What is the difference between Health Plan and Critical illness plan?

What is the difference between Health Plan and Critical illness plan?
by Prasanth Menon 06/05/2017
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In this fast paced life, everybody wishes to grow on their salaries and assets. A biker would dream of buying a four-wheeler, while a guy with a four-wheeler may dream of travelling to exotic places. It is during this rush for things that they forget one small mantra; your health is your greatest wealth. And ironically, you require wealth when your health is in peril. This is where Health Plans and Critical Illness Plans come to your aid.

The Difference Explained

Consider a simple situation of a biker who happened to meet with an unfortunate accident. This man comes from a humble background and cannot afford a hefty sum of Rs 5 lac required to fit his damaged knee back. Consider another situation wherein this man had insured his capital in a Health Plan. The Health Plan would ensure that this man is treated for his knee, all for less or no burden on his pocket depending on the type of plan he chooses. In short, Health Plans have your back if you are injured or happen to fall ill.

Falling ill is a very general term. A person suffering from common cold is termed as ill; so is another person with cancer. Critically ill people are those people who suffer from life-threatening illness such as cancer, kidney failure, heart attack, paralysis etc. The Critical Illness Plan is exactly what the former plan is not.

Health Plans basically take care of your hospital bills. The company issuing health plans either pays out directly to the hospital or reimburses the money spent on the treatment. Critical Illness Plans provide you with a lump sum of the insured money after the insured patient is detected of any critical illness. Most Critical Illness Plan comes a survival period clause. Survival period is the duration that the insured has to survive(14-30 days), after being detecting of the particular critical illness. It is after this period that the insured will receive his premium benefits.

One interesting benefit of Critical Illness Plans is that it could act as a 'secondary income source' when the insured is ill and is on the recovery road. Apart from that, the amount that one receives is totally tax-free. Besides, the cost of the premium remains the same, which saves the trouble of calculating newer premium rates and their interests every year.

Health Plan

Critical Illness Plan

Boots the medical bill.

Provides a lump sum on detection of illness.

Cost of premium varies.

Cost of premium remains the same.

Cannot act as 'secondary source of income'.

Can act as a 'secondary source of income'.

A Common Path

A Health Plan and a Critical Illness Plan, both have benefited the general public on a greater scale. Despite their common goal, they follow two diversified paths only to merge at one. A Health Plan is a must. So is a Critical Illness Plan. If your Health Plan has provisions for it, try to obtain the Critical Illness Plan as an add-on, which would prove to be a cheaper option. A wiser move as this will surely introduce a new saying: Wealth indeed supplements Health.

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Health Insurance Plans for Family v/s Health Insurance for Senior Citizens

Health Insurance Plans for Family v/s Health Insurance for Senior Citizens
by Priyanka Sharma 06/05/2017

Health insurance is a plan that covers up the medical bill of the insured patient. We live in an age where insurance plans are carefully woven, keeping in mind the capabilities of the ones who need them. With changing trends in urban as well as rural lifestyle, insuring one's health is the wisest move. One wouldn't want to spend that money saved for their childrens’ higher education, on booting the hospital bills incurred after an unfortunate accident.

The Fine Line

Health insurance varies for everyone. Surprisingly, there is a plan ready exactly according to how one needs them. If for instance, a man wants to protect his family, he would opt for the family health insurance plan. Under this plan, a family (with a usual capping of 5) fall under one insurance blanket covering them all. This plan proves to be more economic when compared to individual insurance plans.

But what about when this man wants to insure his parents' health? This is when senior citizen health insurance plans come to the rescue. A senior citizen health insurance is specially tailored for people who are above the age of 60 years. With special care and benefits, companies make sure senior citizens do get the worth of what they paid for.

Is It All Bright?

There are visible benefits of a family health insurance plan. For instance, if Rs 4 lacs is the sum insured by a family and the younger son happens to need hospitalization, the total sum can be utilized for his treatment. This offers a wider umbrella and makes sure every insured sum is made proper use of. Apart from this, there are a few family health insurance plans that include siblings, parents and parents-in-law in their cover. This helps reduce the premium paid every year and ensures the family stays under one tree. One drawback is that there is a maximum age beyond which the policy wouldn't renew in the name of the head of the family. Apart from that, children who grow beyond a certain age have to obtain an individual health cover for them.

It is indeed bright when we talk about senior citizen health insurance plans. There are many privileged benefits offered and their case is given a top priority. Also, there are certain companies that offer a critical illness plan as a booster to the existing senior citizen health insurance plan. On the economic front, this policy also offers handsome tax benefits.

To Sum It Up

1) Family health insurance covers a family, usually the spouse and their children.
2) Each member of the family will benefit of the insured sum.
3) Family health insurance proves to be highly economic.
4) The senior citizen insurance cover protects older members of the family.
5) Only one person enjoy its privileges.
6) The premium to be paid is usually high.

With the pace of our lives increasing so fast, we do require something that protects us from falling, lift us when we fall and nurture us when we need it the most. Health insurance plans certainly do the task single-handedly.

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Investing in your 50s? Here's how you should invest

Investing in your 50s? Here's how you should invest
by Prasanth Menon 06/05/2017
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Justin lived with his wife in one of the top locality of the city. He has a good job in a multi-national company that pays him quite well. He also has two children who are still in their high school. Life has granted him everything he wished for. Yet, he has been having sleepless nights since a week. He came to realize that although he is earning good, it would only be for a decade more. Getting caught in the race of making the present life comfortable, he somewhat neglected his future. His retirement savings were nil and investments would barely manage to get him a meal twice a day. Was he scared? You bet. Could he do anything about it? Yes!

The dawn of the fifth decade of a man's life is a very curious one. He is heading towards retirement, while still having much of the family's responsibility balanced on his shoulders. It is this time when you stand at the crossroad; one suggesting 'saving up for the future', while the other suggests 'investing for the future.' Certainly, an avid investor would be inclined to opt for the latter. If you are stuck at one such crossroad, this might help you choose the right path.

You are never too old to consider investing in anything; ranging from stocks and mutual funds to real estate and businesses.

Roadmap to investment

1: Set your priorities right

The first and foremost idea is to identify your priorities. Consider what are your present expenses and potential expenses that might come up. If you have some hobbies, check about how expensive that could be. You might not have a job so figure out what are your substitute income source to meet these priorities. Be wise to choose the right one for yourself. For instance, if you plan to retire by 58, it will be wiser to choose an investment option that would give back dividends once you retire.

2: A keen observation of surrounding

You need to have a keen eye on your surrounding activities. The slightest of physical/natural changes in the society sends ripples through the investment market. Investing in a water bottle manufacturing company that sells water in a city, which has recently received abundant rainfall would be a dud idea. Research well before you invest. Pay heed to the advice of financial experts and analysts who can help you with the right investment options.

3: The Retirement Angle

Retirement is inevitable. But what you can avoid is a retired life filled with stress. Your investments mustn't be at the expense of a comfortable retired life. It will certainly not be wise to take a gamble and end up being debt ridden. You can approach professional financial planners who can help you with this. They could help you with goal-based investing that can help you reach fixed targets post retirement.

4: Review your lifestyle and pay attention to taxes

Since retirement would give you a lot of free time at hand, you might want to pursue your passions as well. Be it travelling, dining out or such other recreational activities. You might want to enjoy them without having a dip in your retirement savings. So, consider this when you build your retirement fund. Another thing to focus on is your tax outgo. Since you might be in the peak of your career, you would be in a higher tax bracket. Ensure that your investments then focus on tax-saving options. This could then contribute to your retirement fund.

In a nutshell

You stop growing when you stop learning. Investment is not that difficult after all. You just need to plan it in a way that it helps you achieve your goals. You can take professional help also when necessary. Ensure you have a stock-bond portfolio that could provide both stability as well as good returns for your investment.

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Equity- 4 reasons why it outperforms other asset classes in the long run

Equity- 4 reasons why it outperforms other asset classes in the long run
by Nutan Gupta 06/05/2017
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Slow and steady wins the race. We all believed in this until we all saw what fast and furious could do. Wouldn’t you want to drive a Lamborghini instead of a regular sedan? Wouldn’t you want to travel in a speedboat instead of a row boat? Need for speed is the demand of the time. This is because people have increasingly grown impatient. People want results and they want it quick. The same rule applies to their money too. The one dream that almost everyone somewhere cherishes in their heart is to make money in the fastest way possible. The adage that shortcuts are risky is somewhat true when it comes to investing. One such investment avenue perceived as risky is equities.

However, this is not true always. Equity has the potential to outperform other asset classes in the long run. Equities have in fact achieved this tremendous feat in the past on numerous occasions. Let’s look at 4 reasons why it could do so.

Small Investment, Big Gains: By opting for a longer-term investment plan, you are reducing the amount required to attain your financial target. When you plan on buying that luxury sedan that costs an eye-popping 80 lac rupees, your first target is to save up for the initial down-payment and an apt car loan plan. Assuming 40 lac rupees is the initial down-payment, it would require you to invest Rs. 6000 per month to attain your desired goal. Under normal circumstances, the situation is different while with equities wherein an investment of Rs 3000 per month would help you meet your target, under the same time-period.

Capital added is Multiplied: When we talk about returns from equities, one cannot miss the term 'compound interest'. Over the longer time period, your invested amount is compounded annually. What you reap later is capital enough to have leapfrogged your financial target. An investment of Rs 5000 per month at the rate of 18% P.A for the time period of 10 years would yield a handsome Rs15.5 lac.

Ahead of its Time: With fluctuating inflation rates, there isn't much of a margin on return gains while with many asset classes. As compared to these asset classes, returns from equities have always proven to hover much above the average inflation rates in India. An investment in an asset with its interest rate lesser than the inflation rate is a failed investment.

A Step Ahead of its Peers: Comparing it with any kind of investment, equities have historically blessed its investors with greater returns. Anyone who invested in IT firms during the year 2000 surely received better gains as compared to ones who invested in real estate or the ones who expected stabilized returns from fixed deposits.

Your Take

Patience is never discouraged. But it is advisable to make most of the time spent being patient. Necessity is the mother of invention. This need for quick money had paved way for financial trading. Equity is one of the prime attractions for young investors. Equities, despite its risks, has an upper hand over all other asset classes. As discussed, its returns on a longer term are unrivalled. Yet, with changing trends and fluctuating market, one may be tempted to stay away from it. It is advised to have a composed mind to make the most out of the volatile and beneficial nature of equities.

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Should you invest in Liquid Funds?

Should you invest in Liquid Funds?
by Prashanth Menon 26/05/2017
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Liquid Funds are a popular investment option to park your surplus money for a brief period of time, at a rate of interest which is higher than what a bank generally offers. This is an open-ended debt scheme which invests in treasury bills, money market instruments, commercial paper and certificate of deposits for up to 91 days.

There are a number of factors which make Liquid Funds an attractive option.

Lower risks

To begin with, Liquid Funds are supposed to be least risky as they hold high quality papers. Among the different categories of debt funds, liquid funds have the shortest maturities. They earn returns from the accrual on the instruments and these funds do not involve trading.

Liquid Funds are often compared with Ultra short term funds. However, the two are different on many counts. Firstly, the maturity period for the Ultra short term fund is more than three months and often goes up to a year. Ultra short-term funds are a riskier preposition on the basis of the quality of papers they hold. Furthermore, Liquid Funds do not charge an exit load, whereas Ultra short-term funds put an exit load on the investor.

Better returns

In general, Liquid Funds give returns of over 6-8%. Compare this to the average 4% rate of interest offered by most banks for savings account. The better returns easily make it an obvious choice from an investor’s point of view.

Easy liquidity

There is no exit load charged on liquid funds. In fact, there are now provisions in some funds that allow an investor to redeem their funds within a few hours. Hence, the process that used to take a couple of days earlier is now complete within some hours. Overall, on the basis of the cut-off schedule for redemption, an investor receives money the next day.

Taxation

Liquid funds are taxed like any other debt fund. When profits are realized in less than three years, the same are taxed as per your tax rate, while the profits realized after three years are taxed at 20% with indexation. Investors who come in the 30% tax bracket can opt for a dividend payout if they require cash on a regular basis.

Conclusion

Liquid Funds give an investor the option of investing their capital for a very short duration of time at an attractive rate of interest. The option of redeeming the funds within a span of some hours makes the investment option a very lucrative one.

These funds are best suited as a contingency fund where you can set aside some amount of your investment by a creating a contingency fund.

This route also works well when an investor wants to invest lump sum money and then, in course of time, transfer it systematically it to equity funds. In general, it is not advisable to invest lump sum in equities market at a time when the markets are volatile or are richly valued. Liquid Funds can be a useful tool during such times as money can be parked here with an instruction for STP into an equity fund at regular intervals. By doing so, an investor can protect the investment against the volatility and, at the same time, the money is already invested in an option that gives better returns.

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Bull Put Spread

Bull Put Spread
by Nilesh Jain 26/05/2017

What is Bull Put Spread Option strategy?

A Bull Put Spread involves one short put with higher strike price and one long put with lower strike price of the same expiration date. A Bull Put Spread is initiated with flat to positive view in the underlying assets.

When to initiate Bull Put Spread

Bull Put Spread Option strategy is used when the option trader believes that the underlying assets will rise moderately or hold steady in the near term. It consists of two put options – short and long put. Short put’s main purpose is to generate income, whereas long put is bought to limit the downside risk.

How to Construct the Bull Put Spread?

Bull Put Spread is implemented by selling At-the-Money (ATM) Put option and simultaneously buying Out-the-Money (OTM) Put option of the same underlying security with the same expiry. Strike price can be customized as per the convenience of the trader.

Probability of making money

A Bull Put Spread has a higher probability of making money as compared to Bull Call Spread. The probability of making money is 67% because Bull Put Spread will be profitable even if the underlying assets holds steady or rise. While, Bull Call Spread has probability of only 33% because it will be profitable only when the underlying assets rise.

Strategy

Sell 1 ATM Put and Buy 1 OTM Put

Market Outlook

Neutral to Bullish

Motive

Earn income with limited risk

Breakeven at expiry

Strike Price of Short Put - Net Premium received

Risk

Difference between two strikes - premium received

Reward

Limited to premium received

Margin required

Yes

Let’s try to understand with an example:

Nifty Current spot price (Rs)

9300

Sell 1 ATM Put of strike price (Rs)

9300

Premium received (Rs)

105

Buy 1 OTM Put of strike price (Rs)

9200

Premium paid (Rs)

55

Break Even point (BEP)

9250

Lot Size

75

Net Premium Received (Rs)

50

Suppose Nifty is trading at Rs 9300. If Mr. A believes that price will rise above 9300 or hold steady on or before the expiry, so he enters Bull Put Spread by selling 9300 Put strike price at Rs 105 and simultaneously buying 9200 Put strike price at Rs 55. The net premium received to initiate this trade is Rs 50. Maximum profit from the above example would be Rs 3750 (50*75). It would only occur when the underlying assets expires at or above 9300. In this case, both long and short put options expire worthless and you can keep the net upfront credit received that is Rs 3750 in the above example. Maximum loss would also be limited if it breaches breakeven point on downside. However, loss would be limited to Rs 3750(50*75).

For the ease of understanding, we did not take in to account commission charges. Following is the payoff chart and payoff schedule assuming different scenarios of expiry.

The Payoff Schedule:

On Expiry Nifty closes at

Payoff from Put Sold 9300 (Rs)

Payoff from Put Bought 9200 (Rs)

Net Payoff (Rs)

8800

-395

345

-50

8900

-295

245

-50

9000

-195

145

-50

9100

-95

45

-50

9200

5

-55

-50

9250

55

-55

0

9300

105

-55

50

9400

105

-55

50

9500

105

-55

50

9600

105

-55

50

9700

105

-55

50

 

Payoff diagram

 

 


 

Impact of Options Greeks:

 

Delta: Delta estimates how much the option price will change as the stock price changes. The net Delta of Bull Put Spread would be positive, which indicates any downside movement would result in loss.

Vega: Bull Put Spread has a negative Vega. Therefore, one should initiate this strategy when the volatility is high and is expected to fall.

Theta: Time decay will benefit this strategy as ATM strike has higher Theta as compared to OTM strike.

Gamma: This strategy will have a short Gamma position, so any downside movement in the underline asset will have a negative impact on the strategy.

How to manage Risk?

A Bull Put Spread is exposed to limited risk; hence carrying overnight position is advisable.

Analysis of Bull Put Spread Options strategy:

A Bull Put Spread Options strategy is limited-risk, limited-reward strategy. This strategy is best to use when an investor has neutral to Bullish view on the underlying assets. The key benefit of this strategy is the probability of making money is higher as compared to Bull Call Spread.