you must be aware about how the business is doing. This is in order to avoid any disastrous with your investment.

Thursday, January 12, 2012

Why Food Inflation has become negative in India?

Food Inflation has continued to remain negative for second consecutive week. This is indeed surprising for a country which has been reeling under high inflation has last one and a half years. The central bank was forced to  increase repo and reverse repo rates for 13 times in last 18 months to curd rising inflation.

It is pertinent to note that inflation is India is still very high and continues to be more than 9% as per Wholesale Price Index (WPI), however food inflation which is a part of this index has shown negative growth. This has happened primarily because of fall in prices of food items. Apart from the fact that price of some food items have fallen down, high base effect has also resulted in food inflation becoming negative.

While food inflation is -2.90 as per data released today, this is likely to scale up in the months to come. Major factors contributing in fall of food inflation are onion price which has became cheaper by 74.77 per cent year-on-year during the week under review and potato prices which were down by 31.97 per cent. Prices of wheat also fell by 3.35 per cent.Overall, vegetables became 49.03 per cent cheaper during the week ended December 31.  

Wednesday, January 11, 2012

Are name of investment schemes important while selecting investment option?

It is not unusual to find names such,' Child Protection Plans' or ,' Pension Maximiser Plan' in the world of investment. Why such names are used  by investment companies? The question that comes to my mind is after all what is there in the name? Are names so important? Yes, they indeed are in the world of investment and that is the reason many investment houses use catchy names. As investors, they catch our attention and we are lured to invest in such schemes. No wonder schemes with catchy names always float in the market. It is important to note that investment schemes with specific names may not be the best investment options. So while making investments, always look at the following aspects:

1) Select invest schemes based on investment goals and not by names.

2) Pension plans may not be the best option for pension. Building corpus is more important than buying a pension plan

3) Look at performance of the scheme while selecting a scheme for investment. This means that a gold plan will be best investment option for retirement and not a pension plan

4) Last not the least, look at risks in investment schemes. Risk and return should always be weighed before any scheme is selected and not just name.

Seven Steps to improve your credit score in India

Want to improve your credit score but not sure how to do it. Here are seven steps for you to improve your credit score:

1) Always have unsecured credit in your loan portfolio. It is better to have a credit card in your loan portfolio. Also important is to use the secured credit and pay on time. A person who shows commitment on payment of unsecured credit gets higher score than a person having secured credit

2) Always pay Rs.1 more than your credit card due. This will make your credit card balance as negative and help you have higher score

3) It is extremely important that you never have any overdue in your loan accounts. Always ensure that all your loans are paid on time.

4) Some credit bureaus use last 24 months credit performance for scoring. It is hence important that you keep your recent credit history at least last 2 years credit history.

5) Do not apply for loans to multiple financial institutions. As more and more credit grantors access your credit history, your credit score falls

6) Never be a guarantor of a loan unless you are sure that the person from whom you are giving guarantee will fulfill his loan obligations. Please remember if the person for whom you have given loan guarantee defaults, your credit score will go down.

7) Keeping on accessing your credit report at least once in a year. If there is any error in your credit report, you can get it rectified before it is too late.

Tuesday, January 10, 2012

Why An Investor Should Buy Gold?

If Your felt why you should buy gold, the chart below gives an idea about the same. Gold price has experienced steep rise in the last ten years. Since 2002, gold price has increased more than 5 times. Gold has always been termed an asset class which helps in hour of crisis. When global oil crisis happened in early 70s , price went up two and half times between 1972 to 1975. Similarly , gold price went up from from 12500 rupees per ten gram to 30000 rupees ten gram from 2008 to 2011. So whenever crisis occurs, it is advisable to park your money in gold.