Sir,
I work in multinational company. I am married and have a two-month old baby. I want to buy a life insurance plan, preferably a ULIP. Of late, as my friends say, ULIPs have started catching investors’ fancy again. Is it true? Should I go for ULIP as my goal is insurance as well as investment? Please guide me with all benefits and losses of ULIPs.
- Raja Raman, Mumbai
Dear Raja Raman,
Please do not confuse investment and insurance. Lot of money has been lost in combining these two. Insurance is safety against the odds of life while investment is done to create wealth over time. ULIP is a good product in a rising market because the returns are linked directly to the market. It can also cut the other way and destroy the investment in a dwindling market. Moreover, if you want to take insurance, take any good term plan. The premium is low and the insurance amount is high. However, this is pure insurance and you do not get any money if you are safe. For investment, please go for SIP (Systematic investment plan) in a good equity or balanced mutual fund. HDFC, Birla Sulife, Reliance etc. offer good mutual funds for investment.
Dear Personal Finance Advisor,
I want to invest in a couple of NFOs that are being launched by mutual fund houses in recent times. However, my friends are telling me that many of these NFOs do not provide anything new. On the contrary, it’s a case of old wine in a new bottle. Many fund houses are offering funds that are similar in objectives and asset allocation with a minor difference. Please tell me whether my concerns are genuine or not? Should I invest in NFOs?
- Methil Avanikkad, Kozhikode
Dear Methil,
Mutual funds are essentially funds that invest a pool of money collected by investors like you in a selected set of companies. Hence NFOs may be like existing funds if they invest in the same set of companies. In that case, there is no difference.
If the NFOs invest in new companies or a new sector, then they could be different. However, most of the possible mutual funds are already in the market so NFOs, most likely are just like existing fund. As far as investing is concerned, what is more important is the companies where the fund invests and also the track record which is not available for NFOs.
To find a good mutual fund, look at their returns in the past. Look at the returns not only for the past year but over 5 – 10 years horizon. This will give a better idea.
Dear sir,
I want to invest in a debt mutual fund, but I am confused by the types and sub-types of debt funds available in the market. I’m not able to decide which debt fund should I choose as there are several types of debt funds ranging from gilt funds, income funds, monthly income plans (MIP), short term plans, liquid funds, etc. Please advise me which is the good pick.
- Salil Mishra, Bhopal
Dear Salil,
There are varieties of debt funds in the market and the sheer choice can be confusing for investors. Debt funds are funds that invest a set of fixed income securities (means the investment gives you certain fixed returns every quarter, 6 months, or a year).
Coming to where you should invest in, first look at your objective. If you do not have a regular job and need a regular income source, go for monthly income plan, income funds etc. These funds pay your interest every period as promised. If you have a regular job and do not need another source, go for long term, gilt funds or corporate bonds which accumulate the returns reflected in the increases in the NAV (Net Asset Value, a fancy term which means the price of bond).
Think of investing a part in equity mutual fund (or balanced fund) through SIP (Systematic Investment Plan) where you invest a fixed sum every month or quarter. If you have investment horizon for 5-10 years, equity funds can give much better returns
Dear Finapolis,
Please clear my doubt. I have two endowment policies —one from LIC and second from HDFC Life with a combined sum assured of Rs 20 lakh. Besides, I have one money-back policy of LIC with a sum assured of Rs 4 lakh. However, of my friends has told me that I must buy a term plan as it is more economical and effective. Please advise whether I should surrender existing policies and buy a fresh term plan of Rs 50 lakh.
- Rajbir, Muzaffarnagar
Dear Rajbir,
Term plan is pure insurance. The premium is low and the insurance amount is high. However, this is pure insurance and you do not get any money if you are safe which is what we all want.
For example, you are 35 years old and want a term insurance worth 50 lakhs, your premium will be about 25,000 per annum. This may vary from companies to companies. However, as explained, this is NOT sum assured if nothing happens to you. The money s paid only to the survivors if the insured faces some eventuality.
Take the term plan and close others. If you are looking for investment then go for mutual funds than going for endowment plan which provide you with low returns. Mutual funds are better for investment.
Sir,
I am a businessman in Bhatinda. However, I regularly trade in stock market too. Sir, please clear my doubt regarding tax on share sell. If I buy 100 shares on BSE or NSE today and sell them tomorrow, would the income be calculated as income from my business or capital gains?
- Ravinder Singh, Bhatinda
Dear Ravinder,
If you buy 100 shares on BSE or NSE today and sell them tomorrow, the income would be calculated as income from trading and hence capital gains. You will be required to pay taxes on the capital gains i.e. sale price minus the purchase price.