5 Reasons to Invest in Mutual Funds

While considering investment in the mutual funds or equities, one usually hesitates to invest due to the lack of information thereby assuming it to be too complex. However, what you need to know is that when you invest in MFs, your money, along with that of other investors, is put into various investment vehicles, such as money market instruments, stocks, bonds and securities. A fund manager is responsible for looking after these investments, in order to ensure that investors get the best possible returns.

Types of MFs:

There are basically four types of MFs that you can choose from:

1.      Equity – which invests only in stocks

2.      Debt – which invests in fixed income securities

3.      Money Market – which invests in short term instruments, such as government securities

4.      Balanced – which invests in equity and debt, to bring you the best of both worlds, meaning a balance between risk and reward.

Investing in MFs can be very beneficial. Here are five reasons why.

1.     Professional Management and Guidance

A qualified portfolio manager is in charge of each mutual fund. S/he is backed by a qualified research team so that investors can gain from the experience and expertise of knowledgeable fund managers. The manager is responsible for deciding where the money should be invested such that the best returns can be targeted, while keeping risks as low as possible.

2.     Provides a Shield in Times of Inflation

The fund managers assess various options to ensure that your money is invested in a way that you receive inflation-adjusted returns. This is one thing that the money in your savings account or even in fixed deposits might not be able to give you.

3.     Liquidity

Compared to a fixed deposit, these funds are very liquid. Unlike FDs, MFs have no penalty on withdrawing the capital early. However, some MFs have an exit load, meaning that you can withdraw after a specific period of time. This is actually done to help you remain invested for a good enough period to gain returns.

4.     Convenient

Since we live in a tech savvy world, where the internet has taken over, online services have also enhanced mutual fund investments. Investors not have the choice of making transactions online, which makes choosing, investing and tracking and even withdrawing your investments very convenient. Further, introduction of features like Systematic Investment Plan calculator or the Goal calculator, etc., allow you to understand your requirements for investment better.

5.     Higher Return

Based on the term of investment, MFs can generate higher returns, as compared to many other investment options. This is because your money is invested across a range of diverse sectors and instruments.

Another key advantage is that you can easily transfer money from one fund to another. As your investment grows and your risk appetite increases, you can look for schemes that offer higher rewards, although they might entail higher risks.

Term plans: Understanding the essentials

We list the 5 salient points that you need to know about term insurance.

Buying a term plan has become par for the course for those who are sensitive to the current and future needs of their loved ones. Though all the relevant information is freely available, buying a term plan online can become a tricky business if you are not aware of some important facts.

If you are about to buy a term plan, you must be aware of 5 important features of the same:

1. Buying term insurance is very simple. Earlier generations of Indians were used to buying insurance from the insurance provider branch offices, or through brokers. But buying term plans is extremely simple today. You can buy a term plan online in minutes, after entering details in the application form provided on the insurance provider’s website. After selecting the right plan and filling all the details, you can proceed to pay for the policy using Net banking or NEFT. Most insurance companies also do not insist on medical tests to complete the purchase.
2. The tenure is a limited one. Most term policies are structured such that once the tenure is up, the plan is terminated at that point – there cannot be a renewal of the policy or an extension of the tenure at that point. A new policy must be purchased at this point. The premiums paid are not returned to the policy holder, nor is there a plan maturity benefit. It is important to know these features before you buy the term plan.
3. It provides ample coverage. The term insurance plan is extremely useful for the families of those who take these policies. This is because the term plan has a very high sum assured amount. Currently, term insurance has some of the highest sum assured amounts across the insurance spectrum. Thus, the policy corpus allows the family members to enjoy a comfortable life even in the policy holder’s absence.
4. Anyone can buy it. Another important benefit of buying a term plan is that the premium payments are extremely affordable. This makes it an attractive option for those who have recently started working, or those who face many demands on their monthly income. Even as one pays a low premium amount, one can get a high coverage. Meanwhile, one can buy a more expensive plan at a later date.
5. You can decide the mode of pay-out. Not all term plan providers pay a lump sum amount on plan termination. You can decide the mode and frequency of pay-out at the time of buying the term plan. You can opt for a lump sum payment, or you can choose a periodic payment term so that your family members receive regular income.

Riders you need to check while going for a term plan

So, you are planning to buy a term plan. But have you thought about adding a term rider to your plan? Certainly, buying a term insurance plan is a good decision as it protects your near-dear ones in case of an unwanted event. However, there are various untoward events which may result in financial loss. So, term riders give protection in such situations. In this way, cost effective riders let you make the most of your insurance protection plan.

What is a Rider?

Depending on his/her specific needs, one can customize term insurance plans with add-on/attachment called ‘rider’ to increase the benefits of the policy. One has to purchase this additional feature along with the basic policy. Term insurance is an insurance product that offers death benefit to the family of insured in case of sudden death of an insured person. When it comes to buying a term plan with extra benefits, people think it as it would be pricey. However, it is essential to understand term riders and complete information about it. Surely one will understand the importance of extra benefits that can strengthen an insurance plan just by paying few bucks more.

Let us have a look at a few of common riders that supplement the coverage in the policy.

• Critical Illness - Some diseases/health issues can make a person out of action temporarily or permanently. Due to such health complications, it becomes impossible for the affected person to continue work. The person also loses his earnings because these illnesses require higher medical expenses. Term riders prove to be beneficial here. By adding critical illness term rider, you can have protection from loss of earnings and financial burden of treatment. Stroke, Coronary artery bypass surgery, heart attack, paralysis, cancer, kidney failure, major organ transplant like pancreas, lung, heart or liver, etc. are some of the most common critical illnesses.
• Accidental Death Benefit Rider - This type of term rider offers additional sum assured to the nominee if the death of an insured person faces due to an accident. Remember, even if you don’t purchase this rider, you will get the basic sum assured. This term rider is only for the additional sum assured if the policyholder dies due to an accident.
• Premium Waiver Rider - as the name suggests the rider waives premium in case of disability. A person has to stop work after a disability. Thus, there are no earnings, and still one has to pay the insurance premium. However, by availing waiver of premium insurance term rider, the insured person does not need to pay insurance premiums further.

Different insurance companies offer various types of riders. One should look for a reliable and reputed insurance provider to avail the maximum benefits. Remember, although the term riders are beneficial and provide additional cover to your term insurance plan, it is essential to understand the concept and go through the policy brochure carefully. Invest a little time in finding more details about different riders and selecting appropriate riders that will prove beneficial for you and let you maximize your term insurance policy benefits.

Things You Should Accomplish Before You Turn 30

While turning 18 and then 21 are momentous occasions because each milestone opens up a world of opportunities for us, turning 30 is more about the emotional impact. What is it that makes one think that life is all downhill after 30? Maybe it is the knowledge that many of the most successful people in the world achieve their glory before the age of 30. For instance, Steve Jobs founded Apple at the tender age of 21, while Mohammed Ali became the World Champion at 22. Then there was Mary Shelley, who wrote the still popular Frankenstein at 21, Bill Gates earned his first million by 23, the same age as Isaac Newton when he created Calculus, which hounds us to this day.

So, what do you want to achieve before you turn 30? Would you want to buy your own home, even if you need to take a home loan? Here are some worthwhile goals. 

Pick Up a New Skill to Enhance Your Career

It is never too late to learn something new or gain a new skill. So, consider what courses could help you along your career path. There are plenty of online courses available these days, from languages courses to specific vocational skills and knowledge training. You might just want to look them up.

Savings

And it is never too early to start saving. While you still have lesser responsibilities, you can put away part of your income towards building a solid nest egg for your later life. Check out your options for investments, from insurance policies to mutual funds, ULIPs and even fixed deposits. Invest according to your risk appetite and make sure you diversify your portfolio, while also keeping aside some liquid funds for emergencies. The earlier you start, the more you will gain from the compounding effect of interest rates.                              

Tax Savings

Did you know that many of the investment vehicles in India entail tax benefits? In fact, even if you take a home loan, you can use the repayment installments to gain tax exemptions. Life insurance, health insurance and various savings schemes available in the country are eligible for tax benefits under the Income Tax Act of India. So, make sure you find out which ones these are and start investing while also saving on taxes.

Build Your Network

According to Global Web Index, usage times for social media sites rose from 1.66 hours per day in 2013 to 1.72 hours per day in 2016. You have sites like LinkedIn that can help you improve your professional network. This networking could improve professional credibility and give you an edge when you need career help.

Buy a Home

While this might seem like a big ask, buying a home isn’t as monumental a task as it used to be. With the easy availability of home loans, convenient repayment options and more, the sooner you think about owning a home, the better. In fact, with the real estate sector in India being on a downward spiral in recent times, investing in property could make sense now, before prices start soaring again.

As HW Longfellow wrote, “….and Time is fleeting,
And our hearts, though stout and brave,
Still, like muffled drums, are beating
Funeral marches to the grave.”

While you still have time, make the most of what life has to offer.

Retiring Soon? What's Your Strategy?

In a country like India, where the economy is growing slowly and the inflation is at an all time high, retirement planning is a tough job. In the giant financial product marketplace, one might end up buying a financial product that might not yield an amount sufficient for post-retirement life. The marketplace is filled with numerous retirement products for investment in India. But before we dig deeper, let us get familiarized ourselves with two phases of retirement planning: accumulation and distribution. While the accumulation phase requires the accumulation of the amount required for post-retirement needs, the distribution phase comes into picture when the accumulated amount needs to be aptly distributed to fulfil the financial needs arising in later life.  

Pre- and Post-Retirement Investment Products

1. New Pension Scheme (NPS): Having delivered annual returns of around 10% in the last couple of years, NPS is a perfect product for retirement. Although this product is mandatory for government employees, it is open to all individuals across the country. NPS comes with a mandate to invest in an annuity insurance plan worth 40% of the total amount accumulated through NPS at the time of retirement.
2. Employee’s Provident Fund (EPF): With a fixed rate of return per annum (8.5%) and tax deductions of up to Rs. 1 lakh, EPF is the most common and popular saving instrument in India. Although EPF does not impose restrictions like mandatory annuity purchases, it is strongly suggested to keep investing in the EPF account (by means of EPF transfers in case of job change) and not close/settle it upon leaving the job. This will help earn guaranteed return as an outcome of compounded investments.
3. Equities: Instruments like stocks and mutual funds, which offer equity investment, are unbeatable when it comes to providing maximum returns. For retirement needs, make sure to pick products under these instruments for the long term (10 years or more). However, keep a check on your products and review them annually to identify poor or non-performing products and replace them with better ones.
4. Monthly Income Schemes (MIS): Getting a regular income is of paramount importance to someone who is retiring. Schemes that offer monthly income are called monthly income schemes and are provided in the form of funds by means of investment in mutual funds. Such schemes are also offered by post offices at an interest rate of 8.4% per annum and a maturity period of 5 years. MIS requires the investment of a lump sum. The corpus thus accumulated is further invested in numerous financial instruments to ensure a fixed monthly income.
5. Pension Plans:Much like the MIS, pension plans also require you to invest a lump sum amount in exchange of monthly income. These plans are offered by insurance companies and under mutual funds; however, the rates charged by insurance companies tend to be higher than those charged under mutual funds.

With most of the investment products like NPS (which requires compulsory investment in annuity insurance plans) and pension plans requiring early and long-term investments, it is advisable to start early savings for retirement. This can be anytime between 2 and 3 years after one gets his/her first job.