Dont expect lower interest rates anytime soon !
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Posted on April 16, 2012 by Harsh Roongta
The market consensus is that RBI will cut repo rates by 25 basis points tomorrow when it announces the credit policy. This is supposed to result in lower interest rates on loans and deposits. Firstly the rate cut expectations may be wishful thinking given the persistent high inflation as well as the further inflation potential due to the expected fuel price increases. Bank deposit growth has not been as expected. Banks also have limited room to cut deposit rates  as interest rates on small savings instruments have been fixed at a high rate for the next financial year such as PPF (8.8% tax free) , 5 year NSC (8.60%) , post office fixed deposits of varying tenures (8.20% to 8.50%) . And if banks cant cut deposit rates by much then loan rates are unlikely to be reduced. So tomorrow even if RBI is forced to reduce the Repo rates by 0.25% even then the deposit and lending rates may not fall. Also the language used by RBI regarding the further direction of rates will determine how the market reacts to the widely expected rate cut (if it actually happens). All in all there might be some wait before we see a drop in interest rates.
Posted in News, Regulations | Tagged , | 2 Comments

Calculate life insurance need yourself
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Posted on April 10, 2012 by PankaajMaalde
Experts always recommend that one should be adequately covered for life insurance so that family is protected in case of death of the bread winner. But, most of the people find it difficult and are in confused state as to how to calculate the exact life insurance one needs to be covered with. Life Insurance agents give different reasons and sometime not so convincing for buying insurance plans. They normally always advise you to buy insurance products with investment component. In this article we will learn how to calculate life insurance need correctly.

Let us now understand how life insurance need is calculated. There are two most commonly used methods to calculate life insurance need. First one is which is advocated by insurance agents, human life value method and the other, one and which is correct method is my opinion, is need based method. Human life value is calculated on the basis of income of the person to be insured till his/her retirement age. As against the human value method the need based insurance value is calculated on the basis of day to day family expenses till the life expectancy of the youngest of the couple. One should apply need-based theory instead of going for human life value while calculating the exact need of life cover. It is also important that one should buy life insurance only if one has dependent/s who are financially dependent on his/her income . If you are single/unmarried than you does not need to buy any life insurance cover. Many unsuspecting persons are made to buy life insurance policy for their wife even when she is a pure home maker. Likewise people are induced to buy child plans with the trick of emotional blackmailing for their children’s future without understanding the cost involved in such insurance plans. So neither buying of insurance for pure home maker nor accumulating corpus for child is advisable. Your life insurance need comes down if your spouse is also working or to the extent of assets already owned by you. Any existing or future financial liability needs to be taken into account while arriving at the amount of life insurance you need. The liability would include present loan or any value of expenses which one will have to incur in future like education and marriage of children.

Let us take a live example to understand how to calculate life insurance need with the help of excel application. Mr. Ronak aged 32 years working in a software company draws a yearly salary of Rs. 6 lakhs. He lives in Mumbai with his wife aged 30 years and 2 daughters aged 4 years and 1 year. They live in their own house which they bought last year for total value of Rs. 30 lakhs. They have taken a home loan of Rs. 20 lakhs and are paying home loan EMI of Rs. 25,000 every month. The outstanding loan balance currently is 19 lakhs. He has 3 lakhs in EPF account, 2 lakhs Mutual Fund Investment, 1 lakh FD and Rs. 50,000 in savings bank account. The total investment assets are Rs. 6.50 lakhs. His monthly house hold expenses including conveyance, education, life style is Rs. 18,000. He has two endowment plans of sum assured of Rs. 1lakh each and is paying premium of Rs. 10,200 yearly. He has some future liability in the form of Rs. 5 lakhs each for higher education of both the daughters and Rs. 2 lakhs each for marriage. He is covered under group health insurance provided by his employer for 3 lakhs under family floater. Now Mr. Ronak wants to calculate his life insurance need with the help of excel.

So he opened excel, selected formulas then insert function and clicked at PV i.e. present value. Present value function will give you a present value of the entire future outflow for his house hold expenses if anything happens to him today. Let us calculate and understand the same in detail. Rate – 0.93% = 0.0093 Nper- 50 = 50 Pmt- -18000*80%*12 = -1,72,800 FV – 0 PV – 68,84,382 (Answer) Rate – Rate is inflation adjusted return assuming 9% investment return and 8% as inflation. Nper – Number of years till life expectancy of the spouse i.e. assumed at 80 years. PMT – Present yearly expenses of the family. Taken 80% of the total expenses assuming expenses will come down to the extent if bread winner is no more. PV- Rs. 68,84,382 is the family need today. This is not the final result which we are looking. We have to add loan liability and future goals. Also have to deduct present assets already generated and existing life insurance cover. Self occupied home and personal jewellery will not be the part of investment assets. The final calculation will be as under: PV of House hold expenses today 68,84,382 Add: 1) Home Loan Liability 19,00,000 2) Education Goal 10,00,000 3) Marriage Goal 4,00,000 Total 1,01,84,382 Less: 1) Investment Assets 6,50,000 2) Life Insurance Cover 2,00,000 Less : 8,50,000 Actual Life Insurance required 93,34,382 Ronak requires life insurance cover of Rs. 93 lakhs. These are very easy steps to calculate the life insurance need with the help of excels but before that you have to understand the basic things. Now, you can also calculate your life insurance need easily as shown above.

You should also note that if your spouse is earning then life insurance need will come down to the extent of spouse’s income. The same way you have to find out the present value of future income of your spouse and required to be deducted at the end. Life insurance proposal is subject both financial underwriting and medical underwriting. So it is always advisable to disclose all the material facts correctly asked in the proposal form and also undergo medical tests as required. Once you have done your job rightly no company can reject the claim.
Posted in Life Insurance | 278 Comments

Initiatives by IDBI Bank
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Posted on April 6, 2012 by Bienu Vaghela
USBs by IDBI Bank IDBI Bank Ltd. has established Ultra Small Branches (USBs) in 16 locations in villages to cater to the financial needs of the rural populace and is in the process of establishing such USBs in all the villages allotted to IDBI Bank for financial inclusion. The USB will address the various needs of the rural customers like account balance enquiry, various advances suitable to him, remittance, etc. for which the villagers had to hitherto travel long distances towards the bank branches located far away from their habitation. Also, IDBI Bank has completed implementation of Financial Inclusion in all the allotted villages well before the timeline set by the Government of India.

Social Network initiatives by IDBI Bank Not only this, IDBI Bank is the largest socially networked bank in the country in terms of official presence on four platforms namely G+, Facebook, Twitter and YouTube with the largest number of fans/followers/subscribers/circles across these platforms as compared to any other peer bank in India. IDBI Bank has been a front runner amongst peers on social media as the first bank to have an official Google Plus brand page and over 6,00,000 fans on Facebook and 15,000 followers on Twitter gained in a short span of 9 months! As a unique initiative on twitter, IDBI Bank shares exclusive information, trends, analysis and opinions in informative ‘tweets’ daily. Some of the areas they cover on their official twitter profile are daily market updates, industry and sector trends, global and market reviews and data and analysis on everything from inflation to GDP.
Posted in News | Tagged , , | 266 Comments

Health is Wealth: Put First Thing First
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Posted on April 5, 2012 by PankaajMaalde
It is rightly said, “Health is Wealth”. But truly speaking how many of us are really serious about this? Today, when everything is uncertain, nobody can be sure what will happen tomorrow. We all are aware that medical bills are high and getting still higher. Still we do not buy health insurance plans. Health Insurance is way of covering you and your family against any medical emergency arising out of any diseases or illness or accident. In India health insurance premium is considered as expense. This is because we do not give importance to eventualities. It is also true that, as the age of an individual increases, the medical bills are likely to increase and become a burden on the family. Some time entire family collapses because of this financial burden. We need to think seriously and act immediately upon it.

When we meet clients, usually we find one or two life insurance policy in each & every home, but the health cover is mostly missing there, not only because of lack of awareness but also because of unwillingness to pay the premium from customer side. At present less than 10% of total population have their health insurance plan. Data shows that 30% of people with heart problems are less than 40 years old. Diabetes, blood pressure and Cholesterol are also very common in younger age. Stress level at work, habits and increasing life style illness also add to physical & mental pressure. Better we take early step to cover our self and our family before it’s too late.

A mediclaim policy covers hospitalization expenses for the treatment taken for disease or illness or accident. It also covers pre and post hospitalization expenses up to certain days and certain limit of sum assured. This limits differs from Co. to Co. depending upon the policy and sum assured.In today’s scenario mediclaim of 50,000 or 1 lakh sum assured will not suffice. Individually we require minimum 3 to 5 lacs health cover. You can also buy a family floater with an extra top up plans, which will really help you in bad days. Now most of the Co. also offers cash less facility if the patient is hospitalized in network hospital. Thus, we can concentrate only on illness of the patient and save time & energy from raising funds from friends and relatives.

Other benefits: • Cumulative bonus of 5% to 10% to your sum assured for every claims free year • Family discount of 10% is applicable • Health Check up in designated Centers or Reimbursement up to Rs. 1000/- at the end of continuous four claims free years. • Income tax benefit on the premium paid up to Rs. 15,000/- as per section 80-D of the IT Act. You can also claim for the premium paid for your Parents separately up to Rs. 15,000/- ( Rs. 20,000 in case of senior citizens). General exclusions • All diseases/illness/injuries existing at the time of proposing this insurance • Any disease contracted during the first 30 days of commencement of the policy • Certain diseases such as hernia, piles, cataract, removal of gallstones or renal stones and sinusitis shall be covered after a waiting period of 2 years • Non-Allopathic medicine • Congenital diseases • All expenses arising from AIDS and related diseases • Cosmetic, aesthetic or related treatment • Use of intoxicating drugs, alcohol • Joint replacement surgery (other than due to accidents shall have a waiting period of 3 to 4 years) Things to check before signing proposal form: 1) Life time renewability 2) Co-payments if any 3) Ceiling on room rent or other fees 4) Sub limits on certain operations like cataract, joint replacement etc. 5) Waiting period for pre existing details A healthy life means many more working years and chance of wealth creation and financial freedom in your life.
Posted in Health Insurance | 320 Comments

Watch out – Room Rent Sub Limit can really limit your health insurance claims
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Posted on April 2, 2012 by Harsh Roongta
A lot of health insurance policies are being issued with a specific limit on room rents. For example the health insurance policies of all the 4 public sector companies have a clause that restricts room rents to 1% of the sum insured or Rs. 5,000/- whichever is lower. On the face of it this sounds like an innocuous little restriction that will, at worst, shave off a few thousand rupees of your claim for hospitalization expenses.  But this is actually not so. Here is an example that will illustrate the huge impact of this clause. Let’s say you have a mediclaim policy of Rs. 3, 00,000 from an insurance company that has this clause restricting room rents to 1% of the sum insured. That means the room rent limit applicable to you is Rs. 3,000/- per day. Now if you have to undergo a 2 days stay in a hospital for a procedure (let’s assume an angioplasty) that has the following costs: 1)      General Ward : Room rent Rs. 1,000/- per day  plus all other eligible expenses – Rs. 73,000/- (Total expenses are Rs. 75,000 – room rent Rs. 2,000 plus Rs. 73,000/-) 2)      Twin sharing room  : Room rent Rs. 3,500/- per day plus all other eligible expenses – Rs. 2,43,000/- (Total expenses are Rs. 2,50,000 – room rent Rs. 7,000 plus Rs. 2,43,000/-) 3)      Single room  : Room rent Rs. 6,000/- per day plus all other eligible expenses – Rs. 3,88,000/- (Total expenses are Rs. 4,00,000 – room rent Rs. 12,000 plus Rs. 3,88,000/-) Now can you tell me what will be the amount you will be reimbursed if you decide to get the procedure done in a twin sharing room? It will cost you Rs. 2, 50,000 (which is well within the policy limit of Rs. 3 lakhs) but how much will the insurance company reimburse you? If you are like most people you would have answered Rs. 2,49,000/- i.e. Costs of Rs. 2,43,000/- incurred in the twin room combined with maximum room rent of Rs. 6,000/-. If this answer had been correct then this restriction may not have such significant impact. Unfortunately the correct answer is Rs. 79,000/- only.  A small fine print tucked away in the insurance policy states that the room rent restriction means that all other expenses other than room rent will also be restricted based on what you would have incurred had you stayed in a room that you were entitled to. In this specific example the room rent sub-limit means that you are not eligible for staying in a twin sharing room. The expenses in the next lower category are only Rs. 73,000/- which is what you are entitled to plus the room rent incurred subject to the maximum limit which makes it Rs. 6,000/= (making it a total of Rs. 79,000/-). Very few people actually understand this particular implication of the room rent sub limit and discover it only when they actually make a claim. The pernicious practice of hospitals to charge widely differing costs for the same procedure and exactly the same treatment combined with this fine print in the mediclaim policy makes this restriction a very major restriction.  I mean please remember this limit will remain fixed for years to come even as room rents will keep rising. I have no idea how this restriction will work when even the general ward room rates will become higher than the maximum limit of Rs. 3,000/- mentioned in the above example. What can you do now? If you are out looking to buy a mediclaim policy, avoid any policy that has such a restriction. If you already have such a policy, then use the recent portability guidelines to shift to any insurance company that does not have any such restriction.  Off course if you are older than 45 years the new companies who do not have such restrictions may not be willing to provide you this cover. In such cases you will have no option but to plan a contingency fund to deal with these extra expenses that are not reimbursable.
Posted in Health Insurance | Tagged , , | 212 Comments

L&T Finance acquires Fidelity Mutual Fund
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Posted on March 30, 2012 by Ronak Morjaria
L&T Finance acquired Fidelity Mutual Fund business of India. Fidelity MF was in business for 7years in India and was the 15th largest in the industry with respect to its asset under management (AUM). According to the reports L&T has paid about Rs 530-550 crore to buy Fidelity, valuing the deal at 6.2% of Fidelity's total assets under management of Rs 8,881 crore as on December 31.The deal is pending before SEBI for the approval. Existing investors in Fidelity MF will have an option to exit within a period of 30days without any exit load if they wish to (except for ELSS scheme which will be merged with L&T Tax Saver Fund).
Posted in News | 203 Comments

IRDA hikes Motor Third Party Liability Insurance premium
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Posted on March 30, 2012 by Ronak Morjaria
IRDA has increased Motor Third Party Liability Insurance premium rates in its order on 28th March,2012. These new premium rates will be applicable from 01st April,2012. The regulator will revise these rates every financial year. The rates are revised depending upon a specific formula, which considers the average claim amounts and the expenses involved. On an average the rates have hiked in the range of 5% to 20%. The rates of have increased for all the vehicles depending on their Cubic Capacity ( CC ). The IRDA has also made it clear that insurers cannot cancel the existing insurance and issue fresh policies to effect new premium rates. The third party cover is compulsory for all vehicles to compensate for any damage or liability caused to third party's life or property in the event of an accident.
Posted in Car Insurance, News | 243 Comments

Lending Against Security of Gold Jewellery for NBFC
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Posted on March 27, 2012 by sachin
Given the rapid pace of NBFC business growth and the nature of their business model, which has inherent concentration risk and is exposed to adverse movement of gold prices, as a prudential measure, it has been decided that all NBFCs shall A. hereafter maintain a Loan-to-Value(LTV) ratio not exceeding 60 percent for loans granted against the collateral of gold jewellery and B. disclose in their balance sheet the percentage of such loans to their total assets. 1. NBFCs primarily engaged in lending against gold jewellery (such loans comprising 50 percent or more of their financial assets) shall maintain a minimum Tier l capital of 12 percent by April 01, 2014. 2. NBFCs should not grant any advance against bullion / primary gold and gold coins.
Posted in Gold | Tagged , , | 288 Comments

Higher Interest rates on Small Savings
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Posted on March 27, 2012 by Bienu Vaghela
Small Saving schemes will fetch a higher return from the next fiscal after Government announced adjustments in the rates in line with the higher market rates. The schemes will fetch 0.2% to 0.5% higher rates, accordingly a 10-year National Saving Certificate will now yield 8.9% while popular PPF will fetch 8.8%. Savings instruments with a longer tenure of five years or more have seen a more modest increase compared to products such as one or two year post office deposits where the rise is 50 basis points.
Posted in Small Savings | Tagged , , | 322 Comments

IDBI Liquid Fund awarded 5 star rating by ICRA
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Posted on March 27, 2012 by Bienu Vaghela
IDBI Liquid Fund has received 5 star rating at the 9th Annual ICRA Mutual Fund Awards 2012. The award was received by Shri R M Malla, Chairman & Managing Director, IDBI Bank and Chairman IDBI Asset Management Ltd. IDBI Liquid Fund has been ranked 5 star indicating performance among the top 4.6% category of ‘Open Ended Liquid’ for one year period ending December 31, 2011. As per the ranking criteria of ICRA, the rank is an outcome of an objective and comparative analysis against various parameters, including risk adjusted return, fund size, sector concentration, credit indicator and average maturity. IDBI Liquid Fund is an open-ended liquid scheme. The investment objective of the scheme is to provide investors with high level of liquidity along with regular income for their investment. The Scheme endeavors to achieve this objective through an allocation of the investment corpus in a low risk portfolio of money market and debt instruments.

Speaking on the occasion, Mr. Debasish Mallick, MD & Chief Executive Officer, IDBI Asset Management Ltd said “We are happy that IDBI Liquid Fund has been awarded 5 star rating by ICRA Mutual Fund Awards 2012. This brings into focus the superior investment strategy consistently followed by our Fund Management team. The award is a recognition of the reliability of our fund. This is expected to lead to higher acceptability in a wider investor community.

IDBI Asset Management Ltd. is a subsidiary of IDBI Bank Ltd.

Disclaimer: Risk factors: Mutual funds investments are subject to market risks, read all scheme related documents (SAI/SID/KIM) carefully before investing. IDBI Liquid Fund has been ranked as a Five Star Fund in the category of ‘Open Ended Liquid’ schemes for its 1 year performance till December 31, 2011. The rank is an outcome of an objective and comparative analysis against various parameters, including: risk adjusted return, fund size, sector concentration, credit indicator and average maturity.
Posted in Uncategorized | Tagged , , , | 268 Comments