I’m back…!
Don’t know where I begin from… the week’s had long days all week plus a working weekend…!
I read an interesting caption a couple of days before. “The best angle from which to approach any problem is the try-angle.”
Being in sales this really holds very good and all true….!
What I love the most in here is the varied kind of people you get to meet and understand!
While some thoughts really leave an impression on you, some personalities make you numb and dumb and once you leave the site, you’re back to all your senses and curse yourself why could you not speak then all that you think now…! Perhaps this feeling is called esprit d’ escalier in French…! But today am not quite inclined to talk of my meetings, but rather I wanna talk about my newly thought and learnt portfolio strategies..!
A good thing to building your portfolio is to always have insurance to cover your future liabilities. Now there are two ways of looking into it.
1. You take the policies only to mitigate the economic loss that may be caused due to accidental loss of your asset; be it your life or any other belongings, tangible or intangible.! Perhaps the benefit in this strategy is that all the investment decision is left to your discretion and you enter a simple term policy. Also, the premiums would typically be in the range of 15% - 20% of your investible savings.
2. The second way is to look at the policy as an investment avenue where you buy a ULIP and rest assured of good returns over the policy term. The benefit here is that unlike the mutual funds, the charges for fund management are relatively low. The policy being a long term instrument allows a lock in and the investment fetches better return. Almost all policies also allow you to choose the kind of fund you would want to stay invested in i.e. from 100% equities to 100% debt products.
You can also time the purchase of a policy to your benefit…!
Now as you are aware, your premium increases as your age increases. So in case you are uninsured yet, buy it this year, probably just a couple of days before your birthday. Thus, you save the incremental premium which you will be paying on or a day after your birthday. Also, quite a few policies allow you a month’s period to prepay your premium amount due. So suppose you have your next premium due on 10th April 2011, you may prepay the premium in March 2011. How does this prepayment benefit you? Well you see the benefit u/s 80C is available on cash basis. So if you pay your premium in March 2011, you get the benefit in A.Y. 2011 – 12 i.e. in the FY 2010 -2011. Thus, essentially, despite paying a policy premium in April 2010, and investing into PF and other avenues allowed in 80C, if you have not exhausted the limits allowed u/s 80C, you may use this option to prepay and get the benefit in the year of payment.
I met this amazing person a while back who was of the notion that insurance is only for the poor. Perhaps the three realities that govern the need of an insurance are:
Reality 1: uncertainties rule our lives
Reality 2: Family survives on the breadwinner’s income
Reality 3: Human needs change with time
Probably I could relate reality 2 to the person I spoke to. But a market research has revealed that people, including the most elite and affluent, buy insurance primarily for the following reasons:
1. Financial security of the family in case of untimely death
2. Provision for education, marriage, and career of the dependants
3. Post-retirement solutions for self and dependants
4. Redemption of loans
5. Medical expenses in the event of accident, diseases or other disability
So I would not quite agree to the person who believes that insurance is a wasteful instrument. It is an investment today for a better tomorrow. Perhaps people are having some trouble with their general insurances. But that should not have them go faithless over assurance policies for their life and other endowment options. Essentially buying a policy brings in a lot of discipline with regards to your savings as you become conscious that you need to save so as to pay your premium. Helps mobilize a huge amount of savings which then helps economic growth and provides capital to various socially oriented sectors such as:
1. Housing
2. Electricity generation in industrial and rural areas
3. Piped water supply and sewerage systems
4. Road transport development
5. SSIs
There are also ways of making huge amounts of tax free income. Here’s my take:
Like I said before, there should always be some amount of debt in your portfolio of investment. So you can invest in interest yielding instrument such as NCDs and other debt papers in corporate. These yield higher than the conventional FDs and are better suited for a return crazy India. However, the investment amount should only be such that the interest generated per annum is within the tax slab where no tax is levied.
The next step is to look for dividend income and long term capital gains which are exempt u/s 115-O r.w. 10(34) and u/s 112 r.w. 10(38) respectively. Thus you could conveniently enjoy tax free income through capital gains. “Indexation benefit” is another strategy you may look to maximize your long term capital gains. Here’s how it works better… Consider you invest Rs. 100,000 on 30th March 2010 i.e. your investment year is 2009 – 2010. You may invest stay invested in an instrument for 370 days where you would then redeem them on 4th April 2011 i.e. in 2011 – 2012. Now as this qualifies for a long term investment, your cost index will be as on the end of 2009 – 2010; but the sales year index will as at the end of 2011 – 2012. Thus, with just a 370 days investment you get the index benefit of 730 days. Sounds good yeah…! True investment! You can then redeem these and put these into your debt products like we discussed above and get those funds out to stay invested in other long term instruments.
Caution: Above example is on the assumption that you do not have any salary income and only reap gains from your investment. ;P
But give me a chance and we can do some great financial planning for you…
Keep commenting and Keep reading guys… I got lots to share…! :)
