Every month our resident expert on all things personal finance will answer all your queries related to the world of investments, taxation and financial management. The Pfin Doctor will be able to diagnose the health of your portfolio and offer better advice if your questions are precise, and the description of the ailments detailed. Write in to [email protected]
My wife and I have MNC jobs. We are 27, and don’t have a child, yet. Neither of us has to financially support parents. Our cumulative medical cover provided by our respective companies is about Rs 8 lakh. However, I’ve seen a lot of financial advisors advocate buying medical insurance irrespective of the cover provided by employers. Why should I spend more from my pocket on insurance when there is adequate cover? If indeed one has to buy mediclaim, what kind of plans should I look at.
Dwaipayan Moitra, Pune
The combined Rs 8 lakh cover provided by your employers is sizeable. But if you mean the cover is Rs 4 lacs each, keeping in mind skyrocketing cost of medical services, this might sooner than later turn out to be insufficient. Hence, it is important to have a personal health insurance besides what your company provides. The reasons for extra cover are as follows:
- You can loose job or move choose to go to greener pastures. There may be a period, howsoever small when you may find yourself without any employer given medical benefits. Leaving a gap, as cricketers commentators would tell you, between the bat and the pad is never a clever idea. You may end up high and dry.
- A health cover does not mean “everything you can think of related to health”, there are many things which group health policies typically provided by employers, won’t cover. Try to find out more about the ‘not covered’ list in your existing policy. See what is the most important thing for you and your wife and if your company covers that or not.
- It won’t hurt to take a good Family Floater cover for Rs 4-5 lakh. Given your life stage, that’s a reasonable insurance, and the premium too should not be very high. There is nothing like the “best policy”. One size doesn’t fit all, especially when it comes to insurance.
Hi there. I am an NRI and have investments spread in India as well as abroad. Keeping in mind the massive depreciation witnessed in the rupee, does it make sense to bring money back to India now? There is a lot of buzz about this. The idea too sounds interesting, but more often than not, things don’t behave the way you’d like them to! What if the rupee depreciates further?
Ajay Sood, New Jersey
There are two aspects to this: returns from future rupee appreciation, and the attractiveness of current investment avenues within India.
That rupee will eventually come back to the previous levels from the current lows is a fact none can deny. The million dollar question here is when?
In the above case, the net return on investment a person makes would be dependent on two factors:
a.Returns from the investment made; plus
b.Returns from rupee appreciation
How? Consider the example below.
A person invests $1000 when USD-INR is at Rs 54. His investments generate an absolute return of 10%. So, on an investment of Rs 54,000, he generates a return of Rs 5,400.
But when he intends to repatriate this back, the existing USD-INR is at Rs 45. So, when he converts this investment back to dollars, he gets $1320 (Rs59,400/45).
This effectively translates into a net return of 32%. This is the kind of opportunity that exists today.
But as you rightly point out, what if things change? What if the rupee depreciates further? That is a possibility. Some people even talk about the rupee touching 62 to a dollar. Let us consider the following scenarios and evaluate how each would impact you
Scenario 1: Risk-on
Scenario 2: Muddle Through
Scenario 3: Dark Clouds
For the sake of consistency, let us assume constant, modest investment portfolio returns of 12-15% in all the above scenarios.
Scenario 1 : Risk-on
This would typically be the best case scenario. In this scenario, the rupee would tend to appreciate, by say around 18-20% from the current levels, which would appear likely. This coupled with 10% absolute returns on the investment portfolio would take the net returns in the range of 30-35%.
Another aspect worth considering here is the fact the rupee appreciation would definitely be accompanied by significant dollar inflows. A portion of the same would find its way into equities, real estate and other riskier assets, thereby increasing the returns further.
Scenario 2: Muddle Through
This would be the average case scenario. In this scenario, rupee would tend to be range bound. So, practically investment returns would be the only gains one would be left with.
When compared to other investment destinations, both within the fixed income and well as equity arena, India today stands out as one of the most promising investment destinations. Be it the higher fixed income returns prevalent currently or the valuations of domestic equity markets.
Hence, even if one sticks to the 12% - 15% expected returns scenario, one would still be better off.
Scenario 3: Dark Clouds
As the name suggests, this would be the worst case scenario wherein the global bloodbath and domestic mayhem would continue to erode the rupee’s stability. Although quite an unlikely situation, analysts believe the rupee would slide by around 5-7% in the worst case. Hence, there would be a possible erosion of the returns generated on investments. If we quantify the possible outcome above scenario, we would still be left with returns in the range of 5% to 10%.
A point to highlight here would be the fact that this depreciation would be led by massive pullouts from Indian markets and long lasting domestic turmoil. This would be accompanied by increased risk aversion among investors causing huge inflows into fixed income investments which would start delivering attractive returns thereby stabilizing the portfolio returns.
The outcome of the above three scenarios is illustrated in the Table (Returns Snapshot). Now that we have identified the scenarios and also estimated what the best case and worst case scenarios would look like, we observe the worst case scenario would still leave us with returns of around 5-10%.
It is worthwhile to mention that losses linked exchange rate volatilities are mere opportunity losses till the time one actually decides to repatriate money back. If the intent is to get back money in India for good, we believe the current opportunity in our hands is quite an attractive one and should be effectively utilized. India would very soon be on a strong growth trajectory, and the rupee consequently should strengthen.