financial planning 3. - Securities and Exchange Board of India

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of units in a rising market. Thus you automatically participate in the market swings once theoption for SIP is made. SIP work on the principle of rupee cost averaging. It ensures averagingof rupee cost as consistent investment ensures that average cost per unit fits in the lowerrange of average market price. SIP generally starts at minimum amounts of Rs 1,000 per monthand upper limit for using an electronic clearing service (ECS) is Rs 25,000 per instruction.Working of SIPAn added advantage of a SIP is that it allows you to invest in the market without trying tosecond guess its movements. Since you commit to investing a fixed amount every month,say Rs 500, when the market is high, the corresponding NAV of the fund is also high, thusyou get fewer units on your investment of Rs 500, than you would when the markets and thecorresponding NAV are low.MONTH NAV NUMBER OF UNITS (500/NAV)1st January 10 501st February 10.25 48.780491st March 11 45.454551st April 12 41.666671st May 9.95 50.251261st June 12 41.66667277.8196Thus, within six months you would have Rs 277.81 units by investing just Rs 500 each month.Thus selling the units at an NAV above the average NAV (10.86) during the 6 month period willgive you profits.The table below shows the profits you can make with an investment of Rs 3,000, if you sell theunits at an NAV above the average you bought for.NAV (A)UNITS (assume you [(NAV X 277.81)] (C) PROFIT= [(C)-3000]sell all units) (B)10.86 (AVERAGE) 277.81 3017.017 17.016611 277.81 3055.91 55.9112 277.81 3333.72 333.7213 277.81 3611.53 611.5314 277.81 3889.34 889.34AnnuitiesAnnuities are contracts sold by an insurance company designed to provide payments tothe holder at specified intervals, usually after retirement.Earnings cannot be withdrawn without penalty until a specified age and are taxed only atthe time of withdrawal.Annuities are relatively safe, low-yielding investments. An annuity has a death benefitequivalent to the higher of the current value of the annuity or the amount the buyer haspaid into it.Equity InvestmentsApart from regular income, a part of the retirement benefits could be invested for capitalappreciation also or one can start investing in equity fund during retirement years to buildcorpus by the time one retires. For retired people, growth option of debt-based mutual fundschemes is worth considering. Apart from the growth potential, they are transparent, highly20
liquid and tax efficient. If a person is interested in equity investments, it should be limitedonly to diversified equity funds and regular monitoring is needed regarding market dynamics.Once the target return is achieved, it is beneficial to book profits periodically.Insurance PolicyMost risks to your life and property can be covered under insurance plans. Some of the commoninsurance plans are:• Unit Linked Insurance Plans• Term / Term with Return of Premium Plans• Health Insurance• Personal Accident Insurance• Insurance cover for your Home / Car• Insurance cover to protect your family from liabilities• Travel insuranceThe value of the cover that you opt for should depend on your need for protection. If you areapplying for asset insurance, the value should ideally cover the cost of replacing your asset.Similarly, the final payout of a term plan should compensate your family for the financial lossthat they will face in case of your demise. If you go in for ULIPs, endowment or money backpolicies, these should fall in with your overall financial plan and enable you to receive fundswhen you expect to use them.ActivityMr Mahesh Kaushik, aged 58, likes to invest a part of his terminal benefits of Rs10 lakh in aninvestment product that assures him steady annual return with insurance cover for his life.Which investment product is ideal for him?Health InsuranceHealth Insurance Policies in India: There are several health insurance or medical insuranceplans in India. These can be divided into the following categories based on the coverageoffered.Comprehensive health insurance coverage: This plan provides you complete healthcoverage through a hospitalization cover while at the same time creating a health fund tocover any other healthcare expenses.Hospitalisation Plans: These health insurance plans cover your expenses in case you need tobe hospitalized. Within this category, products may have different payout structures and limitsfor various heads of expenditure. The hospitalisation coverage may be reimbursement basedplans or fixed benefit plans.Critical Illness Plans: These health insurance plans provide you coverage against criticalillnesses such as heart attack, organ transplants, stroke, and kidney failure among others.These plans aim to cover infrequent and higher ticket size medical expenses.Specific Conditions Coverage: This plan is designed specifically to offer health insuranceagainst certain complications due to diabetes or cancer. This may also include features such asdisease management program that are specific to the condition covered.21
Page 2: “The content of the book is devel
Page 5: How much retirement income will I n
Page 9 and 10: How did we arrive at this answer?Us
Page 11 and 12: A Personal Budget is simple to prep
Page 13 and 14: Model Networth StatementName: RajaA
Page 15 and 16: Here’s an example of some of the
Page 17 and 18: 11. Inflation effects on investment
Page 19: choice in structuring the post-reti
Page 23 and 24: 14. Avoid Investment ScamsThere are
Page 25 and 26: Volunteer: There are countless oppo
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financial planning 3. - Securities and Exchange Board of India

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