UNUSUAL GIFT

Sweets, crackers, gold coins, and jewels are the items which come to our mind when we think about Diwali gifts. Let me unbundle some unusual gift ideas for this Diwali here. Gift ideas for children: 1)        Piggy bank: This may not be a great idea. But can be done in a different fashion. That is [...]

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9 WAYS TO BE CREDIT CARD SMART

Credit cards have turned into an integral part of modern living as they facilitating making purchases and paying bills without carrying cash. They make life easy and help maintain a record of our expenses and help us dispute charges for undelivered and defective things. In addition they enable us to earn reward points. However credit [...]

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ROLE OF YOUR SPOUSE IN PERSONAL FINANCE AND MONEY MANAGEMENT

In most of the Indian families, the personal finance is something which is not managed by the couples together. It is only one person who manages the personal finance and money management of the whole family. In most of the cases the male partners and in a very few cases the female partners mange personal [...]

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Couples Couples

HOW TO RETIRE EARLY ? RETIRE SOONER AND RICHER

The mindset of today’s young professionals is changing radically. They would like to have a semi-retired life in their late forties or early fifties by taking up a hobby instead of a regular job. Somewhere within all of us, there is a dream to reach a point in life where we have enough wealth to [...]

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retire sooner retire sooner

COMBATING THE ANGST OF DEFAULTED LOANS

The tragedy of loans going on default is really a horrible on the part of the borrower. It is probably the most common error and the main cause of it is due to the increase of the economic problems and also unemployment. The defaulted loan is really a typical issue, where life suddenly stops moving. [...]

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Default loan Default loan
November 28th, 2011

MUTUAL FUNDS MYTHBUSTER

myth

Rahul is working for a mutual fund house. They have recently came out with an NFO (new fund offer). The day on which the fund house announced its maiden NAV (net asset value), he received lot of calls from investors asking why the NAV is at below par. They thought something was wrong.

Then Rahul went on clarifying them that though both an equity fund and a stock extend market-related returns, there are some key differences between the two. If you have similar misconceptions about equity funds and stocks, this article will demystify all those misconceptions.

 

New Fund Offerings:

A new fund offer is not likely to generate amazing returns as can be the case with an initial public offering from a company.

This is because the NAV reflects the market value of the stocks held by the fund on any day. Because a fund holds several stocks in its portfolio, the NAV can only reflect the combined returns on the portfolio between the NFO date and the date of first NAV.

The first NAV declared by a fund can, at times, be lower than the par value of investment. A lower NAV does not mean a cheaper fund: Just because a New Fund is issued at Rs 10, it does not mean it has a chance of giving better returns than an existing fund that has a higher NAV.

Whether the scheme in which you are planning to invest has an NAV of Rs.15 or Rs.150 does not matter at all.

 

There is a difference between the price of a listed security and the NAV of a mutual fund scheme. Listed security has a price, determined by the demand and supply of the security. Whereas the unit’s NAV of the scheme has a value determined mathematically, by the prices of the securities in the portfolio. If the portfolio appreciates by 10% Rs.15 NAV will become RS.16.5 and Rs.150 AV will become Rs.165. So in whatever the NAV you invest your investment will fetch you 10% return.

So instead of concentrating on LOW NAV and more number of units, it is worthwhile to consider other factors (performance track record, fund management, volatility) that determine the portfolio return.

A fund with higher NAV may give higher returns than a lower NAV fund, if its stocks did better in the markets.

 

 

 

Funds Vs Stocks

Point of distinction Equity Fund Stocks
Level of Risk High Highest
Entry/Exit cost No Entry Load; But there will be Exit load. Advisory fee may be applicable. Demat a\c and Brokerage charges
Options Options available like dividend payout, dividend reinvestment, growth. No such options
Minimum Investment Min investment is usually Rs.5000. Even one share can be bought.
Measuring Performance Returns Vs Benchmark Net Profit margins/EPS
Sub-division Classified based on stocks in which it invests. (Diversified, Midcap, sectoral, thematic) Classified as per the industry in which it operates.(FMCG, IT, PSU, METAL)
Pricing Based on the price of the underlying securities Based on the demand and supply of the particular stock

 

Dividends are not extra returns:

 

Immediately, after the dividend payment of dividend the NAV of the fund will fall to the extent of the dividend payment. Let us illustrate.

 

Fund’s cum dividend NAV is Rs.25. Proposed dividend is 50%. You are investing Rs.1 Lac and you will not get Rs.50000 as dividend. It is only Rs.20000 (50% on the face value Rs.10 is Rs.5 per unit) as the unit price is Rs.25 you will get 4000 units. Rs.5 dividend * 4000 units=Rs.20000.

 

And this dividend is not an additional gain or income. After payment of dividend the NAV of the scheme will fall to the extent of the payment and distribution taxes (if applicable). Now your nav will become Rs.20 and your investment value will be Rs.80000 (4000 units * Rs.20 NAV).

 

In a nutshell,

 

Investment amount   Rs.1,00,000

Dividend amount     Rs.  20,000

Present Value      Rs.  80,000

 

It is nothing but investing Rs.80000 after dividend distribution at NAV Rs.20.

 

So investing in a scheme because it is declaring dividend in the near future is meaningless.

Usually a company with a liberal dividend policy may enjoy greater investor interest in the stock market. The same is not applicable to an equity-oriented mutual fund.

 

Investing more number of funds is not actual diversification. It may reduce your return.

 

Owning several mutual funds doesn’t necessarily broaden your holdings. It will be a mistake to buy the same securities over and over again in different funds with different names. You tend to believe they’re diversified. But it is not real diversification.

 

There are only very few funds which are performing consistently. Instead of investing in few funds, if someone chooses to invest in more number of funds (because he intends to diversify) he may be forced to choose some average performing schemes also. As a result his returns will be diluted. The step taken by the investor to diversify his investment is not leading to diversification but to dilution of return.

 

Thus ideally your portfolio should not have more than four-five funds.

NO tax for churning:

When we buy shares and sell them within a year we are accountable for short term capital gain tax at the rate of 15%.

But mutual funds provide the benefit of churning of stocks with no tax implications. A fund which churns its portfolio within a year is exempt from tax because it only redistributes these profits to investors.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

 

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September 3rd, 2011

9 WAYS TO BE CREDIT CARD SMART

cc1

Credit cards have turned into an integral part of modern living as they facilitating making purchases and paying bills without carrying cash. They make life easy and help maintain a record of our expenses and help us dispute charges for undelivered and defective things. In addition they enable us to earn reward points. However credit cards could make you overspend and get into debt. There are 9 ways that could help you to be credit card smart.

One can be very smart in playing a game only when he knows the rules of the game very well and follows the same diligently. Similarly to be smart with your credit card you need to know the rules of the credit card usage. Let me unbundle the same for you.

9 ways to be credit card smart:

1)   Do not have many credit cards:

 It is true that credit cards definitely help in emergencies and facilitate payments. But having too many credit cards could tempt us to overspend and get into credit card debt that could be difficult to recover from. In addition it is best to avail of reward points on one credit card, so that you could encash the points more quickly.

2) Cultivate and maintain an emergency fund:

Most of us believe that credit cards can definitely help in medical and unexpected emergencies, but it is unwise to consider it as a general rule. A much better alternative would be regular setting aside money as an emergency fund for such unexpected emergencies. This will prevent getting into credit card debt.

3) Repayment capacity should determine credit card spending:

It is right that using credit cards in place of cash helps. But this applies to purchases that we can afford only and also repay immediately. Spending more than what you can repay is highly undesirable and could get you into credit card debt.

4) Avoid cash advance withdrawals:

It is best to live within your means and avoid making cash advance withdrawals even in emergencies. This is the worst thing you can do with a credit card. Having a smart spending plan will help you in not falling this trap

5) Avoid bank transfers without valid reasons:

Being credit card smart requires avoiding making balance transfers from one credit card to the other. This will avoid payment of balance transfer fees and getting into further credit card debt that could turn vicious. However transfer of bank transfers like taking advantage of lower interest rates could prove fruitful.

6) Make full payments in time:

Being credit card smart requires you arranging for payment within a month or next billing date. Delay in repayment and minimum payment could affect your credit standing and make you also liable to pay high rates of interest that you could not afford. Not carrying any balance forward would relieve you of stress of getting into credit card debt.

7) Understand the credit card agreement fully:

Being credit card smart requires understanding fully the agreement and other terms and conditions for use of the credit card. This includes understanding transaction fees levied, interest rates, and when increased rates for credit would be charged. This would help take precautions to avoid getting into increased debt on credit cards.

8) Recognize the signs of credit card debt:

Many consider a credit card a boon and fail to realize that they are getting into credit card debt. It is best to understand and recognize signs like skipping a credit bill to pay another, avoiding credit card payment statements, and charging more than your repayment capacity by purchasing luxuries. Failing to cultivate and maintain an emergency fund could also be a cause. Once you recognize these signs you can turn credit card smart.

 9) Never lend your credit card:

Being credit smart requires not trusting others with your credit card even if they promise to pay back in time. It is unwise because you will be responsible for the debt and charges. It is quite possible that credit card companies did not allot them a credit card because of certain adverse circumstances.

The last word:

I am sure you will agree that credit cards can be a boon only when you are credit card smart.

 

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

 

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August 16th, 2011

ROLE OF YOUR SPOUSE IN PERSONAL FINANCE AND MONEY MANAGEMENT

Couples

In most of the Indian families, the personal finance is something which is not managed by the couples together. It is only one person who manages the personal finance and money management of the whole family. In most of the cases the male partners and in a very few cases the female partners mange personal finance. Only very rarely both of the partners together manage their personal finance aspects.

What would be the outcome in an organisation where the purchase department works totally independent and without any understanding with the finance department of the organisation? Purchase dept may overspend; finance dept will lose control; misunderstanding and conflicts between both the dept; the result is the organization’s growth gets destroyed.

Similarly, if the personal finance is handled by only one partner, then there could be a lot of mismatch between you and your partner in saving and spending pattern. This will lead to misunderstanding and marital stress. Instead of having independent saving and spending plan, having an interdependent plan will help you in managing your money effectively and achieving your financial goals.

You go out for dinner together. You go to the movie together. Why don’t you manage your personal finance together? This will build money compatibility for you and your spouse. Both of you can have a better relationship and understanding with each other.

 

Why it is so important?

You may wonder why personal finance should be managed by both of the partners. Here are some points to ponder over;

 

1)      In case of Emergency:

Suppose the partner, who is managing personal finance, met with an accident and need to be hospitalized for one month or so, then how does the spouse will run the show?

During the accident, if the partner has missed his wallet which had all the credit cards and debit cards then how does the spouse block those cards before it is misused? Where does she or he find that information?

In case of emergency, nothing will help except the practice of managing the personal finance together.

 

2)      Real Workable Budget:

 

When you alone prepare the budget for your family, then you can’t expect your spouse to spend according to the budget. If you prepare the budget along with your spouse, he or she will come forward to help you in saving more.

You just try this. Involve your spouse in budgeting and monitoring the spending. You will see the spending coming down day by day and both of you will start spending consciously.

 

3)      Combined Financial Goals:

 

It is better to identify the goals of your spouse as well as yours and check that is there any goal which is contradictory to the goal of your spouse.

You may want to retire and settle in the same work city. But your spouse may want to settle in the native place.

You may plan to buy a farm house to spend your leisure. But your spouse may be interested in spending her/his leisure at different places like hill stations and other tourism places. For this goal a time share slot with a resort provider may be suitable.

So identifying and settling your difference of opinion regarding the financial goals at the blueprint level is much easier and cheaper, instead of doing it at the execution level.

 

Overcoming the barriers:

There are some barriers or objections in involving their spouse in managing personal finance. How to overcome that?

 

1)      No Time:

 

My spouse is not having enough time to look at these things. ‘No time’ is a false excuse. If it is one of your priorities, then definitely it will somehow find its time. Only thing is you have not realized it as one of your priority. Personal finance is definitely a priority item for each and every family because it is going to secure your future.

 

2)      Not interested:

 

My spouse is not interested in personal finance. Everyone is interested in their own future and their kid’s future.  So logically everyone needs to be interested in personal finance. You need to motivate them and make them understand, how this personal finance management is important in achieving their life goals.

 

3)      Doesn’t know:

 

My spouse doesn’t know about personal finance. No one has born in this world with the skills of money management. We all learned it here. So why don’t you educate him/her on personal finance. Money management is an important life skill. Everyone should know. You want your kids to manage the money better and wiser. Why don’t we educate our spouse first?

Overcoming the barriers in getting your spouse involved in personal finance management and getting them involved will be a life transforming exercise.  Don’t miss it. Together you will be able to achieve your life goals easier and sooner.

 

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

 

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August 16th, 2011

HOW TO RETIRE EARLY ? RETIRE SOONER AND RICHER

retire sooner

The mindset of today’s young professionals is changing radically. They would like to have a semi-retired life in their late forties or early fifties by taking up a hobby instead of a regular job.

Somewhere within all of us, there is a dream to reach a point in life where we have enough wealth to be able to choose the work we would like to do and the pace at which we would like to work, if at all we feel like working; a point also referred to as financial freedom. Financial Freedom is also interpreted as being able to spend whatever amount you like, on whatever things you like, month after month.

 Here is a step by step guide to Retire Early.

 How long you expect to live?

First of all, you need to decide on “How long you expect to live?” This is going to be the starting point for your retirement plan. This you can decide by your health history and your family health history.

 

Will you run out of money?

You need to accumulate enough money required to live up to that age. You need to calculate the corpus amount required for retirement based on when do you want to retire?, how much you need to spend every month after retiring?, Inflation, tax, investment returns and the like.

There are two things which can make you run out of money in between. One is inflation and the other one is medical expenses at the old age. So you need to be very careful in assuming inflation when planning for retirement. Also you need to be adequately covered with right health insurance policies.

 Retirement corpus Break up:

You need to divide your retirement corpus into two portions. One portion of it is the corpus required to retire at the regular age. It could be 58 or 60. The other portion is the corpus required to live between the early retirement and the regular retirement. Say if you want to retire at 50, what would be the corpus required to live between the age of 50 and the regular retirement age of 58 or 60.

First you need to accumulate money for your regular retirement. Then you need to proceed to accumulate for your early retirement. This way you break your targets and it psychologically gives you a lot of comfort in achieving early retirement.

Don’t fall for get-rich-quick schemes

To retire early, definitely you need a sizable corpus. Don’t look for any short cuts and get-rich-quick schemes. Only with the increased risk comes the increased return. If any scheme assures low risk and high return, then it is going to be another scam. So stay away from those schemes.

Don’t fear stocks

You need to consider investing in a well diversified portfolio for long-term. Diversified Equity mutual fund schemes are better. By investing in a diversified equity portfolio you will be taking calculated risk and not blind risk. Equities will beat all other asset classes in the long run. So it is an important option for those who want to retire early.

Reduce your annual cash requirements for when you retire by working out a careful budget

The monthly income required after retirement is going to be an important criteria for deciding the retirement corpus. If you are comfortable with lesser income you can retire sooner. So you need to be careful in drawing a budget for cash requirement post retirement.

 Investigate a better return on your savings

Better return on your investment portfolio will help you retiring early. So maximize the return on your portfolio as far as possible.

Cut your current spending so you can save more

Money spent is money saved. Spend less; save more; invest smarter and retire sooner. There are more number of ways to spend smarter to save more. (Link this article here http://getahead.rediff.com/slide-show/2010/oct/14/slide-show-1-money-control-emotions-spend-smarter-and-save-more.htm)

Earn more now

Time is money. Don’t waste your time.  Invest your time in revenue generating activities. Apart from your regular income source, there are other opportunities which you can exploit. You can create blogs; you can be a freelance writer; you can do internet marketing. There will be numerous opportunities based on your knowledge and skills if you take time to think and implement.

Take advantage of tax-deferred opportunities

Tax deferment is an important tool for early retirement. Tax deferment means less tax now. If you pay less tax and you will have more money to save. You need to pay tax on FDs on maturity even if you renew them. Income funds and MIPs could be a better alternative to this. You need to pay tax only when you actually redeem.

Find out some ways to have an income

Even after retirement you can have an income by way of a hobby or interest. You need not work on a regular schedule. Say you can be a trainer, you can be a blogger, you can be a consultant, or you can be an adviser in your chosen field. It generates money as well as it keeps you engaged after retirement. One of my clients has written a book and he is able to generate income from the copyright of that book year on year.  If you are able to generate this kind of income, then you can retire early.

Retiring early is possible for each and everybody. You need to start planning for it little earlier. Professional assistance from financial planners will be of definitely useful to you, if you desire to retire sooner and retire richer.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

 

 

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July 20th, 2011

ALL YOU WANTED TO KNOW ABOUT COMPANY DEPOSITS

company deposit

Company Deposits are simply nothing but fixed deposits in companies that earn a fixed rate of return over a period of time. Company deposits are really down-to-earth
products. The influential advantage of the company deposits is its plain simplicity.
Company deposit is understood even by the most novices among the investors
community.

Have you ever wondered the logic behind why pure vanilla flavored ice cream sells
more than any other flavor? Similar logic is just as true when it comes to the company
deposits vis-a-vis many other modern investment options.

With the meltdown of NBFCs almost a decade ago, company deposit market had a major slow down, but volumes still remain significant and there are loyal investors who prefer company deposits to other investment products.

 

Advantages of Company deposits:

 

v      Assured return.

v      Higher interest when compared to bank deposits.

v      Low risk when compared to stock market investments.

v      Service at your doorstep.

v      Lock in period in most of the cases is 6 months only.

v      If the interest income is less than Rs.5000 in one financial year, then NO TDS.

 

Risk in Company Deposits:

Company deposits are basically unsecured. That is if the company defaults in repaying the interest or principal, the investor will not be able to recover his capital. As a company deposit holder, you don’t have any lien on any asset of the company, in case it goes into financial difficulties. This makes the company deposits a risky investment option.

 

Identifying Risky Company Deposits:

One of the important tasks in investment planning in company deposits is to
identify the risky company deposits and avoiding them. If you find any of the below symptoms in any of the company deposit scheme, then it is better to avoid such company deposit schemes.

 

ü       Poor credit ratings like A or lesser ratings.

ü       Companies making losses.

ü       Companies that skip dividends.

ü       Companies that offer higher than 3% to 4% of bank deposit rates.

 

Checklist for choosing right company deposits:

There are some good investment options in company deposits. Also there are some bad investment options. If you know how to select the right company deposit then
company deposits can be really an interesting investment option in your portfolio.

 

  • You need to ignore all the unrated companies and need to choose companies with the rating of AA or higher.
  • Choose the company with better reputation within a given rating grade. If you read business papers and magazines periodically, it is not difficult for you to check the credentials of the company.
  • Take the help of the qualified financial advisor in choosing the right company deposit. But mind you, there are very few reputed and qualified financial advisors.
  • Company deposits need to be spread over a large number of companies in different industries. By this, you can diversify your risk. Irrespective of the rating and reputation of the company, don’t invest all your investments in a single company deposit scheme.
  • You need to check on the servicing level and standard of the company. You need to ignore companies that don’t care or care little about issues like sending interest warrants and principal cheques.
  • After investing in a company deposit, you need to constantly track the company’s credit rating. The times are uncertain and downgrades are rampant.
  • Check the company’s balance sheet for its asset back up, profitability, reserves, existing borrowings and loans.

 

Every investment has its distinct features and benefits. Likewise each investor has
specific risk taking ability and personal needs. Professional investment planning needs matching of the product benefits and features with the financial objectives of the investors. So one need to weigh the various alternative investment options like bank deposits, debt funds vis-a-vis company deposits before making a choice.

 

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

 

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July 12th, 2011

All you wanted to know about Mediclaim Policy

mediclami

Health care costs are sky rocketing day by day. Therefore the need for having a mediclaim policy for you and your dependents has grown. Suppose you have to undergo some medical treatment or need to be hospitalized for certain reason, then a mediclaim policy will be of immense help to you in covering your health care expenses. The reason is Mediclaim offers protection in case of unexpected medical and health care emergencies.

Hospitalization expenses in case of illness, disease or accident will impose a heavy financial burden on individuals and families. This is where the mediclaim policy comes in handy. The mediclaim policy can reimburse the hospitalization expenses or can pay the hospital directly on behalf of you.

A mediclaim policy provides a health cover of certain amount of money. This amount depends on the amount that the insured person was insured for.

The mediclaim policy can be taken for an individual or for an entire family. Some insurance companies allow a discount on the premium if the policy is taken for a family.

Insurance companies have fixed some age limit for medical test. If the individual is below that age, then he or she need not undergo medical test for taking mediclaim policy. If the individual is above that age limit then he needs to go for medical test.

If any pre-existing disease has been found out in the medical test, then those diseases will not be covered under the mediclaim policy for a waiting period of a first few years.

If you have a mediclaim policy from your employer, that may not be sufficient. Employer may cover the employee and not necessarily his entire family members. And moreover these policies are not portable and cannot be individualized if you leave the job. Employer provided policies cannot be transferred to another employer in case you switch your job. Also employer provided policies will give you coverage as long as you are employed. Once you retire you may not be having coverage.

It is really unfortunate that only after your retirement you need health insurance at the most. If you plan to take a fresh policy after retirement, insurance company will not cover the pre-existing diseases at that point in time. Though your employer provides a health insurance policy it is better for you to take a separate health insurance policy at least with a small amount of coverage.

The coverage amount of the health insurance policy need to be decided based on your health consciousness, your family health history, and the class of hospital you choose for treatments.

If you are not health conscious or you don’t do regular exercises or you don’t follow proper diet or you frequently take outside food or don’t go for annual health check-ups then it is advisable to go for more sum insured coverage in your mediclaim policy.

If your family has got any adverse health history like heart disease, high blood pressure, stroke, diabetes, kidney disease, cancer, any form of paralysis, or any hereditary disorder then you need to choose higher coverage amount in your health insurance.

If you will be choosing high class hospitals foryour treatment then you need to go for higher sum assured. If you will be choosing medium level or low level hospitals then you can choose the coverage amount accordingly.

Also you need to revise your health insurance coverage amount based on the changes in the above factors and the changes in the medical cost. Also the increase in the age needs to be considered for deciding the coverage amount.

The icing on the cake is you get tax benefit under section 80D for the mediclaim premium paid. For senior citizen the limit under this section is Rs.20000 and for others it is 15000.

Most people don’t think about health insurance very often.  But it comes to mind first when a loved one is sick. Mediclaim policy is one of those things everyone knows he or
she should take but usually puts off until a more opportune time. Living without a mediclaim policy is like going out on a rainy day without an umbrella or a raincoat.

If you have not covered adequately yourself and your dependents with mediclaim policy so far, then now is the right time to take action. The fact that you are reading this article shows you have decided to stop procrastinating, delaying and have answered the ancient question, “If not now, when?” with “NOW!”.

 

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

 

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July 10th, 2011

Mutual Fund SIP: for Short term or Long term?

MF SIP

It may look very strange when everyone is advocating Mutual Fund Sip for long term, what is the necessity for this debate on ‘Is Mutual Fund SIP for Short term or long term?’.

Theoretically doing a Mutual fund SIP for long term will work for investors. But for
practical reasons we need to commit a Mutual Fund SIP for short term. That is we need to break that long term into many 6 months or 1 year periods and commit your Mutual Fund SIP for first 6 month or 1 year.

Then at the end of 6 month or 1 year renew your SIP for another 6 month or 1 year.
You need to renew like this till you complete your predetermined long term period.

You may think it is an unnecessary paperwork and waste of time. But you will be completely convinced when you have finished reading this article.

Contributiontowards Mutual Fund SIP Changes:

 

How much you are contributing towards Mutual Fund SIP changes over a period of
time.

 

  • At the beginning of a careera person will be able to commit Mutual Fund SIP for small sum of amount. As he progresses in his career, he or she will be able to increase his contribution towards Mutual Fund SIP.
  • Similarly, when someone reaches a stage where he need to spend more on kid’s higher education, daughter’s wedding, buying a house or meeting a major financial commitment, it is difficult for him to continue the same amount of Mutual Fund SIP contribution.
  • So whenever you renew your Mutual Fund SIP at the end of 6 month or 1 year, you can look at your cash flow position and based on that you can renew the Mutual Fund SIP for the increased amount or the same amount or the reduced amount.

 

Portfolio Review:

Also it gives you a chance to review your portfolio with your advisor once in 6 months or 1 year.

 

  • The scheme which you have chosen for Mutual Fund SIP is performing well when compared to its peers or not? You need to review this periodically. The scheme may turn out to be a laggard.
  • The scheme may be performing well when you have chosen for doing SIP. But over a period of time, it could have derailed from its performance. This is something like our cricket players. They will be in a good form in the game for some period of time. Then they will lose their form after sometime. So you need to periodically check up whether the fund is performing NOW or not.
  • If you are committing a Mutual Fund SIP for 10 years, then the advisor may not be coming back to you whenever you call him for reviewing your portfolio. If you commit for 6 months or 1 year he or she will be definitely coming to you for renewing the Mutual Fund SIP. You can have a review with him or her at that time.

 

When you commit Mutual fund SIP for long term, generally we ignore to review it. It
may generate poor returns. You can avoid this by periodic review.

 

Equity Exposure in Overall Portfolio:

How much equity exposure you can give to your overall portfolio can change the amount of Mutual Fund SIP in equity and debt.

 

  • As the age goes up, your ability to take risk comes down. So you need to change your equity mutual fund SIP contribution periodically.
  • How close or distant you are to achieve your financial goals will also decide your equity exposure. If you have got long period to achieve your financial goal then you can have more equity exposure. When you have short period to achieve your financial goal, then you need to reduce your equity exposure.
  • Rebalancing your portfolio based on your predetermined asset allocation will also decide your equity exposure.

 

All this can change your Mutual Fund SIP amount in equity funds.

So, committing a Mutual Fund SIP for long term looks good on paper. For practical
reasons we need to commit for short term and renew it at the end of every short
term till achieving our financial goals.

In this regard, instead of committing a Mutual Fund SIP just like that, having a
long term financial plan and committing Mutual Fund SIP based on that plan will be really fruitful. This will make a solid difference in achieving your financial goals.

 

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firmthat offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

 

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July 8th, 2011

CUSTOMER RETENTION IN INSURANCE

marketing

Customers are reasonable.  Many are quite realistic about the relationship that the company can provide and know that it is constrained by resources, technology, and the problems of managing change.  Customers whose expectations are unrealistic can be educated as to what is realistic.

The period during which the customers consider themselves to be in relationship with the company may quite long.  Opportunities to strengthen this relationship occur through out this period especially just before, during and immediately after the transaction.

The key aspect of CRM is the ability to collect, analyse and track customer information.  This information on the database of company is a corporate planning asset.  Many companies are bought and sold on the basis of the knowledge they contain.  In Balance sheet, this is shown as “goodwill” but in CRM terms, it is an asset of tangible value-the names, addresses and all transactional and promotional information for all customers.

In corporate strategy, enhanced customer knowledge means that the company can enter new markets with greater degrees of certainty.  It can also identify customers under competitive threat and take steps to reinforce their loyalty.  Through the database, identify specific market and product range opportunities, test production
specifications, customer service approaches and promotional options.

All company sales consist of two groups of customers new and repeat customers.  It is certain that to retain existing customers is more cost effective than to attract new ones.  Existing customers have known, identified needs that have been satisfied by the products or services in past.  By focusing marketing strategy on profitable segments of customer base, the company will normally produce most of the required revenue and increase market share without investing in acquiring new customers, which is much more expensive than retention strategies.  If retention strategies succeed, the maintenance of customer loyalty has additional benefits.

i.e., acquiring customers are much more expensive than keeping that, that is why, CRM is important.  Customer retention is through customer satisfaction and it is through.

1. convenience and easy access to right person in the
company.

2. appropriate contact and communication from the company.

3. ‘special’ privileged status as a known customer.

4. Recognition of their history with you.

5. effective and fast solutions if and when problems arise.

6. appropriate anticipation of customer needs.

7. a professional – friendly two way dialogue.

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July 8th, 2011

CUSTOMER LOYALTY IN INSURANCE

customer

Managing customer loyalty is a critical component of CRM. Loyalty is not throwing money to marketing programmes, producing magazines, setting up clubs or introducing cards in the vague hope that loyalty will be generated.  Loyalty will develop over time if the parameters for the relationship are planned and implemented correctly.

Loyalty is a state of mind, a set of attitudes, beliefs, desires and so on.  Loyal customers not only repurchase, they also advocate products and services to their friends, pay less attention to competitive brands and often buy product or service line extensions.  Loyalty is a physical and emotional commitment given by customers in exchange for their needs being met.  View the relationship from customers point of view.

There are different degrees of loyalty.  Some customers are very loyal, some less so.  Loyalty is therefore developed by approaches that reinforce and develop a positive state of mind and the associated behaviors.  The aim is not to make all customers loyal but to improve the loyalty of those customers most likely to respond.

The exchange of information to and from the customer provides a critical bridge between state of mind and behavior and it is one of the key to loyalty.  Loyal customers have belief that they get better service and rewarded for their loyalty.  Company tries to differentiate the relationships and service package provided to loyal customers form the normal level and gives special recognition to them.

Customer loyalty may be from customer behavior or it is a state of mind.  If state of mind definition is used, the focus of the resulting approach will be on gaining a special place in the mind of customer and making the customer feel that their loyalty is being rewarded by stronger or better relationships with company.  If the behavioral definition is used, the focus of the resulting loyalty approach will be on incentives that reinforce behavior pattern.

Determinates of business loyalty

♦ Satisfaction with brand and category

♦ Service experience and satisfaction

♦ Offer attunement (modify the offer to meet the changing needs)

♦ Involvement in the design/delivery process

♦ Good relationship management

♦ Balance of selling and buying facilitation

♦ Information exchange

♦ Company type/size/sector

♦ Product/service type

♦ Importance of product/service to them and their customer

♦ Nature of / criteria for the buying decision

♦ Attitude to business relationships
Thus a loyal customer is one that trusts that:-

-        the supplier’s product will sell well

-        Customers will continue to be satisfied with the supplier’s product and                    continue  to buy it again and again

-        Consumer ill only come back to compliment not complain

-        The supplier has targeted his consumers correctly.

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