Blog – Page 20 – Pradeept Agarwal

All That You Need To Know About Commercial Insurance

Commercial insurance or business insurance is a type of insurance that covers risks related to any business. There are various kinds of insurance policies available in the market to help different businesses get financial coverage for various business risks. It could be insurance for a shop, mall, factory, warehouse or a vehicle.
What is Commercial Insurance?
Commercial insurance offers protection to businesses from any unforeseen issues. Some of the most common insurance policies are shopkeepers’ insurance, warehouse insurance, transit insurance, product and public liability insurance, employee liability insurance, marine insurance, property insurance and many more. These policies provide a safety net to business owners in case of any problem.
Types of Commercial Insurance
Let us look at some of the types of commercial insurance available in India that can help minimise and handle various risks related to businesses.
1. Shopkeepers’ Insurance: Shopkeepers’ insurance policy is an ideal choice for retail shopkeepers dealing in grocery, apparels, small restaurants, sweet shop, etc. The comprehensive policy covers all the risks and contingencies faced by small or mid-sized shop owners. It covers the losses related to following issues:
• Fire & Allied Perils
• Burglary and housebreaking
• Machinery breakdown
• Personal accident
2. Transit Insurance: When valuable business goods are transported from one location to another, for example, from supplier’s factory to the retail outlet, you should consider transit insurance to cover any loss due to damage or loss of the consignment. The responsibility of taking the transit insurance policy must be determined in the sales contract, and the insurance must be taken well before goods leave the supplier’s premises. Transit insurance only applies to the goods transported over land. Following are the goods which are covered under transit insurance:
• Packaging material
• Manufactured goods
• Raw materials
3. Commercial Vehicle Insurance: Vehicle owners who are in the business of transporting passengers or goods must take commercial vehicle insurance that covers the commercial vehicle against various types of external damage. Some of the important features of commercial vehicle insurance are:
• Death or bodily injury caused by the use of the vehicle
• Any damage to the property because of the use of the vehicle
4. Liability Insurance: This policy offers protection to businesses and individuals from risk that they may be held legally and liable for, especially in the case of hospitals and business owners. For example, a factory owner may face a liability claim from the employees who gets electrocuted inside the factory. The employee liability insurance may help in such a situation and handle the treatment costs along with legal costs, if any arise.
5. Warehouse Insurance: Businesses in which majority of the functions are dependent and happens in multiple warehouses may consider buying a warehouse insurance. It covers natural calamity, fire and similar unforeseen situations. Moreover, you can get the compensation against human-made hazards like theft and burglary.
6. Marine Insurance: When goods are shipped to international destinations through the sea, it undergoes several changeovers. It travels by rail, road, water and perhaps airways as well. It also changes many hands before it reaches the final destination. The shipowners take Hull and Machinery insurance to protect the ship’s basic structure and machinery. The cargo owners take marine cargo insurance to protect the consignment under transit. The marine policy may cover specific time-frame or the voyage or both. Make sure to strike the correct balance between adequate coverage and reasonable insurance premium to avail optimum coverage for your cargo.
7. Office Package Insurance: This type of insurance protects one’s office and everything under the roof, including the infrastructure. It offers protection to the office premises, in case of any damage due to fire, theft, burglary, earthquake, etc. It also provides personal accident coverage. One should understand all the points that are included and excluded in the policy. For instance, the policy does not cover any problem arising due to illegal activity or war-like situation.
Coverage under Commercial Insurance
Various types of commercial insurance offer coverage for various cases and situations. Let us understand some types of coverage provided by various insurance companies.

- Home insurance covers the house and the content inside the structure
- Group health insurance covers medical expenses during hospitalisation
- Liability insurance covers costs of lawsuits and other damage to person or property due to your business, profession or vehicle
- Transit insurance offers coverage for loss or damage to any cargo during transportation

The above mentioned list is not limited to these points. The complete list is available on the official website of various insurance companies

Claim Process

In case of any unforeseen damage, you need to immediately inform the insurance company about the eventuality through its 24/7 insurance helpline. You should be aware of the claim process and follow it properly in order to avoid any claim rejections. However, the claim process and the documents required vary for different insurance companies and plans. Here is a basic understanding of how to go about the claim process.

• Inform the insurance company, if you need to make the claim

• Provide the details like policy number and other documents, including duly filled in claim form
• Provide the witnesses, proofs, FIR copy, medical reports, etc., as per the requirement of the type of your insurance plan
• On receiving the documents, a surveyor from the insurance company will verify all the details
• If accepted, the claim is processed within the stipulated time, else it might be rejected
Exclusions under Commercial Insurance

While offering coverage, insurance companies do not include all cases and situations. The damage and loss that are not covered by the insurance firms are called exclusions. There are different sets of exclusions for different insurance types and plans. The list mentioned here does not include all the exclusions. To know them in detail, please visit the official website of that particular insurance provider.

• For any insurance policy, any regular wear and tear or wilful negligence is not covered

• Any loss due to war or war like perils is not covered

Companies Offering Commercial Insurance Plans in India

With more awareness, an increasing number of people are now considering buying various types of commercial insurance for their business needs and requirements. Some of the companies selling different types are:

• HDFC ERGO

• New India Assurance

• Bajaj Allianz

• Bharti AXA

• United India Insurance

• ICICI Lombard

• TATA AIG

Important Aspects

Not all insurance companies provide all kinds of insurance policies and the coverage varies from company to company. According to your need, make sure to examine all terms and conditions of the insurance policy that suits your specific business needs. Some of the points to be considered are:

• Make sure not to underestimate the valuation of the property under insurance. You may save a few hundred rupees but may land up in huge losses in case of an unfortunate event

• Make a complete declaration of the nature of your business, your perceived risk and probable causes of loses. The insurance company may reject your claim, if significant information is not disclosed or misrepresented while taking the policy

• Avoid exaggerated or false claims, as it can result in denial of the insurance. The serious misleading claims are considered fraud, and the insurance company may file police complaints against such an act

Advantages of Commercial Insurance

To safeguard your business and property from any unseen circumstances and to handle the associated financial risks, it makes sense to opt for commercial insurance. Some of the advantages are:

• If you are running a company or owning an office, you would need insurance to protect your premises and employees. For this, you can select the appropriate type of commercial insurance for yourself. This protects you from all possible financial risks

• In case your business deals with commercial vehicles, you cannot ignore commercial vehicle insurance. This gives you a chance to manage the heavy costs incurred in case of any accident or eventualities

• In case your profession or business happens to deal with clients or third party, a liability insurance under commercial insurance is a must in order to manage the losses and any costs for legal issues

Source: Paisabazaar

Mistakes To Avoid For A Good Business Credit Score

For new business owners looking to set up their business or a medium, small and micro enterprise (MSME) wanting to explore new business opportunities for scaling up, it is necessary to know that strong creditworthiness is imperative to avail credit from formal lenders to achieve your business goals.
Here’s what you need to know about the common mistakes an MSME should avoid in order to stay creditworthy to avail business loans.
What is a Business Credit Score?
Your business’ credit score is calculated based on your credit behaviour over the previous 36 months. In case you have not availed any loan during this tenure, the credit bureau will not be able to assign a credit score due to dearth of data.
The proprietor’s credit behaviour and personal credit score, in the case of both a partnership and proprietorship, also counts when the business is assessed for lending.
Therefore, it is best that the business avails some loan, or the proprietor has credit card dues, and they are repaid on time, such that you can have a good score when you have to opt for a loan.
Whether it is to invest in new equipment, or to expand the business, or to pay off supplier credit, every business owner may have to take a loan at critical points in their business lifecycle. However, if your credit score is low, many banks and lending institutions will not approve your business loan application.
Your credit score would also impact the rate of interest and the structure of the loan that you will get from non-banking financial companies (NBFCs). Hence, it is imperative to understand what mistakes could impact your business’ credit score.
Mistakes To Avoid For A Good Business Credit Score
High intensity of loan build-up
Credit score gets impacted if a business owner takes too many loans in a short period of time. This is perceived by lenders as a sign that the customer is credit hungry. Availing too many unsecured loans may raise red flags with lenders, so it is necessary for business owners to make use of a mix of unsecured and secured loans.
Guaranteeing a third-party loan
If a business owner stands guarantor to a loan availed by a third party and that third party defaults, the business owner’s/ guarantor’s credit score could be impacted even though he is not directly paying that loan.
By acting as a guarantor, you agree to be responsible for the repayment of the loan. In the first place, avoid giving such guarantees. If you must, you should be very cautious at the time of giving the guarantee, as someone else’s behaviour could impact your score. And if you have done so, nudge the person to adhere to the repayment timelines.
Not monitoring and updating the credit report
Another common mistake which people make is ignoring disputed amounts in the credit report. For instance, if no action is taken on incorrect dues, the amount would start to accumulate and draw interest. This would then balloon into a large sum and reflect in your outstanding credit. Do not ignore any disputed amount and follow up till it is fully resolved.
A business owner must also monitor his business’ credit profiles on a regular basis and not just once, viz. monthly, or quarterly. Going through the credit report is a must to understand the reasons for the low score.
If there are any irregularities that may be reflected in the credit score, it is even more important to raise the dispute on time as improving a low score takes time. Some examples of such irregularities are that a loan may be mistakenly attributed to the business that the business has not taken, or a loan that has been paid off completely may not be shown as “closed” by the lender.
Applying for loans from multiple lenders
When applying for a business loan, applying to too many lenders at once does not actually work in your favour. It is important that you apply only where you’re fairly confident that your application will get approved. It is also wise to restrict your loan application to only a couple of lenders when enquiring within a short period.
If you are working with a direct selling agent or a referral agent, while handing over your loan application to them, clearly communicate and ensure that they send your loan application only to a certain number of lenders. Be cognizant of too many loan enquiries; every enquiry on your credit report is noted and too many of them will bring down the credit score.
Restructuring of a loan
When businesses opt for loan restructuring, the same is shown as ‘restructured’ in their credit report as well. Banks and NBFCs are cautious of lending to such MSMEs. Any relaxation or waiver of terms of loans raises red flags with lenders that the MSME is incapable of repayment.
Bottom Line
Good credit report based on a business’ timely repayment and responsible financial behaviour indicates to lenders that the business is a creditworthy borrower. Lenders provide pre-approved loans to such customers, and a higher quantum of loan at that, without asking any questions. The loan process becomes smoother. Is there any downside, one may ask? Not at all. So, follow these tips and strengthen your business credit score before you avail your next loan.

Source: Forbes

Is it a good time to invest in equity?

We don’t invest thoughtfully in equity because we try to follow the mantra “buy low, sell high” and fail to do it. It is seen that when markets hit rock bottom, most investors focus on exiting their investments to preserve their capital rather than trying to take advantage of lower prices and deploying additional capital. Or they do not think long term and put off their investment.
The common reasons investors give when they wish to avoid or postpone their investment are…
“It’s too late!”
Or “It’s not a good time.”
Or “Why should I invest now?”
Or “When should I invest in Mutual funds?”
Or “What is the best time to invest in mutual funds?”
If you too are giving these reasons when it comes to investing, then you are making a big mistake. Remember, you should not delay investing; start your investment journey right away! The best time to start your investment journey, if you haven’t already started, is ‘Today’!
Here are a few tips to help you begin your investment journey.

1. Do Not Delay, It Can Cost You

When we stall or avoid investing, we are simply delaying or completely evading successful wealth creation. Delay in investing reduces the power of compounding as the investment term decreases.

To understand better, let us see the amount three friends – Ajay, Vijay and Ram – would get at the end of their investment tenure. If Ajay starts investing INR 2,000 per month at the age of 25, for his retirement at age 60, and two of his friends, Vijay and Ram, begin investing 5 and 15 years later, respectively, then the future values of each will be different.

It is seen in Table 1 that the future value reduces with the reduction in the investment term (subtract the age of the person from the retirement age).

Table 1: Effect of delayed investment

Even though they have all earned the same rate of returns per annum on their investment, Ajay who started investing early will have the biggest corpus by far at the time of retirement. Therefore, starting the investment journey early is a boon, if you want to build a huge corpus for your financial goals.

In fact, let us assume that even though Vijay delays his investment by five years, he invests an additional sum of INR 1.20 lakh per annum to catch up with Ajay, and Ram invests INR 3.60 lakh per annum to catch up with both. Even then, the corpus will be INR 1.11 cr for Vijay and INR 99.05 lakh for Ram, which is less compared to Ajay’s future value. The difference is nothing but the cost of delay.

2. Choose the Right Asset to Deal with Volatility and Risk

Choosing the right asset is important as it will help in growing wealth for you. Equity as an asset class can help you grow your wealth manifold but along with higher returns comes its volatile nature, which investors tend to confuse with risk.

Volatility reduces over a period of time but risk may not. Risk is about choosing the right product. For example, if you chose a company with bad management, it could be a risk; irrespective of how the market moves, the price of the share may never appreciate.

The stock of Kingfisher Airlines is a perfect example (graph 1). The stock in 2006 was at INR 76, and later in 2007 it reached its peak of nearly INR 300+ only to fall drastically and never recover. In the end, an investor would have lost all his money because the stock was delisted. This is a classic example of a risky proposition which resulted in a permanent loss; but it was not volatility.

Graph 1: Price movement of Kingfisher Airlines

Now, if instead you choose a company with good management, the price may be stagnant and may not move for a really long period of time, but eventually it will deliver results. Choosing a management is risk and the price movement is about volatility. Volatility is a market related phenomenon and risk is more intrinsic.

For example, the price of Reliance Industries remained within the range of INR 400 to INR 500 from 2010 till January 2017. Later, the stock rallied and has kept its momentum (as seen in graph 2). The stock price moved from INR 544 in February 2017 to INR 2,370.25 in December 2021.

Graph 2: Price movement of Reliance Industries

When you choose equity mutual funds you are investing in a basket of multiple stocks of various companies. This diversification prevents you from larger losses when the market gets tepid. So while you still have to deal with volatility, the risk factor is reduced. This is one of the primary reasons that mutual funds are an ‘all season’ investment plan.

Equity markets by nature will be volatile. It is a given. In the short term the volatility will be more and as the time horizon increases, volatility reduces.

The best way to understand volatility is to look at rolling returns. In the table 2 given below the maximum and minimum rolling returns over 20-year periods have been taken.

What this means is that if you had invested on any day during this period and held the investment for one year, your minimum return was -51.70% and maximum return was 97.32%. As the time period increases the difference between the two becomes less. In the third year, the minimum returns are negative still, but the gap between the negative and positive maximum returns reduces.

Further, in the 5th year, the minimum returns have turned positive along with maximum returns and the difference between the two has decreased further. Lastly, in the 10th year, the difference between the minimum and maximum returns narrows and both are positive. So, if an investment was held for 10 years, an investor never made a loss and the minimum return made was 6.38% and the maximum was 22.08%. In reality, the investor’s actual return would be somewhere in between.

Table 2: Volatility range

So, to grow wealth by investing in equity mutual funds, you should think long term as the volatility tapers and only the minimal market risk remains.

3. Invest Regularly and Diligently

While investing in equity mutual funds, do it via systematic investment plans (SIPs) as you are reducing the risk factor further by investing a fixed amount at regular intervals, irrespective of prevalent market conditions. This is because when markets are down, you get more units and when markets are up you buy fewer units.

For example, if you are investing INR 10,000 monthly in a SIP and assuming that the Sensex drops by 5% every month for the next 6 months and then it rises 5% every month for the remaining six months, at the end of the year, the amount you receive is INR 1,45,971 on an investment of INR 1.20 lakh even though you saw a rise of 30% and then a drop of 30% in the markets.

If you observe, you started with an NAV of INR 10 and at the end it was again back to around INR 10 after a year (refer table 3 below).

The Sensex is just a reference point to show market movements.

Table 3: Rupee Cost Averaging benefit illustration:

So, SIP investing in an equity mutual fund, irrespective of market movements, is an extremely helpful tool in the hands of the investor.

4. Be Patient and Disciplined

The road to wealth generation requires patience and discipline, just as Rome was not built in a day. Over a short term period, the market is very volatile and the returns generated are in a broader range. But over the longer time period, market volatility subsides and the returns are within a narrow range.

For example, look at the performance chart given below of a large cap fund vis a vis the S&P BSE Sensex over 15 years. You can see that despite the sharp falls in the years 2008-2009 (Lehmann crisis), 2015-2016 (post-election) and March 2020 (COVID crisis) in the graph 3, the fund has done well and outperformed the S&P BSE Sensex.

If an investor had invested INR 10,000 in HDFC Top 100 Fund in Jan 2006, when the Sensex was up in December 2007, the value reached INR 19,451. Later when there was a market fall between 2008 and 2009, the value crashed back to 10,602 (March 2009). However, if the investor continued to stay invested, the value was at INR 55,202 in Jan 2018.

Now if the investor had been patient, for a span of 12 years, the value increased nearly 5x, but in March 2020, the value dropped to INR 39,495 consequent to the Covid scare. However, if the investor continued to hold on, the value as on date would be INR 77,516.

This shows that when you invest in equity, being patient helps you grow wealth.

Graph 3: Long-term growth despite short term volatility

Values taken to the base of INR 10,000

When you invest in equity mutual funds you don’t have to worry about the stock selection process. Instead, you should focus on your goal and continue investing systematically, without giving in to market turbulence related panic.

There are roughly 250 trading days a year, making it 2500 days for a decade. A large portion of a stock’s return in a decade happens in 50 to 60 trading days. This means that what happens in 2% of the days, decides your decadal returns.

Even market guru Warren Buffet, advocates that, “Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things take time: You can’t produce a baby in one month by getting nine women pregnant.”

Therefore, when you invest in equity mutual funds, be patient, show perseverance, diligence and let your funds grow, without timing the market. Time in the market is of essence.

Bottom Line

We earn monthly and we spend monthly; so why shouldn’t we cultivate the habit of investing on a monthly basis? Treat an investment journey as a marathon not a sprint. So think long term, and equity mutual funds are an ideal product to create long term wealth if you follow two mantras for investment: the best time to invest is now and the best way to invest is regularly, in other words every month.

Source: Forbes

Common myths about SIP investments

A systematic investment plan or an SIP is a disciplined way of investing, in which an investor can make equal payments at regular intervals over a period to accumulate wealth over the long run. An SIP is considered among the most effective ways of investing for retail investors. It does inculcate the discipline of saving and building wealth in the long run. In India, mutual funds continue to be one of the most significant investment choices amongst investors.
As we become aware of the advantages of SIPs, there are a number of myths that have been around the same. Some wonder if SIPs are safe, if they are tax-free and if SIP pays an interest. To become more financially aware, it is crucial for investors to clear their doubt about the myths surrounding SIPs and decide their investment journey.
Here are seven common myths about investing via SIPs in mutual funds.

Myth 1: SIP is Only For Small Investors

Even though SIPs provide an option to invest in smaller amounts, it should never be assumed that only large amounts are needed to invest via SIPs. With the SIP method of investments, investors can invest as much as they prefer. It is true that many high net worth individuals (HNIs) and wealthy investors invest in the markets via the SIP route. All it requires is one to get the KYC done and they can invest through SIPs.

SIPs enable an investor to invest in the market on a regular basis. Every individual is eligible for this method in order to save for their long-term financial goals. Therefore, it is wrong to consider that SIPs are only valid for small investors.

Myth 2: SIP Can Be Done Only For Equity Funds

A common myth amongst investors is that they can invest only in equity funds via the SIP mode of investing. This is not true at all. While investing in mutual funds via SIP, investors can choose from a plethora of available options ranging from debt funds, hybrid funds, funds of funds, index funds, thematic funds, among others.

Myth 3: SIP is a Product

SIP investment is a facility that allows investors to invest periodically at regular intervals. Investors can choose from a portfolio of available mutual fund schemes and the investment amount gets deducted and invested in the scheme. The individual can choose from varying schemes as per their financial objectives and risk appetite.

In the case of SIPs, say an investor wants to invest INR 24,000 spread across a period of 12 months, investors get the flexibility to purchase mutual fund units by investing INR 2,000 every month. SIP is not a product but a type of investment option.

Myth 4: SIP Can’t Be Modified Once Selected

Many investors are wary of the fact that once an SIP is initiated, it cannot be altered – this is not true. SIPs are considered among the best ways of investing in the capital markets that provide flexibility in the mode of investing.

It is important to understand that once an investor finalizes their SIPs, the amount, period and even the mutual fund scheme can be altered. Investors have the freedom to change the investment amount and the tenure as per their requirements. Investors can change the amount of the SIP if their income increases or decreases and if they plan to save or invest more.

Myth 5: SIP in Low NAV Funds Will Offer Higher Returns

Many investors believe that mutual funds with lower net asset value (NAV) are cheaper and hence would yield higher returns. Even though the NAV plays an important role while investing, it does not signify the return that the mutual fund scheme can offer.

The NAV of a fund is the value at which an investor purchases or sells mutual funds units. The NAV of a fund changes regularly. The cost of mutual funds (NAV) does not determine the returns.

For example: If someone wants to invest INR 10,000 and has two options: One fund has NAV of INR 100 and the other fund has NAV of INR 1,000. With a lower NAV fund, a person can buy 100 units and with higher one, a person can buy 10 units, but in either case, the sum invested is INR 10,000, the value of investment being identical. Hence, investors should focus more on the actual performance of the fund rather than just the NAV.

Myth 6: SIP is Subject to Guaranteed Returns

SIPs grants the investors the ability to invest in the mutual funds periodically. Investing through SIPs in the mutual funds is safer compared to the equity markets yet mutual funds are subject to market risks depending on market volatility.

In the short run, it is difficult to attain guaranteed returns for an investor while being invested in mutual funds for the long term helps yield capital appreciation. Thus, investors should be clear that investing in the market carries some degree of risk and thus one needs to be prepared before investing. Investing in mutual funds through SIPs gives the investor the benefit of rupee cost averaging (RCA).

Myth 7: Don’t Invest Through SIP in a Bullish Market

Investors need to see-through the level of discipline, patience and research required while investing in mutual funds. Most SIPs yield results over the longer term. It is not practically possible to time the markets in real-time. Buying at dips and selling at highs is theoretically possible but is not feasible when it comes to practical decisions.

In the longer time frame, SIP investments usually deliver higher yields. It is crucial to understand that bullish and bearish phases require consideration in case you are investing through the lump sum method.

As investors invest through SIPs, the rupee cost averaging eradicates the impact on portfolio with the passage of time. SIPs negate the impact of market volatility on your portfolio. Thus, investing in mutual funds through SIPs doesn’t require investors to wait for the right time. It is important for people to understand the importance of early investing and reap the benefits of compounding.

Bottom Line

If you are looking to start your investment journey via SIP, make sure you look for a long-term perspective. Considering SIP investing is all about discipline, a sound approach coupled with patience can lead to wealth creation over a period of time.

Additionally, investors should also keep in mind the historical data of mutual fund performance. There is no right time to start your investment in mutual funds. The sooner you start your investment journey, the better returns you can expect to yield in the future.

Source: Forbes

Want money after retirement? Here’s how National Pension Scheme will help

Have you considered investing your money in National Pension Scheme (NPS)? If you have, was it to fulfil your retirement needs or was it to save additional tax on ₹50,000 every year? If your reason to invest in NPS is tax benefit, then your investment approach is incorrect. The dangling carrot of tax benefit should not be looked at in isolation. Here is what you should know about NPS and how you should use it to build your retirement kitty effectively.

UNDERSTANDING NPS

Before you put your money in any investment instrument, it is important to understand it. Firstly, know that NPS is a defined contribution pension plan. Your money will be pooled in a pension fund. You can make an annual contribution till you turn 60 years of age and the minimum age requirement to invest is 18 years. If you invest in NPS, you can avail a deduction of ₹1.5 lakh under section 80C and also an additional deduction benefit of ₹50,000 under section 80 CCD. If you are in the highest tax bracket, it means a savings of ₹15,600 a year. Managed by Pension Fund Regulatory and Development Authority (PFRDA), NPS is not like a public provident fund (PPF) account where everyone just has one option—you invest and get a predetermined interest rate. In case of NPS, you have to make a choice. There are two accounts—tier 1 account, the pension account, which gives tax benefit and is mandatory to open for NPS, and tier 2 account, an optional account with withdrawal flexibility. Once you open an NPS account, you have to contribute a minimum of ₹1,000 in tier 1 account.

NPS gives you options in the form of fund manager and the type of investment choice. There are eight pension fund managers to choose from such as HDFC Pension Management Co. Ltd, Reliance Capital Pension Fund Ltd and UTI Retirement Solutions Ltd.

In terms of investment choice, you can opt for either active choice or auto choice. In active choice, you can create your portfolio with equity, corporate bonds and government securities. If you opt for auto choice, the fund manager will create a portfolio with the same option, but the percentage of investment in each asset class will be pre-decided.

At any point, the maximum investment shouldn’t be more than 75%. “For equity, till two years ago, PFRDA had limited the choice as there was a condition that you could invest only in Nifty stocks. Then they amended the guidelines and included broad-based stocks. As there is a Nifty hangover, in most portfolios, there is a Nifty bias,” said Sandip Shrikhande, chief executive officer, Kotak Pension Fund.

HOW TO USE NPS IN YOUR PORTFOLIO?

Firstly, don’t look at NPS in isolation only for tax benefit. “People who put only ₹50,000 to save tax, if you continue investing for 20 years, the corpus is not going to grow significantly to meet your entire retirement needs,” said Shrikhande. You should instead link the NPS investment to your retirement plan.

“Using NPS is a means to build a retirement fund. However, if you are in your 30s, simply using NPS will not work because the asset allocation changes. Someone in 30s will be fairly aggressive. Now, if you have a cap on how much you can invest in a particular asset class to restrict yourself, you can’t be flexible. So it would be better to have a basket of mutual funds to choose from. For someone who is younger, it is restrictive. Look at it as an add-on product for tax saving,” said Priya Sunder, director and co-founder, Peakalpha Investments.

Consider using NPS as one of the retirement investment tools, but don’t depend on it entirely.

Source: Livemint

How would taking a home loan help you save taxes?

For someone servicing a home loan it might be one of the best tax-saving tools in their kitty, especially if they have exhausted all other tax saving avenues. Besides the tax saving, your home loan also helps you create an appreciating asset at the lowest interest rate. While many are aware about low interest rate and tax saving prospects of the home loan, very few are aware about what should be the optimum loan amount and tenure that gives them the best of both worlds at the lowest cost and fastest repayment. There are many limitations of this tax saving avenue, and it delivers the best saving only when you use it smartly. Here is a look at how to optimise your tax saving using your home loan.

Why annual interest outgo of your home loan is most critical

You can save income tax on the home loan principal repayment amount up to Rs 1.5 lakh each year under section 80C of the Income-tax Act, 1961. However, this is a crowded avenue which has many other alternatives such as deductions available on EPF and PPF contributions, investments in ELSS, ULIPs, tax benefits on payment of school fee, life insurance premiums, and many more, due to which there is hardly any scope left for one to claim deduction on the home loan principal amount.

On the other hand, the tax saving that is offered on home loan interest payment under section 24b does not have any replacement and you can use this tax saving only when you are paying interest on a home loan. So, the annual interest outgo becomes a deciding factor as to how much tax you can save through your home loan. If you fall in the 30% income tax bracket you can save Rs 60,000 each year if your annual interest outgo is Rs 2 lakh or above. The lesser interest outgo you have, the lesser would be your tax saving.

“The deduction to claim interest paid is available for up to Rs 2 lakh within the overall limit of Section 24b in a financial year. In case of Let out property, there is no limit on the maximum interest that can be claimed. However, the loss that will be adjusted against other income heads such as salary etc. cannot exceed Rs 2 lakh in a financial year. The remaining loss under the head ‘Income from house property’ can be carried forward for 8 successive years to be adjusted against the income from house property only,” says Rishi Mehra, CEO Wishfin.com, an online financial market place.

Loan amount and tenure that delivers biggest tax saving

If you were to just look at tax saving, you need to go for a higher loan amount and the longest tenure to give you the maximum possible tax saving. For instance, if you take a Rs 30 lakh home loan for 15 years at 7% per annum interest rate, the total tax that you can save in 15 years is Rs 5.54 lakh, if you fall in 30% income tax bracket. On the other hand, if you have a home loan of Rs 50 lakh with a tenure of 30 years, the tax saving amounts to Rs 13.93 lakh in a similar situation.

However, the longer tenure will also mean that your total interest outgo is much higher. Instead of paying a total interest of Rs 18.53 lakh on a Rs 30 lakh home loan, you would end up paying a total interest of Rs 52.59 lakh on a Rs 50 lakh loan. As a result, your interest liability rises much more than the increase in the tax saving. The best way to strike a balance and find an optimum amount is by comparing the net interest rate after considering the tax saving benefits. Net interest rate is the effective rate of your home loan with which you would pay the same amount of interest that you would get by deducting the tax saving from the original interest charged by the lender. At the current prevailing rate of interest a home loan which is close to Rs 30 lakh with 15 years tenure can give one of the lowest net interest rates.

Why this is so?

Excess interest payment in higher loan amount

It is a myth that if you take home loan of a higher amount you would save more tax. The interest portion in a home loan monthly installment comes down each month as principal repayment increases correspondingly. So, the annual interest payment remains higher in the initial years while it comes down sharply in the second half of the tenure towards the end. However, the maximum tax saving that you can do on account of interest payment under section 24b is limited to Rs 2 lakh.

So, any amount of interest that you pay over and above Rs 2 lakh annually does not help you in saving taxes. During the first half of repayment if there are many years in which you are paying interest above Rs 2 lakh in a year, then it remains unproductive and will not help in saving taxes.

High loan amount with longer tenure comes with the dual disadvantage of higher interest outgo without any tax saving and longer period of debt outstanding. To optimise the best mix of lower interest outgo and higher income tax saving you can use partial prepayments to bring down your loan outstanding to a level where the annual interest is close to the Rs 2 lakh annual limit. This is the optimum level which will help you capture the best interest saving and keep your interest outgo at a level where it enjoys income tax deduction on the entire amount.

Not many want long tenure just for tax saving

Only a few are comfortable with a debt outstanding for longer periods just for the sake of saving taxes. Borrowers often looks for ways as how to use their home loan in a way that it offers a combination of best tax saving and timely payment of debt.

In this scenario keeping the tenure short will help you keep the interest cost lower and pay off your loan quickly. However, once your annual interest outgo comes significantly below Rs 2 lakh you will have unused tax savings. In such a situation, if you have the requirement to upgrade your house to a bigger one or plan to go for a second house then you can utilise the tax saving avenue offered on home loans again. This will ensure that you always keep the debt at lower levels and utilise the tax saving for longer periods at an optimum level.

Boost your tax saving with a joint home loan

If both spouses are paying a high amount of income tax, then they can take a higher home loan and enjoy the principal and interest deduction on the home loan separately. As a result, the couple can get a total deduction of Rs 3 lakh under section 80C (Rs 1.5 lakh plus Rs 1.5 lakh) on the principal repayment and Rs 4 lakh (Rs 2 lakh plus Rs 2 lakh) towards interest payment under section 24b. This means a bigger home loan of Rs 60 lakh with shorter tenure of 15 years could give them the optimum mix of greater tax saving and faster repayment of the loan. “All the applicants should also be co-owners of the property in order to claim this deduction,” says Mehra.

Extra deduction on buying an affordable house

If you have bought the house under the affordable housing category then an additional deduction of Rs 1.5 lakh is available under section 80 EEA. “The timeline to avail this additional deduction has been extended to 31st March 2022. So, all home loan related deductions put together can help you help you get a maximum deduction of Rs 5 lakh (Rs 2 lakh u/s 24, Rs 1.5 lakh u/s 80C and Rs 1.5 lakh u./s 80EEA) if it meets the specified conditions,” says Mehra.

Source: Economic Times

Complete Guide to Health Insurance in India

Health insurance is a safety net that takes care of your financial wellbeing in case of a medical emergency. A health insurance policy covers medical expenses you might incur due to accidents, illness or injury.

Technically, it is a contract between you and your health insurance company. It means the insurer will bear some or all medical expenses you incur against a certain fee (premium) you will pay. There are generally two ways through which the insurer pays for your medical expenses:

Take a cashless treatment where you don’t have to pay. The insurance company pays the hospital directly.
You can pay your medical expenses first and then later ask for reimbursement from the insurance company.

Why You Need Health Insurance

Buying a health insurance policy is not something that most people willingly do, until it is too late. While the awareness and intent to buy health insurance has increased, it is still not seen as a priority. There is still a big lag between the intent and actual buying.

A medical emergency can come knocking anytime. If you are young, chances of falling ill are low but not zero and accidents can also happen. The medical expenses associated with such situations could make a big hole in your pocket. A good health insurance plan can protect you from this financial blow to your savings and provide you the much-needed cushion to bear the costs towards doctor’s visits, tests, medicines and other procedures.

Healthcare expenses are increasing at a rate higher than medical inflation; health insurance helps you to get the required treatment without cutting any corners for the lack of funds.

And to top it all, the premiums paid are tax deductible upto specified limits!

When To Buy a Policy: Now or Later?

The sooner, the better. Let’s take a look at buying a health policy at different life stages:

In the 20s

The best age to buy a policy. You are likely to be in good health with limited financial responsibilities and pressures. Investing in a health insurance plan at a younger age certainly has its own advantages like better sum insurance for a lower premium amount, no medical tests required and so on.

In the 30s

This is the settling down phase. You will most likely be married, planning to start a family, invest in a home, etc. Add to it, lifestyle diseases that are increasingly affecting the younger population. Buying a policy at this stage will need you to factor in all these aspects. Be prepared for a higher premium and higher chances of a claim.

40s until 60

A stage where your financial responsibility is likely to be at its peak. You will need a higher sum insured resulting in higher premiums. If you have fallen prey to diabetes, hypertension, etc. then expect longer waiting periods. You will also need to consider add-on benefits to ensure the additional protection needed is taken care of. Also, be prepared for a medical screening prior to getting the policy. Usually, for anyone above 50, medical screening is a prerequisite.

Senior citizens

You will need a high sum insured that comes at a hefty premium. A life stage where you anticipate long term treatment for critical illnesses and hospitalisation, etc. Opt for senior citizen health policies. Research, compare and choose the best one. Typically at this stage, policies come with a co-pay condition which mean that you have to bear part of the medical cost.

Types of Health Insurance Policies Available

There are basically two types of health insurance plans you can choose from — individual plan and family floater plan. Both policies can be described in a few words: a family floater as “one plan to cover them all” and Individual cover as “different strokes for different folks”. Your choice will depend entirely on factors such as your age, your kids’ ages, medical history, and budget.

It is important for you to thoroughly understand both types and make a smart decision that works best for you and your family.

Individual cover

An individual health insurance policy is issued in the name of a single person. This means the sum insured is dedicated to the insured in its entirety. For example, if you are the policyholder and find yourself in need of hospitalisation, the insurer will cover your expenses up to the sum insured. Any leftover amount will remain available for use during the rest of the policy period.

Family floater cover

This plan covers the entire family under one umbrella policy. As opposed to individual health insurance, floaters require all the insured members to share the sum insured.

For example, if you purchase a plan for yourself, your spouse and child, for a sum insured sum of INR 4 lakh, all three of you will be covered by the insurer within that sum, regardless of who is hospitalised. The age of only the most senior family member is considered when the premium is calculated. If you’re a young parent with small children, this could work in your favour. You’ll be able to get cover for your loved ones for a very affordable price.

Remember:

If you’re looking to insure your elderly parents, instead of buying a family floater, choose separate plans for yourself and your parents as it will prove more affordable. Under the family floater option, the premium usually gets pegged to the oldest person in the family and therefore with your parents in the same plan, the premium for all of you will likely be higher.
Also, if you have a family member who is unwell and likely to claim for a significant chunk of your sum insured, an individual policy might be the smarter option.

Points to Consider While Choosing Your Health Insurance Policy

Here are some important parameters for you to consider while choosing your health insurance plan. Remember to invest in a health insurance plan that is comprehensive and best suited for you and your family.

Comprehensiveness of Cover
Choose the amount of coverage or ‘Sum Insured’ keeping in mind the cost of medical treatments today, the inflation rate and your current requirements. Re-evaluate the cover needed every year while renewing.
Premium
The premium you pay depends on multiple factors such as the amount of cover opted for (sum insured), your age, your medical history, the type of plan you have picked, etc. While evaluating options, look for an insurance provider who offers you most of the features and benefits you are looking for at the best possible rate. While premium is important to consider, it should not be the primary decision-making factor.
Know what’s included and what’s not
While choosing a policy, remember to check what all is included in the policy, and what are the conditions under which a claim cannot be made. Having clarity saves the hassle and pain of claim rejections later.
Room rent sub-limits

The room rent limit specifies the maximum room rent coverage allowed under your health policy. Different health insurance companies have their own rules for room rent and capping, which will be clearly mentioned in the policy document. Before buying a health insurance policy, make sure that you understand how the room rent limit works and make an informed choice. Consider this factor depending upon the type of room and kind of hospital you may want to go to.
Network of hospitals

Check for the list of hospitals available under the policy that provide cashless facility. Try choosing a policy that has a wide network of hospitals. In case you travel frequently, please also check global hospital networks.
Co-pay

This clause allows you to reduce your premium while buying a health policy by offering to pay a fixed percentage of the total claims made during the policy year. In case you opt for co-pay, you can select the percentage you wish to commit, right at the beginning.
Waiting period

This is the time period during which claims will not be accepted. Different policies have different waiting periods. For claims related to pre-existing illness, the waiting period is longer. Look for the policy that has the least possible waiting period.
Critical Illness

Incidence of critical illnesses like heart attacks, strokes, cancer, etc. is on the rise. Treatment cost of these life-threatening illnesses is also very high. It is advisable that you choose a health plan that can take care of these expenses if they occur. It comes at an additional cost, so please evaluate your needs, and buy it if you can afford it.
No Claim Bonus (NCB)

This is the reward you get from your insurance provider for not making any claims during a policy year. The bonus can either be given as a discount on your insurance premium for the following year, or it could be a higher sum insured for the same premium. Make your choice wisely!
Day care procedures

Certain medical procedures like cataract are completed within a day and do not require hospitalisation. It is therefore important to know if such treatments are covered in your plan.
Alternative treatments

AYUSH (ayurveda, yoga, unani, siddha and homoeopathy) treatments are gaining importance and becoming preferred modes of treatment for a lot of people. Most health plans these days provide coverage for such alternative treatments. If you prefer AYUSH over allopathic medicine, ensure your policy covers the same.
Reputation of the insurance company

Consider factors like claim settlement ratio, solvency ratio, customer service, product portfolio, etc.

What Your Policy Will Not Cover: Exclusions
Here are some common exclusions for health policies. But before making your choice, check and understand the exclusions since they differ from policy to policy.

• Cosmetic procedures
• Dental procedures
• Some pre-existing conditions
• Congenital diseases
• Non-prescription drugs
• Injuries incurred from war, terrorism and suicide

How To Buy Your Policy

In today’s digital age, the simplest way is to go online and purchase your policy:

Get detailed information about different health policies that are available according to your requirement. Research and compare policies at your convenient place and time
A 100% do-it-yourself (DIY) process. Even if you need an agent, you can avail services in a few clicks online itself
It can be super-fast to buy the policy online, if you are looking for a basic health insurance cover – in this time starved era, time is money right.
No paper required or physical signatures.

Bottom Line

You may have heard that health is wealth but given the unpredictability of life, beyond good habits and lifestyle, you also need some wealth or money to ensure good health. And health insurance can make it a lot easier to access that money when you need it most.

Source: Forbes

Will health insurance policies cover the Omicron variant?

The instances of Covid-19 and its new variant Omicron have been increasing at an alarming rate across the country. Face masks, hand sanitisers, social distancing apart, getting a health insurance policy has become more crucial now.

A comprehensive health insurance policy covers hospitalisation expenses incurred for all illnesses and injuries, including Covid-19 and its variants. This policy is renewable for a lifetime, and hence, will take care of your healthcare needs both in the short and long term. There, however, might be some restrictions that come with comprehensive health insurance, such as – waiting period for pre-existing and other conditions, sub-limit or eligibility cap on rent limit, etc. You must be aware of these conditions before making the purchase.

Insurance regulator Irdai says health insurance policies that cover COVID treatment costs will also cover expenses for treating infections due to Omicron.

“All health insurance policies issued by all general and health insurance companies that cover treatment costs of COVID-19 also cover the costs of treatment towards Omicron variant of COVID-19 as per terms and conditions of policy contract,” the Insurance Regulatory and Development Authority of India (IRDAI) said in a release.

The regulator has issued the directive to general and health insurers in view of the growing number of cases of the Omicron variant.

The regulator has also asked insurance companies to put in place an effective coordination mechanism with all their network providers and hospitals to make available seamless cashless facilities to all policyholders in case of hospitalization and render speedy services to all policyholders.

In April 2020 also, Irdai had clarified that all the indemnity based health insurance products that cover the treatment costs of hospitalisation offered by all general and health insurance companies cover the costs of hospitalisation treatment on account of COVID-19.

Health insurance options that cover Omicron

Introduced in March 2020 by IRDAI, Corona Kavach and Corona Rakshak are short-term health plans designed specifically for Covid-19. Both these policies will cover treatment costs of COVID-19 and all its variants including Omicron.

Corona Rakshak is a fixed cash benefit policy that will pay up to INR 2.5 Lakhs if you’re infected with Covid-19 or any of its variants and are hospitalized for 72 hours or more. Corona Kavach, on the other hand, will reimburse the actual expenses incurred if you undergo hospitalization for Covid-19 or its variants for more than 24 hours.

These plans are not a substitute for comprehensive health insurance. They are just short-term health insurance plans that cover Covid-19 and its variants. It is important that you and your family have a comprehensive health insurance policy that will cover hospitalization expenses of all kinds of ailments, infections, and injuries – and not just Covid-19. And it is important that you get it NOW.

5 ways to protect yourself from market correction

Markets are like Cardiograms. Just like ups and downs on the cardiogram are necessary, markets are not meant to be linear. Not everyone has been able to make the best of the market cycles. However, smart investors not only leverage on the bull market they also smartly benefit from the bear market. It’s not always about making a good investment; it’s about making a smart investment during the market correction. Let us familiarize you with 5 key behaviors of smart investors.

Greed in the time of panic

“Be fearful when others are greedy. Be greedy when others are fearful.”

For a smart investor, corrections are times to be greedy, because this is the time when smart investors find many opportunities to invest rather than selling off their winnings in selling spree. Smart investors leverage on the greed of buying stocks at reasonable price. While others choose to sell, smart investors invest more in the time of market panic. Buying in the times of correction is one of the identical features of smart investors.

Opportunities to analyze more quality stocks

“Good things are found in the depth.”

Smart investors are opportunistic. They seek opportunities for quality companies as market corrections bring down the average cost price for the quality stocks. This means there is a higher opportunity to multiply the number of stocks at a fair value at such times of correction. They rather find opportunities in critical situations than to surrender their winnings in equity. Quality companies have higher growth potential and smart investors execute their expertise to spot one. Quality companies tend to have limited downside during the corrections and they help keeping portfolio strong. Smart investors dive deeper even in the volatile markets to find such quality catch.

Knowledge first

“An investment in knowledge always pays the best.”
Smart investors make their decisions with a supported knowledge base. They trust only the facts and ignore the market rumors. Such investors merely run on luck, they believe in knowledge and research as it is the base of investment in equity. Smart investors avoid churning portfolio often because their portfolios often consist of quality stocks that have limited downside in such times. This helps them avoid cost for churning their portfolio. Markets have never been stable but only the smart investors learn how to make the best of it. Knowing the market trends is smart investor’s characteristic but they don’t necessarily follow.

Buy right: Sit tight

“Big money is not in the buying or selling, but in the waiting.”

Smart investors invest in equity for a long term as they believe in wealth creation by investing in quality stocks that possess a growth potential over the long period of time. Keeping ears to ground and holding the stocks till the full growth cycle of the company, smart investors benefit from the period spend in growth of the company. Being hasty in selling quality stocks is never a choice of smart investors. They believe in fundamentals to achieve financial goals over the long term therefore market corrections do not lead them into panic. During market correction, they prefer to sit tight on their holdings.

Evaluating performance of portfolio

“Look back to see forward.”

Smart investors plan for longer term before they invest. Market crash enables smart investors to evaluate their plans. They evaluate the performance of their stocks as how much has the stock risen up since the investment with respect to the fall experienced in the correction. They calculate possible value of their portfolio in the bear market with the caliber of stocks in the portfolio for the period to stay invested. They urge to invest more in quality companies for higher opportunities and higher expected returns. They don’t change their plans, they just refresh the existing plans. Above all smart investors do not simply risk money to test their luck, they invest money to systematically create wealth over a long period of time.

Source: MotilalOswal

How can you save more taxes in 2022 ? Here are 6 investment schemes to save more money

The best time to start your tax saving investments is at the beginning of a calendar year or a financial year. While tax planning is important, getting aware of all tax saving schemes and choosing the right one is crucial.

Tax saving schemes ensure you don’t pay more taxes and make money in the long run by investing in savings-oriented schemes. Here are some of the best tax saving options with a deduction of up to ₹1.5 lakh in your income tax for the year.

Here are a few options of tax saving schemes:

ELSS Mutual Fund

Equity-linked saving scheme (ELSS) is a type of mutual fund scheme that primarily invests in equity funds. ELSS offers tax benefits to investors. The investments in the scheme are eligible for tax deduction under section 80C of the Income Tax Act, 1961 up to a maximum of ₹1.5 lakh.

One can invest through both lump sum and systematic investment plans (SIP) to avail the tax deduction. This way, ELSS offers both investment and tax saving benefits.

Here are the five top performing ELSS funds in the industry:

Funds	% return in last 3 years
Quant Tax Plan	37.52%
BOI AXA Tax Advantage	30.92%
Mirae Asset Tax Saver	26.53%
Canara Robeco Equity Tax Saver	26.19%
IDFC Tax Advantage (ELSS)	24.54%

National Savings Certificate (NSC)

NSC is a fixed income tax-saving investment plan that you can open with any post office branch. The scheme is an initiative of the government of India and hence is relatively safer. The investment in NSC qualifies for deduction under section 80C of the income tax act of up to ₹1.50 lakh.

These certificates earn an annual fixed interest of around 6.8% per annum (revised every quarter by the government), thus guaranteeing a regular income for the investor. The scheme has two types of certificates — 5-year and 10-year.

National Pension Scheme (NPS)

NPS is a pension cum investment scheme launched by the government of India to provide old age security to citizens of India. The scheme offers tax saving options to both government and private employees. Any citizen between the age of 18-60 can invest in it. The amount invested by the depositor is invested in several schemes including the equity markets. Again the basic amount of deduction offered by the fund is up to ₹1.5 lakh on the same amount of investment. However, NPS allows one to get an additional ₹50,000 deduction under section 80CCD (1B), taking the overall tax deduction amount to ₹2 lakh.

Unit Linked Insurance Plan (ULIP)

ULIP is offered by insurance companies that, unlike a pure insurance policy, gives investors both insurance and investment under a single integrated plan.

A portion of the premium paid by the policyholder is utilised to provide insurance coverage to the policyholder and the remaining portion is invested in equity and debt instruments. ULIP also provides tax deduction up to ₹1.5 lakh.

Here are the top 5 best performing ULIP plans in the industry:

ULIP plans by insurance companies	% returns in last 3 years
PNB MetLife – Met Pension Plus	27.40%
AEGON Life iMaximize Plan – Opportunity Fund	23.40%
Bharti AXA Life – Future Secure Pension – Growth Opportunities Pension Plus	23.30%
Future Pension Advantage Plan – Future Pension Active	21.80%
Kotak Platinum Edge – Frontline Equity Fund	21.40%

Public Provident Fund (PPF)

PPF is one of the safest investment options to start with that can help you secure your retirement and save tax as well. The PPF has a minimum tenure of 15 years with as little as ₹500 to open an account.

You can open a PPF account through a post office or in any nationalised bank.

Income tax exemptions are applicable on the principal amount invested in a PPF account. The interest rate for PPF is set and paid by the government for every quarter which is currently at 7.1%, more than the savings rate in banks. Taxpayers can claim a maximum deduction up to ₹1.5 lakh.

Home loan

If you have taken a home loan to buy a new house, you are also allowed to claim a deduction of up to ₹1.5 lakh under section 80C of the income tax. The deduction can be claimed on the principal amount repaid in the particular financial year. Check your home loan interest certificate for EMI payment details.

However, note that even if you put more money i.e ₹1.5 lakh each in any of the above tax saving options like ULIP, ELSS MF, your maximum deduction from taxable income will still be a total of ₹1.5 lakh only.

However, investing in NPS can get you an additional ₹50,000 deduction, taking the overall tax deduction amount to ₹2 lakh.

Source: Business Insider