Everything about ULIPs, Insurance options, Investments
- Thread starter m-jeri
- Start date
- Status
Re: I made mistake in investing money. Advice needed.
^^ I'll attempt.
Mutual Funds are collective investment vehicles. Let's say - I am a fund manager. I go around collecting money from different people. I then invest the money in stock/bond market and other related instruments on behalf of the people. Let's say I collect from 10 persons. One gives Rs. 5000, another - Rs. 3000 and yet another - Rs. 10000. For the sake of simplicity, let's assume seven others gave me only Rs. 1,000 each. That makes a total of 25K to invest. Also assume it's a pure equity fund.
When I invest, I transact through a broker for which I pay some brokerage charges, account opening charges, demat maintenance charges etc., I also need a PA who attends calls and somebody who collects the payments. I pay their salaries too. These two are my expenses.
What I do is - I split this 25K into 25 units worth Rs. 1000 each. So, the one who invested 5K gets 5 units, 10K - 10 units, 3K - 3 units and others a unit each.
At the end of three years, that 25K has grown to say, 53K for simplicity sake. Now, let's assume that all my expenses (say I employ temps only when needed) come to a total of 2K. Now, 25K after expenses has grown to 51K. For managing all their money, I take 1K as my fees (Fund Management charges). So, 25K has grown to 50K (Asset under Management). Now, if I have to give back the money, I'll have to be proportionate to the capital invested. So, the 10K would have grown to 20K, 1K would have grown to 2K and so on. Instead of declaring AUM, I simply declare a NAV i.e., 2000.
Let's say if somebody new invests 6K in the middle. Let's assume that NAV is 1500 by then. The new investor would get 4 units @ Rs. 1500. In the end, that 6K would have grown to 8K at NAV of Rs. 2000. Hope this helps!
ULIPs do the same (more or less), but as they provide Insurance, the charges are more. ULIPs don't have the freedom to invest in everything as MFs tend to do.
^^ I'll attempt.
Mutual Funds are collective investment vehicles. Let's say - I am a fund manager. I go around collecting money from different people. I then invest the money in stock/bond market and other related instruments on behalf of the people. Let's say I collect from 10 persons. One gives Rs. 5000, another - Rs. 3000 and yet another - Rs. 10000. For the sake of simplicity, let's assume seven others gave me only Rs. 1,000 each. That makes a total of 25K to invest. Also assume it's a pure equity fund.
When I invest, I transact through a broker for which I pay some brokerage charges, account opening charges, demat maintenance charges etc., I also need a PA who attends calls and somebody who collects the payments. I pay their salaries too. These two are my expenses.
What I do is - I split this 25K into 25 units worth Rs. 1000 each. So, the one who invested 5K gets 5 units, 10K - 10 units, 3K - 3 units and others a unit each.
At the end of three years, that 25K has grown to say, 53K for simplicity sake. Now, let's assume that all my expenses (say I employ temps only when needed) come to a total of 2K. Now, 25K after expenses has grown to 51K. For managing all their money, I take 1K as my fees (Fund Management charges). So, 25K has grown to 50K (Asset under Management). Now, if I have to give back the money, I'll have to be proportionate to the capital invested. So, the 10K would have grown to 20K, 1K would have grown to 2K and so on. Instead of declaring AUM, I simply declare a NAV i.e., 2000.
Let's say if somebody new invests 6K in the middle. Let's assume that NAV is 1500 by then. The new investor would get 4 units @ Rs. 1500. In the end, that 6K would have grown to 8K at NAV of Rs. 2000. Hope this helps!
ULIPs do the same (more or less), but as they provide Insurance, the charges are more. ULIPs don't have the freedom to invest in everything as MFs tend to do.
Re: I made mistake in investing money. Advice needed.
All your answers Learning Center - Value Research Online
All your answers Learning Center - Value Research Online
Re: I made mistake in investing money. Advice needed.
>>Can anyone tell abt what a ULIP is?
All you need to know about them is "STAY AWAY" from them
Recent changes by IRDA has bring some relief to new policy buyer, but still they are sure shot way of blocking your money for years with pretty much no returns.
read this for more details, Why ULIP is not the best insurance product (An old article but worth a read)
in case some one has mistakenly bought one, try to surrender it with in 15 days.
Recently when market was @ 21K+, my ulip fund value was 72K, I invested 72 K, and the surrender value was 60K.
Do the maths.
you'll not be able to recover the cost itself till 6-7 years as the charges in initial years are too much.
Disclaimer: Following next is My personal opinion,
So when some one tries to sell you a ULIP, do not just say NO, first Kick their balls, than A*S and than say NO.
>>Can anyone tell abt what a ULIP is?
All you need to know about them is "STAY AWAY" from them
Recent changes by IRDA has bring some relief to new policy buyer, but still they are sure shot way of blocking your money for years with pretty much no returns.
read this for more details, Why ULIP is not the best insurance product (An old article but worth a read)
in case some one has mistakenly bought one, try to surrender it with in 15 days.
Recently when market was @ 21K+, my ulip fund value was 72K, I invested 72 K, and the surrender value was 60K.
Do the maths.
you'll not be able to recover the cost itself till 6-7 years as the charges in initial years are too much.
Disclaimer: Following next is My personal opinion,
So when some one tries to sell you a ULIP, do not just say NO, first Kick their balls, than A*S and than say NO.
Re: I made mistake in investing money. Advice needed.
@esanthosh
Bang on explanation for me.
Can u please explain these also from ur post..
"pure equity fund." are there any other type of equity funds?
"AUM"
"NAV"
And so in a investment point of view.. which is better? a MF?
And any tax benefits on that?
--- Updated Post - Automerged ---
@
adi
Whats the difference between a ULIP and a normal insurance plan?
I have 2 LIC plans.. First is a small one ,...dunno the details. Second is lil bit bigger. They said every 5 years ill be getting a small amnt and after 21 years it will be matured.
And something like that for the first plan also.
@OP...
sorry for hijacking the thread... didnt knew these stuff. so thght abt asking when the discussion is abt those. Hope u dont mind:ashamed::huh:
@esanthosh
Bang on explanation for me.
Can u please explain these also from ur post..
"pure equity fund." are there any other type of equity funds?
"AUM"
"NAV"
And so in a investment point of view.. which is better? a MF?
And any tax benefits on that?
--- Updated Post - Automerged ---
@
adi
Whats the difference between a ULIP and a normal insurance plan?
I have 2 LIC plans.. First is a small one ,...dunno the details. Second is lil bit bigger. They said every 5 years ill be getting a small amnt and after 21 years it will be matured.
And something like that for the first plan also.
@OP...
sorry for hijacking the thread... didnt knew these stuff. so thght abt asking when the discussion is abt those. Hope u dont mind:ashamed::huh:
Re: I made mistake in investing money. Advice needed.
Here's a link to get grips with mutual funds Mutual Funds :- Invest in Mutual Funds, How to Invest, What is a Mutual Fund?
Dividends earned from equity funds are totally tax free while ULIPS have some tax implications.
However agents never inform investors regarding tax implications.
Here's a link to get grips with mutual funds Mutual Funds :- Invest in Mutual Funds, How to Invest, What is a Mutual Fund?
Dividends earned from equity funds are totally tax free while ULIPS have some tax implications.
However agents never inform investors regarding tax implications.
Re: I made mistake in investing money. Advice needed.
Now, if you seriously want yourself to be insured very well the best way to go is get a Term Insurance Plan, here you pay a fixed amount per year for a fixed amount of insurance which is predecided. Here you dont get anything in return if you survive the period of Policy (Like mediclaim) the premium here is a cost of your insurance and is much less than any of the insurance plans (Classic or ULIP) and saved amound to these ULIPs you can invest in market and get much better returns.
Regarding second query or m-jeri : dont mix investment with insurance.
its like dont mix Intel processor with AMD motherboard, Insurance in primarily for protection or hedge against sudden loss of earning person of the family so that rest of the members can maintain their lifestyle without much compromise. So you cant compromise with security here.
Investment is managing your surplus funds so that they gain appreciation and increase in value to meet your extra demands of some leisure items, expense or retirement funds. here you primary objective is to gain from under utilised funds.
but as you know every venture has an associated risk, to gain something you have to risk something.
Major gains come from either equity market or real estate, equity markets you can participate with small amounts while real estate is not every man`s pie. So sometimes market fluctuations may erode your capital also but if you have longer horizon you stand to gain a lot.
Now if you mix Insurance with Investment, security of Insurance will be compromised due to risk or investment behaviour which is a big let off for family members.
m-jeri said:@esanthosh
Bang on explanation for me.
Can u please explain these also from ur post..
"pure equity fund." are there any other type of equity funds? = yes there are other mutual funds which invest in debts (govt securities, commercial papers), Hybrid (Mix of both equity and debts), gold Exchange traded funds (they invest in gold and you get units worth equal to 1 gm of Gold), Real Estate funds (A new entrant in India still unproven). Companies think very innovative way to market mutual funds.
"AUM" = Asset Under Management = 25000 in original post to your query
"NAV" = Net Asset Value = Net market value of your single unit of investment here a Unit originally worth 1000 is valued at 2000 at the end of 1 year. so 1000 is purchase NAV and 2000 is sell NAV if you opt out of fund at that point of time.
And so in a investment point of view.. which is better? a MF? = Compared to ULIPs yes MF is better as its more transparent, more expense efficient (as ULIPs charge their expenses upfront and also silently), gives more liquidity, gives more choices to invest.
And any tax benefits on that? = Yes, there are ELSS (Equity Linked Savings Schemes) a subtype of equity mutual funds, here you can Invest under section 80C of IT Act, upto Rs. 100000. Here the lock in is of 3 years, and Dividend is tax free in your hand, also the capital gain is tax free at present point of time. As DTC will be effective 1st April, 2012 you have upto 31st March 2012 to use this option. After that still its not clear whether ELSS will be covered under tax saving instrument.
--- Updated Post - Automerged ---
@
adi
Whats the difference between a ULIP and a normal insurance plan? = A normal Insurance plan is your hedge against unexpected life loss, so its more invested in Government and sovereign securities, gives you less but fixed and assured returns. The returns are not much but the reward in case of unexpected demise of family head are more important. While ULIPs are also insurance plans but they are predominantly investing in Equity Markets, so there is an element of risk to it, if markets tank your investments will also get hammered. Also they charge a hefty feesx to manage your invested money.
I have 2 LIC plans.. First is a small one ,...dunno the details. Second is lil bit bigger. They said every 5 years ill be getting a small amnt and after 21 years it will be matured.
And something like that for the first plan also. = That seems old classic insurance plans, no problems in it.
@OP...
sorry for hijacking the thread... didnt knew these stuff. so thght abt asking when the discussion is abt those. Hope u dont mind:ashamed::huh:
Now, if you seriously want yourself to be insured very well the best way to go is get a Term Insurance Plan, here you pay a fixed amount per year for a fixed amount of insurance which is predecided. Here you dont get anything in return if you survive the period of Policy (Like mediclaim) the premium here is a cost of your insurance and is much less than any of the insurance plans (Classic or ULIP) and saved amound to these ULIPs you can invest in market and get much better returns.
Regarding second query or m-jeri : dont mix investment with insurance.
its like dont mix Intel processor with AMD motherboard, Insurance in primarily for protection or hedge against sudden loss of earning person of the family so that rest of the members can maintain their lifestyle without much compromise. So you cant compromise with security here.
Investment is managing your surplus funds so that they gain appreciation and increase in value to meet your extra demands of some leisure items, expense or retirement funds. here you primary objective is to gain from under utilised funds.
but as you know every venture has an associated risk, to gain something you have to risk something.
Major gains come from either equity market or real estate, equity markets you can participate with small amounts while real estate is not every man`s pie. So sometimes market fluctuations may erode your capital also but if you have longer horizon you stand to gain a lot.
Now if you mix Insurance with Investment, security of Insurance will be compromised due to risk or investment behaviour which is a big let off for family members.
Re: I made mistake in investing money. Advice needed.
Insurance in its most basic form is meant to cover any risk and repay money(sum assured) to the insurer in case the risk occurs.
Life Insurance covers the risk of death. In this case the dependents get the sum assured. The simplest life insurance is called a term policy. In that, you pay a small amount of premium to cover the risk of your death upto a certain term i.e. 15/20/25/30 years. You do not get anything if the term ends and you are not dead.
Since the above concept of not getting anything in case of non-death is very disheartening, most people tend to avoid this type of insurance. In case of other policies which give guaranteed returns etc... the premium to be paid increases accordingly. The difference in these premiums is the one which is used for investment and guaranteeing the returns. In many policies this split is not mentioned, the type of investments is unclear etc... If you fully understand what the premium you paid is being used for you can buy whichever policy you want.
A life insurance is something you buy for your dependants. An investment is something which you buy/do for yourself. Return based life insurance policies combine these two.
Many policies now also have riders like accident cover, disability cover etc. Nothing comes for free and some amount from your premium is being used to cover this risk too. Insurance companies tend to push these kind of plans because all your insurance needs are being satisfied by them. If you split these insurances/investments and buy them individually from various competing offers, you will get a better deal provided you have sufficient knowledge about it. If not, get hold of someone who does, like a financial planner and hope that the financial planner doesn't turn out like what OP found out later.
It's your money in the end. If you don't take the effort to understand how it is being used, you will be cheated one way or the other.
Insurance in its most basic form is meant to cover any risk and repay money(sum assured) to the insurer in case the risk occurs.
Life Insurance covers the risk of death. In this case the dependents get the sum assured. The simplest life insurance is called a term policy. In that, you pay a small amount of premium to cover the risk of your death upto a certain term i.e. 15/20/25/30 years. You do not get anything if the term ends and you are not dead
.Since the above concept of not getting anything in case of non-death is very disheartening, most people tend to avoid this type of insurance. In case of other policies which give guaranteed returns etc... the premium to be paid increases accordingly. The difference in these premiums is the one which is used for investment and guaranteeing the returns. In many policies this split is not mentioned, the type of investments is unclear etc... If you fully understand what the premium you paid is being used for you can buy whichever policy you want.
A life insurance is something you buy for your dependants. An investment is something which you buy/do for yourself. Return based life insurance policies combine these two.
Many policies now also have riders like accident cover, disability cover etc. Nothing comes for free and some amount from your premium is being used to cover this risk too. Insurance companies tend to push these kind of plans because all your insurance needs are being satisfied by them. If you split these insurances/investments and buy them individually from various competing offers, you will get a better deal provided you have sufficient knowledge about it. If not, get hold of someone who does, like a financial planner and hope that the financial planner doesn't turn out like what OP found out later
.It's your money in the end. If you don't take the effort to understand how it is being used, you will be cheated one way or the other.
Re: I made mistake in investing money. Advice needed.
So in TIP, ull get a amount each year? right from that start itself?
Ill check/read more abt this.
And really donkey-kong question -> U said invest in market, meaning trading?
Also whats a equity?.
@proing..
wooha. Hold a minute.
My insurance guy said ill be paid a amount after 21 years. So i have to be dead? dear god
@all folks.
So let me ask u in general terms. If i have to invest.. what should i invest in?
and also.. what sort of amounts am i supposed to invest? Do "they" give us options?
@medpal..
That second part made absolute sense to me.. very correct.
So as far as i understood. The insurance plans i have from LIC are just Life insurance plans. nothing else. And i assume they are ok ones. :|
I need to look other sources for "investment", sorta make my money make some money thing.
One more thing,again, abt the insurance plans. do i have to dead/deceased to get that amnt?.. I thght after say 20 years, ill get that amnt in hand.
medpal said:
So in TIP, ull get a amount each year? right from that start itself?
Ill check/read more abt this.
And really donkey-kong question -> U said invest in market, meaning trading?
Also whats a equity?.
@proing..
wooha. Hold a minute.
My insurance guy said ill be paid a amount after 21 years. So i have to be dead? dear god
@all folks.
So let me ask u in general terms. If i have to invest.. what should i invest in?
and also.. what sort of amounts am i supposed to invest? Do "they" give us options?
@medpal..
That second part made absolute sense to me.
. very correct.So as far as i understood. The insurance plans i have from LIC are just Life insurance plans. nothing else. And i assume they are ok ones. :|
I need to look other sources for "investment", sorta make my money make some money thing.
One more thing,again, abt the insurance plans. do i have to dead/deceased to get that amnt?.. I thght after say 20 years, ill get that amnt in hand.
Re: I made mistake in investing money. Advice needed.
@ m-jeri
1. No you dont need to be dead at the end of 21 years to get benefits from your LIC policy you right now own, only thing is the returns will be termed survival benefit instead of Death benefit :d. I am sure you will out live that policy.
2. there are so many avenues of Investing your money.
First : Equities - You need to be knowledgable to trade and invest, you have to track your own investments, make your own decisions.
second : Mutual Funds - Almost simillar to the equities but you can invest a small amount as little as 500/- per month and you can go secure way by way of debt funds.
Third : Commodities : like gold, silver, even oil, and other perishable products, return are large but if bets go wrong can be devastating too. Exceptionally risky for an individual.
Fourth : Real Estate : A good option but needs a long horizon, patience, and most importantly large amount of money to buy something worthwhile.
Fifth : Business, you can start, create, manage additional enterprises from your surplus money.
Sixth : Safe bets like FD, PPF, NSC, KVP, Bank Deposits, these are more secure ways but gain less returns sometimes even less than inflation.
there can be something else too which is beyond my knowledge that you can use too.
@ m-jeri
1. No you dont need to be dead at the end of 21 years to get benefits from your LIC policy you right now own, only thing is the returns will be termed survival benefit instead of Death benefit :d. I am sure you will out live that policy.
2. there are so many avenues of Investing your money.
First : Equities - You need to be knowledgable to trade and invest, you have to track your own investments, make your own decisions.
second : Mutual Funds - Almost simillar to the equities but you can invest a small amount as little as 500/- per month and you can go secure way by way of debt funds.
Third : Commodities : like gold, silver, even oil, and other perishable products, return are large but if bets go wrong can be devastating too. Exceptionally risky for an individual.
Fourth : Real Estate : A good option but needs a long horizon, patience, and most importantly large amount of money to buy something worthwhile.
Fifth : Business, you can start, create, manage additional enterprises from your surplus money.
Sixth : Safe bets like FD, PPF, NSC, KVP, Bank Deposits, these are more secure ways but gain less returns sometimes even less than inflation.
there can be something else too which is beyond my knowledge that you can use too.
Re: I made mistake in investing money. Advice needed.
@medpal.
Thanks again. So can we talk abt the Equities and MF?
U said in equities we have to trade and invest. so is this similar to trading?. Coz thats what i am confused abt.
And Mutual funds, I heard there are different types of that. Like Infrastructure, energy etc.
And again on risking of asking to be spoon fed, How do i start doing these things?. Should i look for a MF thats agreeable with me and contact them?
Are these MF's usually handled by banks?. Or are these pvt firms?
@medpal.
Thanks again. So can we talk abt the Equities and MF?
U said in equities we have to trade and invest. so is this similar to trading?. Coz thats what i am confused abt.
And Mutual funds, I heard there are different types of that. Like Infrastructure, energy etc.
And again on risking of asking to be spoon fed, How do i start doing these things?. Should i look for a MF thats agreeable with me and contact them?
Are these MF's usually handled by banks?. Or are these pvt firms?
Re: I made mistake in investing money. Advice needed.
yes, Sure you can ask as many questions as you want.
the types you mentioned are energy, pharma, banking are sector specific mutual funds, as they invest only in those specific sectors, it is more risky. Instead select A diversified fund which invests in a bigger number of companies spread over different sectors and different market cap scenario.
Also if you feel bit jerky about risks involved with mutual funds you can start with a balanced/ Hybrid fund which will give you less returns but will be able to absorb market crashes well. And as and when you feel comfortable you can start investing in equity funds.
Regarding direct equity investments, you need a capital for it, Trading and Investing are two methods, Trading means you either sell off your purchases of shares, options, futures same day, same week, same month and pocket the profit or loss. It involves a specific kind of skill set and dedicated time for keeping track of markets. While Investing is you purchase a specific no. of shares of a particular company you like and you forget it for a long period of time. You get benefits via dividend, price appreciation, bonuses if any and gain. But this also requires a little bit of study about the company.
Mutual funds are managed by a parent company called AMC (Asset Management Company) which inturn is subsidiary of a trust set up by parent organization (Could be Bank, insurance, Mutual fund or other finance company). All these are private companies even if partenered by PSU banks. But Indian regulations are such that its highly unlikely for a AMC to dupe investors of their money.
m-jeri said:
yes, Sure you can ask as many questions as you want.
the types you mentioned are energy, pharma, banking are sector specific mutual funds, as they invest only in those specific sectors, it is more risky. Instead select A diversified fund which invests in a bigger number of companies spread over different sectors and different market cap scenario.
Also if you feel bit jerky about risks involved with mutual funds you can start with a balanced/ Hybrid fund which will give you less returns but will be able to absorb market crashes well. And as and when you feel comfortable you can start investing in equity funds.
Regarding direct equity investments, you need a capital for it, Trading and Investing are two methods, Trading means you either sell off your purchases of shares, options, futures same day, same week, same month and pocket the profit or loss. It involves a specific kind of skill set and dedicated time for keeping track of markets. While Investing is you purchase a specific no. of shares of a particular company you like and you forget it for a long period of time. You get benefits via dividend, price appreciation, bonuses if any and gain. But this also requires a little bit of study about the company.
Mutual funds are managed by a parent company called AMC (Asset Management Company) which inturn is subsidiary of a trust set up by parent organization (Could be Bank, insurance, Mutual fund or other finance company). All these are private companies even if partenered by PSU banks. But Indian regulations are such that its highly unlikely for a AMC to dupe investors of their money.
Re: I made mistake in investing money. Advice needed.
@m-jeri, since you're a first time investor, stay away from equities. its more of a loss if you don't know what you're getting into.
See my knowledge which i got thru errors: i was new to demat and put some 5k into a tip i got from icici bank (those buggers keep sending tips in sms saying some particular stock has possibility of hitting some high point in this week or something like that.) fool that i was, i put money in that stock. now that stock after 4 years is still nowwhere near the amount i had invested into it. its final value is below 3k even now :O
what i learnt after buying some more stocks is, you need a lot of time to read up on past history of company, the sector in which the company is into - like manufacturing, it, medical, retail etc.
After reading, you need to see how that particular company stock performs wrt similar companies in that same sector. if its stocks are falling in 1 year - stay away. if its stocks are rising too fast - somethings wrong, so stay away. why? cause by the time you buy stocks in it at high cost, and say you sold it after a year, by that time you might end up with a dud or something.
equity market is like a high speed roller coaster. mf are alike normal speed ones. whatever you invest in do a lot of research. do more on the stock/mf you decide to invest in.
After all i still repeat - its hard to earn money, and fast to loose it.
@m-jeri, since you're a first time investor, stay away from equities. its more of a loss if you don't know what you're getting into.
See my knowledge which i got thru errors: i was new to demat and put some 5k into a tip i got from icici bank (those buggers keep sending tips in sms saying some particular stock has possibility of hitting some high point in this week or something like that.) fool that i was, i put money in that stock. now that stock after 4 years is still nowwhere near the amount i had invested into it. its final value is below 3k even now :O
what i learnt after buying some more stocks is, you need a lot of time to read up on past history of company, the sector in which the company is into - like manufacturing, it, medical, retail etc.
After reading, you need to see how that particular company stock performs wrt similar companies in that same sector. if its stocks are falling in 1 year - stay away. if its stocks are rising too fast - somethings wrong, so stay away. why? cause by the time you buy stocks in it at high cost, and say you sold it after a year, by that time you might end up with a dud or something.
equity market is like a high speed roller coaster. mf are alike normal speed ones. whatever you invest in do a lot of research. do more on the stock/mf you decide to invest in.
After all i still repeat - its hard to earn money, and fast to loose it.
- Status