Why MIPs are better than annuity products?
Ramesh was in his 50s with just 10 years before he got retired from his job in a private corporate firm. He was earning a good amount now but would it be enough? He had a home of his own and had invested his earnings that would give him Rs. 20,000 per month after retirement. But would that suffice?
By the time he is 80, he would require Rs. 1 lakh per month to maintain his current standard of living. Analysts suggest that investing in annuity products that are easily available in the market is not the solution. They tend to offer limited returns that could be around 6.7%. On the contrary, investing in public sector fixed deposits could give you a return of just around 7.5% only if you are a senior citizen. Both of these might not help to meet the cost of living that increases constantly with time. Monthly Investment Plan (MIP) is your best bet in this case.
What is MIP?
Monthly Investment Plan (MIP) is a debt-oriented mutual fund. It allows you to earn good returns to meet the rising cost of living. You can get monthly, quarterly or annual dividends with MIP. It has 80% invested in the debt market and 20% in equity.
Let’s understand this with an example:
You invest Rs. 100 in MIP. For the security of your investment, it would invest about Rs. 70 to Rs. 80 in government securities and other such debt funds. For better returns, it would invest the remaining Rs. 20 to Rs. 30 in the equity market with long-term profit potential.
Advantages of MIP
It can offer regular income for more than two decades after retirement.
You can withdraw your savings on a monthly, quarterly or annual basis.
You get a superior tax benefit than FD. If you hold MIP over 3 years, you can have your capital gains taxed at 20% with indexation.
Your returns are higher than that of Fixed Deposits and you get better protection from Inflation as well.
The returns you get in the long run could range between 11-14% as compared to 8-9% in fixed deposits.
There is no lock-in period so you can exit anytime you wish. Though you might have to pay an exit charge of 1%. There is no entry charge, however.
To sum it up
MIP gives a boost to your investment portfolio due to comparatively higher dividend returns. This provides you an extra edge in returns. It can help you maintain a low-risk profile portfolio and get stable, regular income. It is a dynamic investment product, however, returns are usually better than any other forms of debt investments. So, people with conservative as well as risk-taking attitude, both can benefit. Debt instruments take care of the regular income while the equities offer better returns on your investments. Ensure you consider all the factors, your own risk bearing capacity and then make an informed decision.
Open Demat Account
Free Demat account, No conditions apply
- 0%* Brokerage
- Flat ₹20 per order
Which is the best investment option - Stock Markets, Real Estate or Fixed Deposits?
Investment is viewed as the backbone for one's stability and development. The simple idea behind investing money is the expectation of higher returns, with minimal risk faced. But an investment plan in this diverse market comes in different forms. The three common kinds of investment options; Stock Markets, Real Estate, and Fixed Deposits have their own merits and demerits.
Stocks Markets vs Real Estate
The stock market is an intersection where buyers and sellers of stocks belonging to various companies meet. Despite the more dynamic nature of stocks, real estate provides more control over monetary activities. An individual with stocks is a mere spectator, swaying along the direction in which the company's stocks are moving. Unlike the above, you are in direct control of your assets. Also, unlike the risks under stocks, a real estate asset is a much safer investment, where the asset value isn't subjected to drastic fluctuation.
But when one talks about stock markets, the higher rate of return should never be undermined. Stocks can be disposed off too easily, unlike real estate assets. Stocks enable you to invest in various sectors and themes, while real estate is restricted to one's financial capability.
Real Estate vs Fixed Deposits
Real estates and Fixed Deposits, both provide the financial security that an investor is looking for. Under fixed deposits, an investor is assured of their returns. Liquidity in fixed deposits is very high. One can break the FD anytime he/she wants. The same scenario, during urgency, cannot be repeated in real estate for one might have to dispose of the asset in value much cheaper than the true market value. Also, fixed deposits are flexible to invest in, with an option to invest any amount for a time duration ranging from a month to a decade.
Alongside, one disadvantage of fixed deposits is their low returns, which barely competes with the nation's inflation rate. Properties bought in real estate puts one in direct control of his/her investment. Where fixed deposits are stagnant to an extent, real estate values doesn't follow the same capping as does the former.
Fixed Deposits vs Stock Markets
As discussed, under fixed deposit an investment is more secure as compared to stocks. But this security comes at a cost of low returns. Investment in the stock market would yield a higher dividend. Another aspect diving these two would be liquidity. Stocks can be sold or bought at an easier rate. Whereas, fixed deposits come with a stipulated lock-in period. If one wishes to withdraw their FDs within this time period, they will attract a pre-closure charging fee and receive the amount at a lower rate of interest.
Summing it up
|Fixed Deposit||Real Estate||Stock Market|
|Rate of Interest||Moderate||Moderate||Very High|
|Taxation||Interest income is fully taxable||Transaction is governed by several taxes||Short-term dividends are taxed. Long-term dividends are tax-free|
The table above aptly sums up various points surrounding stock markets, fixed deposits, and real estate. Every investment policy is unique. The three compared above; each has pros that are highly lucrative for an investor. It hence falls upon the investor to make the right investment depending upon his/her capability.
Investing in your 50s? Here's how you should invest
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.
What is the difference between Health Plan and Critical illness plan?
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.
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.
Equity- 4 reasons why it outperforms other asset classes in the long run
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.
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.
Health Insurance Plans for Family v/s Health Insurance for Senior Citizens
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.