Prajna Capital

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• Things to Remember Before Taking a Term Insurance Policy
• Banking Defaults
• Renting Real Estate

Things to Remember Before Taking a Term Insurance Policy Posted: 11 Jan 2014 05:59 AM PST Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     Thing Big Take A Large Cover If you had been to the markets of Bangalore last month you would have found your food bill skyrocketing? Why is this so? The reason is simple. Those Pricy Veggies .You must have noticed the Consumer Price Index Inflation in the month of May at 9.31%. This basically measures the monthly change in food, fuel, clothing, housing, medical, transport, household items and so on and this has steadily risen over the past few years .Can you imagine what the prices of all these goods might be about 10 years down the line. How Do you Beat This Rise In Inflation? The answer is incorporating the inflation factor in your term plan .You need to remember that if you are not around the burden of taking care of your family falls on your spouse and in these times of high prices according to the rule of thumb you need to take a cover of at least 12 times your monthly salary minus your investment assets plus any liabilities. Tenure Of Your Term Insurance Policy Let us consider that you plan to retire at 60 Years of age. You are currently 30 Years of age. According to the rule of thumb you deduct your current age from your planned retirement age. In this case it is 60 Years minus 30 Years which is 30 Years. This translates to tenure of 30 Years for your term policy. If you are 30 Years of age and have taken a single term insurance policy with tenure of 25 Years your policy comes up for renewal when you are 55 Years of age .If your health condition is bad would you get a renewal. Definitely not .Hence it would be wise to take up another term policy when you are 35 Years of age which would expire when you are 60 Years of age. This way you are covered throughout your working life. Take A Look At That Claim Settlement Ratio What is your worst nightmare? Isn't it that the insurance agency will not pay your family the claimed amount when you are not around and can do nothing about it? .Don't you think it is wise to check the Insurance Agencies Claim Settlement Ratio? You must have noticed that the old insurance war horse has the highest claim settlement ratio. This is a generally known fact. But what about those Private Sector Insurance Agencies which set up office in India in the early 2000's.These companies initially had a claim settlement ratio in 2007-2008 period of around 65%.This meant that 35% of the claims were not settled. This number drastically improved in the Year 2011-2012. Where the claim ratio went as high as 85% for many of the private insurance agencies .So Why Was The Claim Ratio Low Initially? The old war horses were masters in the insurance business and had the weight of experience behind time along with a large network of agents, customer loyalty and a brand image Let us consider that a life insurance agency faces an early claim mainly a young person of 28 Years has taken a term insurance policy for a tenure of 30 Years paying a premium of around INR 10000.for a claimed amount of INR 1 Crore. If a claim is made within a couple of years don't you think the insurance agency will be suspicious and thoroughly investigate suspecting a fraudulent claim whether it is an old warhorse or a new insurance agency? This resulted in a low claim ratio initially for these private insurance agencies. The claims made within a period of 3 Years of the term insurance policy are thoroughly checked and claims can take up to 6 Months to settle. Since many insurance agencies had recently set up operations in India in the year 2007 their early claims clustered in the Year 2010 and gradually their claim ratio improved. This proves that claim ratio alone is not a good indicator of the performance of an insurance agency and certain other factors also need to be taken into account. Claim Repudiation Ratio This is basically the percentage of claims rejected by the insurance agency and is a better ratio to measure the claim settlement of an insurer. A claim repudiation ratio of 40% states that out of every 100 claims made about 40 were rejected. So what could be the reason behind so high a claim repudiation ratio? This could be because of wrong or incorrect information filled up in that term policy, hiding and failure to disclose certain relevant facts as well as the mis selling of these policies by insurance agents who just fill up anything in order that you take up this life insurance policy. This might also reflect the underwriting abilities of the insurance agency and since term insurance policies are pure risk polices unlike Endowment polices where there is a percentage of your own money returned to you .Term insurance claims are a huge expenditure for the insurance agency and form a higher percentage of refusals for these insurance agencies. Always fill up the term insurance policy yourself and remember never to hide relevant information like the taking up of additional term plans from other insurance agencies whose disclosure might be required. Always take medicals even if not required as this can enhance your chances of getting your claim processed. Claim Pending Ratio You must be knowing that when you file your claim with the insurance agency your claim gets registered. A certain life insurance firm or agency might have a claims pending ratio of 40%.This means that out of every 10 claims made 4 claims are pending. So Why Does This Happen? Does This Mean That The Reputation Of The Insurance Agency Is Bad? The agencies which have high claims pending ratio are relatively young. These life insurance agencies might get a large number of claims during their initial years of operation and might require a thorough investigation especially if the claims come from young policy holders of a term insurance policy within the first couple of years .Many times policy holders take up polices in these relatively newer private insurance Companies thinking of taking advantage of their relatively newer operations and these life insurance agencies need to do a thorough past medical history check up which might take time. Another major factor is that the claimant might not provide sufficient documentation or might not show interest in pursuing his claim. So these factors need to be kept in mind whenever you judge the claims pending ratio of a new insurance agency. However you need to note that an insurance agency with a 5-6 Year set up of operations should not have too high a claim pending ratio. The Margin Of Solvency What do you mean by Solvency. This is basically the assets of the life insurance agency such as fixed assets and investible assets minus the liabilities of the insurance agency which are the claims to be paid out, payment regarding surrender of the policy and the payments regarding maturity benefits and so on. An insurance company has future payouts to make and calculates its liability based on these future payouts. In India the insurance agencies need to maintain the solvency margin of 150%.However this margin is not having assets 1.5 times the liabilities but the ratio of the actual solvency margin to the required solvency margin is 150%.This measure tells us if the Insurance agency will be there in the future or might face a serious liquidity crunch. However a high value need not necessarily be good .Sometimes the insurance agency might simply hoard cash and not spend this cash in investments of its business mainly cash spent to procure clients. These hoarded funds known as sitting on cash might not lead to profitability.   For further information on the topic you can CONTACT Prajna Capital on 94 8300 8300 by leaving a missed call. Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C. Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving) Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications These Application Forms can be used for buying regular mutual funds also Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) ICICI Prudential Tax Plan Invest Online HDFC TaxSaver Invest Online DSP BlackRock Tax Saver Fund Invest Online Reliance Tax Saver (ELSS) Fund Invest Online Birla Sun Life Tax Relief '96 Invest Online IDFC Tax Advantage (ELSS) Fund Invest Online SBI Magnum Tax Gain Scheme 1993 Invest Online Sundaram Tax Saver Invest Online Edelweiss ELSS Invest Online ------------------ Best Performing Mutual Funds Largecap Funds Invest Online DSP BlackRock Top 100 Fund ICICI Prudential Focused Blue Chip Fund Birla Sun Life Front Line Equity Fund Large and Midcap Funds Invest Online ICICI Prudential Dynamic Plan HDFC Top 200 Fund UTI Dividend Yield Fund Mid and SmallCap Funds Invest Online Reliance Equity Opportunities Fund DSP BlackRock Small & Midcap Fund Sundaram Select Midcap IDFC Premier Equity Fund Small and MicroCap Funds Invest Online DSP BlackRock MicroCap Fund Sector Funds Invest Online Reliance Banking Fund Reliance Banking Fund Tax Saver MutualFunds Invest Online ICICI Prudential Tax Plan HDFC Taxsaver DSP BlackRock Tax Saver Fund Reliance Tax Saver (ELSS) Fund Gold Mutual Funds Invest Online Relaince Gold Savings Fund ICICI Prudential Regular Gold Savings Fund HDFC Gold Fund Invest in Tax Saving Mutual Funds Download Any Application Forms Buy Mutual Funds Online Invest Online Buy Gold Mutual Funds Invest Now

Banking Defaults Posted: 11 Jan 2014 05:07 AM PST Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India)     The widespread culture of fraud, unethical behaviour and lawlessness is blowing in our faces in the form of rising non-performing assets (NPAs) in the banking system. The RBI recently released a discussion paper, outlining a framework for revitalising the distressed assets in the economy. The focus of the paper is on strengthening bank balance sheets by revamping the prudential norms that apply to them. It has to be seen how banks respond to the suggestion when the business environment is competitive and capital is hard to find. The rising default by borrowers is not only due to the economic slowdown, but also due to the wilful acts of those who hope to get away with it. It is common for businesses in India to set up multiple companies. There is a huge web of cross-ownership, directorships and intercompany activities, including transfer pricing and borrowings. The Ministry of Company Affairs (MCA) has been trying to digitise these records and impose compliance. There are 13.5 lakh registered companies, many of whom do not submit annual returns, accounts, or data about their directors, as required by law. The objective is to create and keep multiple, opaque entities, which are tough to track or correlate in terms of their ownership, performance or management. Therefore, it is easy for an entity to borrow and siphon it off to another, use one company's funds to buy assets for another, or deliberately let one of the many entities to fail, while the others continue to do well. This is the dark side of corporate borrowers.   It is also not easy to track the owners of these businesses. To ensure that directors are tracked even as they set up and close businesses, and reappear, the MCA has mandated a director identification number (DIN), but not all registered companies are compliant. According to the RBI paper, even standard accounts should be subject to a 5% provisioning if the directors also hold this position in a company that has been defaulting wilfully. If these loans become NPAs, accelerated provisioning will apply. Independent directors and government nominees have been excluded. The RBI is hoping to make a list of such directors and provide it to the lenders. However, the task may be complex if one were to go by the MCA's experience. Credit bureaus enable sharing of data among lenders and are an effective mechanism for identifying wilful defaulters. While the bureaus and lenders have been enthusiastic about capturing the data of individual borrowers and providing credit scores, there is no sharing of data for institutional borrowers. Only those cases, in which a default has led to the filing of a suit in a court of law by the lender, are currently being shared. The others are being treated as confidential and not being shared. This means that a wilful borrower could be defaulting with one bank and can still borrow from others. A high percentage of wilful defaulters is guilty of siphoning off the borrowed funds, misusing money, providing false records of stocks or assets, or deliberately misrepresenting the facts to bankers. The only redressal available to bankers, who find that the audited numbers they have been relying on are false, is to represent the case to the Institute of Chartered Accountants of India (ICAI). The ICAI is expected to investigate, penalise and take action against its registered members, who certify the accounts, records and books. This process also works slowly and inefficiently. The RBI has proposed that the names of these auditors be made available to ICAI, MCA and CAG, apart from the RBI and lenders. It's not clear if this will serve any useful purpose. The central bank also mentions advocates, who wrongly certify assets and securities as having a clear title, and valuers who may overvalue a security. It has asked for their names to be reported to the IBA so that banks know before using their services. There is no real protection for the banker from unscrupulous support services which are used by wilful defaulters. So, we have an unethical web of operators calling themselves businessmen who are setting up companies, and directors who are common to many firms, approaching banks and lenders to borrow money, and wilfully diverting the funds or misusing them, abetted by accountants, auditors, valuers and advocates. This is the problem that the Indian banking system is dealing with. It's not a simplistic issue of a bank giving out loans because a politician or someone in power asks it to do so; this only makes an existing problem worse. This is the perpetuation of the entitlement culture, where Indian business entities believe they can access public money from banks and be nonchalant about not using it efficiently or scrupulously. For several years, the access was to budgetary funds available through public financial institutions. When this tap dried, it left in its wake several sick and bankrupt state- and national-level financial institutions. In spreading its roots to the banking system, this evil has damaged the credit delivery process and is now threatening the vulnerable segment of banking—public-sector banks. These institutions are weakened by playing along with well-entrenched fraudsters masquerading as businessmen. By threatening them with prudential norms that will make it unprofitable for them to keep defaulters on their books, the RBI will either push them towards better lending practices, or supervise their demise if they fail to match up. The next few years will tell us how this story pans out. Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com --------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C. Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving) Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications These Application Forms can be used for buying regular mutual funds also Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds ) ICICI Prudential Tax Plan Invest Online HDFC TaxSaver Invest Online DSP BlackRock Tax Saver Fund Invest Online Reliance Tax Saver (ELSS) Fund Invest Online Birla Sun Life Tax Relief '96 Invest Online IDFC Tax Advantage (ELSS) Fund Invest Online SBI Magnum Tax Gain Scheme 1993 Invest Online Sundaram Tax Saver Invest Online Edelweiss ELSS Invest Online ------------------ Best Performing Mutual Funds Largecap Funds Invest Online DSP BlackRock Top 100 Fund ICICI Prudential Focused Blue Chip Fund Birla Sun Life Front Line Equity Fund Large and Midcap Funds Invest Online ICICI Prudential Dynamic Plan HDFC Top 200 Fund UTI Dividend Yield Fund Mid and SmallCap Funds Invest Online Reliance Equity Opportunities Fund DSP BlackRock Small & Midcap Fund Sundaram Select Midcap IDFC Premier Equity Fund Small and MicroCap Funds Invest Online DSP BlackRock MicroCap Fund Sector Funds Invest Online Reliance Banking Fund Reliance Banking Fund Tax Saver MutualFunds Invest Online ICICI Prudential Tax Plan HDFC Taxsaver DSP BlackRock Tax Saver Fund Reliance Tax Saver (ELSS) Fund Gold Mutual Funds Invest Online Relaince Gold Savings Fund ICICI Prudential Regular Gold Savings Fund HDFC Gold Fund Invest in Tax Saving Mutual Funds Download Any Application Forms Buy Mutual Funds Online Invest Online Buy Gold Mutual Funds Invest Now

Renting Real Estate Posted: 10 Jan 2014 07:57 PM PST Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300     Possibly the biggest buying decision of your lifetime — purchasing your own house — has become a lot more difficult than before, with prices rising in the big cities of Mumbai and Delhi and several other parts. In certain prime locations, the affordability index has gone through the roof, posing big questions before property aspirants: To buy or to rent? Will property prices correct in 2014? A few years ago, a typical two- BHK house was available for around 10 times the average annual income in, say, a technology hub like Bangalore. While incomes have not risen much, property prices have increased at a faster pace and are now 12- 14 times ones average income. In Mumbai and the National Capital Region, there has been a huge increase in property prices, making it unaffordable for one to own a house. Demand for property prices everywhere is driven by the emotional need to own a home and a lower affordability factor. While theres a strong growth in demographics and many new young workers would like to own their own home, affordability has been a niggling worry. Income levels have stagnated and property prices have increased, making affordability difficult in 2014. High inflation and high interest rates have been a deterrent to new buyers in financing their own homes. This has seen demand in Mumbai and Gurgaon dip by around 25 per cent, though residential property prices have barely corrected. Bank's thumb rule A thumb rule of affordability that banks usually follow is to grant a home loan about 60 times your gross income. So, if your income is around ₹ 1 lakh a month, you could afford a house ₹ 60- 80 lakh, given that you can make the down payment of around 20 per cent. On progressively lower incomes, banks grant a lower loan, after adjusting for living expenses. In Mumbai, property prices have soared in many parts, with a decent twoBHK apartment costing around ₹ 1 crore or above in the suburbs and closer to ₹ 3 crore in central Mumbai. This trend is prevalent across many cities. Property prices in Mumbai are out of reach of the low and middle income segments, even in the suburbs. Many other cities are also seeing high prices. On the other hand, rentals in many areas have not gone up commensurately. Property prices have increased in many parts of the country but rents have not gone up that much. Rental yields are one to four per cent on current property values and in certain parts have come down despite an increase in property prices. So, should you buy a house or rent one? If looking for a property in premium places, theres a high likelihood that you might not be able to earn good capital appreciation on your purchase from current levels in 2014, say experts. Premium property prices have peaked and are unaffordable for most buyers. In such a situation, experts say it makes sense for a buyer to put his purchase plans on hold for now and look for property in areas that are cheaper. If your area requirement is higher and you are not able to identify the location of your choice, it makes sense to lease property in upper- tier areas and buy in areas that are cheaper, so as to hedge your property risks. Those wanting to buy upper- tier properties could consider renting for some time in high- end markets and wait for prices to cool off where you plan to buy a property. Annual rentals are one to four per cent of the propertys price in many pockets. If one buys in a location where chances of appreciation are better, while renting in places where the prices are high, you will reduce risk. You will hedge a price hike risk and at the same time get to enjoy property at high- end locations. There will not be a sword hanging above your head if property prices correct in upper locations. But renting is not a long- term option, though annual rentals are only about two per cent of the property price in many locations. Over the long run, factors like how fast prices and rents rise in a particular area and how long you plan to stay in your home play a big role. Renting works best over a short period, say, one to three years, and if property prices correct a little at the location where you plan to buy property. If one is looking for a house and can afford it, its always best to buy one, rather than hope for prices to correct. Sen reckons if you can afford it, theres no reason not to buy a house for the long run, especially in the low and middle income segments. If you do not have your own place to live when you can afford to, you should buy. In some places like Mumbai, affordability for low and middle income segments is a problem. But in many other places, its always good to have your own property to live in.     We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com   --------------------------------------------- Invest Mutual Funds Online Invest Any Mutual Fund Online Download Mutual Fund Application Forms from all AMCs Download Mutual Any Fund Application Forms Best Performing Mutual Funds Largecap Funds                 Invest Online DSP BlackRock Top 100 Fund ICICI Prudential Focused Blue Chip Fund Birla Sun Life Front Line Equity Fund B.      Large and Midcap Funds               Invest Online ICICI Prudential Dynamic Plan HDFC Top 200 Fund UTI Dividend Yield Fund C.      Mid and SmallCap Funds              Invest Online Reliance Equity Opportunities Fund DSP BlackRock Small & Midcap Fund Sundaram Select Midcap IDFC Premier Equity Fund D.      Small and MicroCap Funds          Invest Online DSP BlackRock MicroCap Fund E.       Sector Funds      Invest Online Reliance Banking Fund Reliance Banking Fund F.       Tax Saver Mutual  Funds              Invest Online 1.       ICICI Prudential Tax Plan 2.       HDFC Taxsaver DSP BlackRock Tax Saver Fund Reliance Tax Saver (ELSS) Fund G.     Gold Mutual Funds         Invest Online Relaince Gold Savings Fund ICICI Prudential Regular Gold Savings Fund HDFC Gold Fund H.      International funds      Invest Online 1.       Birla Sun Life International Equity Plan A 2.      DSP BlackRock US Flexible Equity 3.      FT India Feeder Franklin US Opportunities 4.      ICICI Prudential US Bluechip Equity 5.      Motilal Oswal MOSt Shares NASDAQ-100 ETF Invest in Tax Saving Mutual Funds Download Any Application Forms Buy Mutual Funds Online Invest Online Buy Gold Mutual Funds Invest Now

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