Money Really Matters

How to become a more confident female investor and Planner - The Mutual Funds Way(Part-1)

It took lot of time to write something on investments exclusively for females(not a separate learning with any gender though). But suggestion from one of my close mate and below survey line

"The Center for Talent and Innovation found that women in the U.S. were less financially confident than women in India and China. Surprising? to me too".

It has made me write few things about personal finance(Insurance and investments) more acute towards equity market(Mutual Funds) which I am exercising since last 8 years.

Would like to make this writing as a series of snippets, to make things more clear and simple such a way that anyone can start, practice and continue for life time(I REALLY MEAN IT!!!!!).

When someone say equity - our traditional inclinations are --"It is gambling, uncertain, losing game....alll...but anyone to become rich(means at least above 1crore with ur own money) with pure white money, equity(Shares or Mutual Funds) is the only game in the town".

Per Einstein, there is nothing in the world which is more powerful than COMPOUNDING(in telugu chakra vaddi) and any other investment vehicle can use compounding other than market.

If, we get 12% (in our terms 1/- interest) returns post tax to make 1CRORE in 30years, we need to invest 3245/-(ONLY) per month. Means, with FINANCIAL DESCIPLINE any living soul in the world can be "RICHHHHHH".

If we say investments(we usually call as savings...both are different) we think of bank FD, chits, PF, buying lands, buying gold.......so on so forth. We never think of market (Means shares or Mutual funds(we will deal with this later)).

IN last 30years gold raised 17times(now this is even less), lands raised(22 times). FD gives you returns usually around 9%. But this is purely taxable as per your tax bracket

For 30% tax, people returns are 6.3%, for 20% it is 7.2 and for 10% it is 8.1%.

Chits always have source risk and even if we get maturity amount, the disposal is a problem and we can’t make 1 crore (at least) with chits.

BUT THE SHARE MARKET(SENSEX) RAISED 280 TIMES IN SAME 30YEARS(FROM 100 POINTS TO 28000 points). No other investment even come closer to market.

The last 30years period have, Indira Gandhi death, Rajiv death, big cyclone in 80s, IT boom, GOLD boom, Harshad Mehta scam, Ketan Parekh scam, Market crash in 2008, Modi wave...alll..... But still returns with market are far far high compared any other investment vehicle.

I WILL DEVIDE ENTIRE FUTURE DISCUSSION INTO 2 BROAD CATEGORIES, namely, "INSURANCE" and "INVESTMENTS". Will deal Insurance first and Then Investments.

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Disclaimer: I am purely during this out of passion to help others with finance and let people know the good things which I know. I will not get even a PENNY out of it and just doing to help my dear form mates.

Questions are more than welcome


--- By Thavvafriendssmiley

 

INSURANCE(LIC Vs Term Insurance):
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When I give sessions, if I ask please raise hands who have LIC policy, the count is usually about 90%. And all of them think that it is an investments :-( .

Per the definition of the insurance, the dependents need to have same financial life in the absence of the source bread winner. But if we see most of the LIC policies are made of 5L sum assured(80%) and in the case of death of insurer the family cant do anything with 5L(most probably the cremation function may takes major part of it).

For the premium, let us take case of 30years female, policy:

The best LIC policy(Jeevan Anand) for 20years policy period, the monthly premium comes as 2398/-. And if you survive for entire policy period, the LIC will give you the maturity benefit as 1030000/-. (If we calculate as returns its exactly 5.64% per annum).

So 2 things LIC claims while competing term insurance, one is guarantee sum assured and bonus accumulated every year(sum of both at the end of 20years is 1030000). They call it as survival benefit.

The 2 problems with LIC are, first VERY VERY LESS SUM ASSURED, in case of death happens - the nominee can’t survive with very less sum assured and bonus accumulated up to that time(it is not 1030000. You will get amount based on year of death of insurer). The second one is very very less maturity amount(@ 5.64%)

Let us see how any term insurance work(or deal above 2 issues which LIC have). By definition term insurance amount will be given to nominee only in the case of death(LIC agent say no survival benefit) of insurer and if the insurer survives for entire premium period not even a single penny will be given to insurer. But there is lot of benefits with TERM Insurance.

First of all, the premium amount for term insurance is very very very LESS compared to LIC premiums. Term insurances usually starts from 25lacks sum assured.(above example SA is only 5L for LIC). for 30years female, for 20years premium period, for 25lacks sum assured(cant calculate for 5L) the premium for HDFC term insurance (take any other type also) is 337 only per month. And if death happens on any day of 25 years, your nominee will get 25L(this is reasonable amount and they can drive the life). So this deals with first problem of LIC that is less sum assured. Here it is 5 times of LIC.

Coming to second case(no survival benefit which LIC claims), if we take term insurance we save 2061 monthly(2398-337 = 2061). Even if you save this in PF(which is very safe with 8.75% interest with govt security) you will get 1343325. Which is more than 1030000. And if you put in any of the good mutual fund(we have tens of funds giving more than 15%) it yields minimum 12% and the returns will be 2059244. Far big compared to LIC survival benefit.

And, if you calculate above math for LIC policy of 25L to match with term insurance 25L sum assured, the difference will be more than 30lacks at the end of 20 years.

SUMMARY FOR TODAY: TERM Insurance have very very high death benefit(5times to LIC) and very very high survival benefits too (4.7 times). Based on your family conditions, identify the insurance amount required for your family and do a PURE TERM insurance for the loving family to drive the life in the case of bread winner death. I did it for 1crore and how much u need?

MOST OF THE TIMES COCKTAIL GIVES MORE CICK. BUT COMBO OF INVESTMENTS AND INSURENACE IS NEVER BE A GOOD COCKTAIL.

CHERRY ON CREAM IS: the premium is very very less for younger age for term insurance, for the same 25L for 20 years , premium for 25 year female is 108 ONLY...........
BUT for LIC IT IS 2271 :-( :-( :-(

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Will catch up later with all types of investments(short term, medium term, long term......for very low risk profiles very high risk profiles).
Feel free to ask, if you have any questions

Thanks for reading..

Credit & courtesy
Mr. Thavva.friendssmiley

 

@Hakunamatata

[FONT=&amp]Thanks for showing the interest.

Yes we can do once in a while investments in mutual funds. Rather than the frequency of amount you get..

The answer I would like to know is when u need this money?. Because the type of mutual fund we choose, first need to be filtered based on time frame we have and next question you need to answer is for what you are investing this amount?. If the goal is very very time specific, usually we choose a bit less volatile fund. Can suggest suitable fund if I know the answers.

Looking forward further.
--Thavva friendssmiley
[/FONT]

 

@Grihani

[FONT=&amp] Thanks for showing the interest.

Yes, we can get into market(through mutual funds) even with a lump sum amount, but route will be bit longer to get into market smoothly.

First we need to park your money to couple of liquid mutual funds (they work like your bank savings account). Based on your lump sum amount size, we divide the amount into 6 to 10 equal parts and we ask the fund house to transfer money to equity fund from a liquid fund. By this at the end of 6 to 10 months period irrespective of market condition you will enter into market smoothly with lump sum amount.

If you put entire lump sum once into the market you may catch market peak and you will end up with losses. Never do this. Always use liquid funds to get into equity mutual funds over a period of 6 to 10 months. Can suggest bot liquid and equity funds if you require. Hope this helps.

Let me know if you have further questions.
--Thavvafriendssmiley
[/FONT]

 

@Hakunamatata

As you have intermittent income and time frame is about 3 years(please do not try to get out before this period), I suggest you to start with a good balanced fund.

Since you are going to do intermittently, first you need to have 5k to open any of the fund to start with and later u can even invest 1000 in each fund.

I am suggesting below 2 funds(each require 5k to start with..) and try to put amount equally in both the funds. I am also giving the link how these funds are doing. Go through those documents and let me know if you have any questions.

1. ICICI Prudential Balanced Fund - Direct Plan- Growth Option ---- (https://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=686)
   
2. HDFC Balanced Fund --- Direct- growth Option --- https://www.valueresearchonline.com/funds/newsnapshot.asp?schemecode=844
   

Happy Investing!!!!!!

Thanks,
Thavva friendssmiley

 

@Grihini

As discussed, you please start in a 2 liquid funds (distribute amount equally) and link each liquid fund to corresponding equity fund using systematic transfer plan(STP). Choose 6months to transfer to equity fund.


1. Birla Sun Life Cash Plus (Liquid Fund)

Then move over a period of 6 to 10 months to

Birla Sunlife front line equity fund – Direct –growth option

2. HDFC Liquid Fund( Liquid Fund)

Then move over a period of 6 to 10 months to

HDFC Midcap opportunitiues fund – direct –growth option


Thanks,
Thavvafriendssmiley