I am not a Financial Consultant by profession. Also I do not invest or save much. But with my little knowledge I try to give some ideas about investment.
1. The first amount spent on your salary should be savings. I never did that and hence I know its drawbacks. Sometimes, when I am need of urgent money to meet the unexpected need, I have no other option except to borrow. So kindly save.
2. Regarding Insurance do not get cheated by the MNCs and their insurance products, that promises higher returns. Most of this products, called equity linked products (the amount you pay will be invested in shares, after deduction for actual insurances) promises that the amount will be doubled in a span of three to five years. It’s a myth and all depends on the market trend. When I was working with a Fertilizer concern, the company became the corporate agent for a Multinational Insurance company. The CEO of our company and a person from the Insurance Company used to visit the same church and that’s how the deal was made. For some of the products, the company offered even 40 % commission. The minimum premium for some of the products were in the range of Rs50000. Rs1,00,000 etc. Sufficient training was given to us and we started to market insurance products. For marketing Insurance, we should have cleared the exam conducted by IRDA (Insurance Regulatory and Development authority). But the rules were by passed. If I logged a policy, it will be done in some other person’s code.
We used to target fertilizer dealers and well to do farmers for the policy. The main aim is to cheat them. For eg. There was a product with a minimum premium of Rs100000, for which we will computerized projection of returns ranging from 18 %, 24 % and 30 %. We will say the customer that he has to invest only for three years and the coverage will be for 20 years or until he attains the age of 60. The amount can be in excess of Rs100000 (even 2, 3 or more lakhs/year based on his capacity). Lured by the projections, they will agree (they can choose the insured amount also).
We will collect the necessary documents and also a cheque for Rs100000. Finally the policy will arrive. The customer will have a utter shock, after seeing that only Rs60000/ is invested. Then he will call us on phone and ask what happened to the rest of the amount. We will reply coolly to look at the pamphlet given on the product and read it word by word. Yes, 40 % of the amount goes as charges under different heads. The customer has no other go to keep paying for next two more years.
Sad to note that even LIC launched similar such products (of course the charges were high, but less compared to MNCs). So is it safe to invest in normal endowment plans, money back plans that comes under different names? Sadly it is also not a good option. Because, the returns for investment will be harldy 4 % per annum and not more than that. Calculate the returns of any such plan and you will know the truth.
But Insurance is essential. Then what to do? The best option is term plan i.e for example you pay Rs500/year for coverage of Rs100000/ and the money will be never returned. (For coverage of endowment plan for Rs100000 coverage you have to pay Rs6000/year) Now you will be left with Rs5500/ which can be invested in bonds which gives higher returns, Fixed deposits (care should be taken about the time of investment) and mutual funds.
Insure in your name. Because, its only your loss that will cause a financial constraint to the kid i.e only income generating member should be insured and that is the basis of insurance. The kids plans asking you to invest in kids for their education is myth. Instead you can invest that amount in a high interest giving deposit.
There is a accidental policy for Rs60/year for a coverage of Rs100000/. The policy is with almost all general insurers ( United
India, New assurance, Royal Sundaram etc) India
Health insurance is a must these years, as health costs are escalating. Choose a product based on your need. Go for the Government general insurance companys rather than the private, since their conditions for settlement are harsh ( rarely you will get the entire payment promised). Again read the entire policy guidelines fully and clarify yourself with the agent.
Do not go for a policy since the agent is your friend or relative. You have to choose your own plants for the garden of your life.
Always break your investment like this
1. Insurance- 20 %
2. Deposits with assured returns/tax saving bonds – 40 %
3. Gold- 20 % ( not Jewels)
4. Mutual funds with good track record in SIP mode – 20 %
The systematic monthly investment in mutual funds (starts from Rs500/month). The advantage is you can buy units at the existing rate every month. Even if the Unit value goes down, you will buy it at a lower rate and hence it will not affect your profit much. Provided if you keep it long term and invest in a good fund ( do the trend analysis yourself or seek the support of internet www.moneycontrol.com) Do not go by the advice of the agent alone.
Surrender the fund even if you realize a return of 18 %. Again split the amount and reinvest if you wish. And always do not invest in more than three mutual funds.
About investing in shares? It is too risky and don’t try your hand in this unless you have a surplus amount that you do not mind losing.
Investing in land is a very good option. Choose a land with low value but with future prospects of growth. Your intuition and careful observation about the schemes of government ( IT park announced, four lane road to come, other infrastructural facilities to come etc). Check the parent documents, measure the boundaries with your own surveyor, check with the registrar office for any Villangam, existing baseline value of the land and also a legal expert. Beware even sea shores got sold in Tamilnadu by real estate tycoons. Fence the land after purchase if you are not going to sell for 3 or more years to come.
This for people in lower, middle and upper middle income group. The basic remains the same.
Finally all that I said is for you and not for me ( ha ha ha I spend a lot and do not save, and I do not repent for this now. May be I may repent later)