Budget 2016: Basic imperative is to step up investment

Should the government defer fiscal consolidation further or stick to its schedule and compress the fiscal deficit to 3.5% of GDP in the forthcoming Budget? Even the framing of the question in this manner makes assumptions that do not hold in the economy at present. ‘Fiscal consolidation’ comes across as a virtue, because its absence is normally associated with macroeconomic imbalance. But the current conditions are not normal. The world economy is in torpor. India’s internal investment story is not even sound and fury, if you leave aside some e-commerce firms. Credit grows at a snail’s pace. Spare capacity exists in most consumer goods sectors, obviating investment. Infrastructure investment is hostage to debt-crippled firms. The state sector has to act to boost investment. That is the basic macroeconomic imperative.

Why is a fiscal deficit not desirable in normal times? Because it makes a demand on private sector savings that competes with the private sector’s own demand to finance its investment, leading to excess demand that spills over as inflation and a wider current account deficit. In a situation in which the private sector’s own investment demand is tepid to cold, there is little danger of public borrowings competing with private borrowings for the same quantum of private savings. On the other hand, if state sector investment generates new demand, it could crowd in fresh private investment to meet that demand. In other words, a fiscal deficit that boosts investment at a time when the private sector is chary of investing is a virtue, not a sin.

This is not to say that the government should not try harder to cut back on wasteful subsidies, by employing direct benefit transfer wherever possible, or to raise additional resources by widening the tax base and administering taxes better. Nor should any effort be spared to get additional chunks of surplus global savings into the National Infrastructure Investment In India Fund that would invest in India’s infrastructure. India cannot allow rating agencies to dictate its policy priorities that is all.

Invest Your Hard Earned Money With Caution

Despite government’s several efforts to move household savings towards financial assets, people are not ready to make this transition. This is not because Indians are not financially savvy but they distrust financial market.

There are two parts of financial market –regulated and unregulated. The unregulated market mainly consists of ponzi schemes that make retail money disappear. While the risk of fraud and capital erosion is high in any unregulated market. But what about regulated market like life insurance, when insurance companies cheat people of their savings.

There have been several cases of mis-selling in life insurance where for hefty commissions insurance agents sell products that are not needed by the customer or they don’t tell them all the clauses of a plan. Insurance companies, too, deliberately phrase the real returns of a product in illustrations in such a manner that is not comprehendible by a Lehman. In the fine print of a policy there are also hidden clauses to dupe innocent policyholders.

Hence, if insurance plans are bought without an expert advice it can wipe of your hard-earned money. Investors get trapped into products that destroy value if held for the long term with 2-4% annual return. And if they choose to exit the policy within the lock-in period, they lose their entire investment. An insurance plan gives complete benefit only if it is held for complete tenure.

Insurance is the core of financial planning and you can’t stay away from it just because of such fears. It is advisable that you take expert advice before investing in an insurance plan. Experts at policy mantra make it easy for you by explaining you what to read in between the lines of all the clauses of an insurance plan. So that you can buy such an Best Investment Plan that you don’t have fear of losing your hard-earned money and get insurance plan that best suits your needs.

Comparison sites like policy mantra can help to ease this daunting task. They can help you not only to provide unbiased advice across all insurance companies but also assist you for renewals.

Do not invest in an insurance plan just because it is cheapest as it may have several conditions attached for the time of claim. 

Financial Awareness: A Pre-requisite for Financial Planning

Despite being smart, confident, stylish and multitasks, women are still dependent on the men in their lives — father, brother, husband — to direct their finances. According to HDFC Life Value Notes Life Freedom Index survey, 42% of urban women chalk out their financial plans with the help of their friends and relatives. But why would an educated, urban woman spin away from drafting her own financial plan?

No money matters, please!

According to financial experts, women believe they are incapable of managing their own finances. They also perceive finance to be a boring and difficult subject. However, this age-old tradition is now gradually changing.

Sarika Waje, 33, is a Global Knowledge Manager with a leading communication firm. She is the second wage earner in her family and is financially independent. “In today’s scenario, the standard of living is on the rise,” she says, adding, “It is very important to have a steady inflow of money coupled with sufficient savings. At present, most of my salary goes in paying-off my housing loan EMIs.”

When asked if she was exposed to sufficient financial knowledge, Sarika says, “I usually do my research but I also seek advice from my father and husband.”

Financially independent, but lack financial awareness

Urban women such as Sarika are becoming financially independent and have a higher sense of financial liberty. Lack of financial awareness will only lead to financial insecurity. A married urban woman is actively planning for her child’s education, health expenses and EMI payments. Her financial freedom also accords her the liberty to indulge in other luxuries such as family holidays and durables. The working single urban woman is ready to face the financial challenges of her life independently.

However, an urban woman is not completely financially free and needs improvement on aspects such as financial planning and financial discipline. But given her poor financial awareness, she is unable to review and realign her financial plan that can cover all her short-term and long-term financial goals.

Financial guidance

It’s time to get into the driver’s seat and get a larger perspective of the road Investment In India. For starters, professional financial advice will help in achieving a comprehensive term plan. As per the LFI survey, only 26% urban women seek professional help from financial planners.

If investment plans are not taken care of, financial goals could transform a dream into a nightmare in the form of financial insecurity and a bumpy retirement.

What are the key benefits of Endowment Plans

There are a host of insurance policies available – each for different needs and requirements of consumers. Endowment plans are a popular form of insurance that are risk-free and sought after by individuals who do not mind lower returns for a risk-free investment. In this article, we’ll discuss in further detail about how an endowment plan is different from a term plan, the key benefits of opting for an endowment plan, types of endowment plans, etc.

An endowment plan is a combination of insurance and investment. In case of a term insurance policy, there is no maturity benefit – i.e. in the event the person survives the policy tenure, the person does not receive a sum on completion of the tenure. In other words, if the person dies during the policy tenure, his dependent/nominee gets the monetary value or the sum assured. An endowment plan offers users the best of both worlds. Here, the person gets a sum assured on maturity. Also, in the event of the person’s unfortunate demise, the policyholder’s kin receive death benefit.

Broadly, there are two types of endowment policies – with profit and without profit. Within these two classes, there are several variations structured to meet different objectives of policyholders such as whole life protection, savings, pension, child’s education, etc.

The key benefits of an endowment plan are:

i. Goal-based savings: With endowment plans, policyholders are expected to set aside a pre-determined amount as premium at a stipulated time-interval. This calls for a disciplined approach to saving money.

ii. Tax Benefits: The plan offers Tax benefits under section 80 C and 10 (10D) of the Income Tax Act.

iii. Loan: In case of emergency, policyholders can obtain loan against the policy – usually without having to secure the loan against a collateral.

iv. Bonus: Endowment plans declare a bonus every year. The bonus is typically given out as a certain percentage of the sum assured.

While the insurer may announce a bonus at the completion of each year, the bonus declared is not payable immediately. Unlike in the case of stock dividend or a mutual fund dividend, which is payable immediately after it is declared, here the bonus accumulates and is payable only when the policy matures or in the event the policyholder dies. Also, it is important to note that the bonus does not compound or interest is not attracted to the bonus amount each year. The amount continues to accumulate each year for the entire policy term.

There are a variety of insurance plans available in the market today. Choosing an appropriate plan depends on several factors including your current investment/savings objectives, age, income, long term financial objectives, etc. Besides evaluating these aspects, you will have to factor in the following:

i. Premium Rates: The premium payout for endowment plans is far higher than that of term insurance. Therefore, one has to evaluate the premium payable carefully before going for a long term commitment.

 ii. Bonus Payment: Check the insurance company’s track record of bonus payments. For instance, if the insurer pays a bonus of Rs.50 for every thousand rupee in sum assured, then the bonus for a Rs.10 Lakh policy works out to Rs.50,000. This translates to a bonus of 5%. If the insurer continues to provide a 5% bonus each year, the policyholder will have Rs.20 Lakhs at the completion of 20 years – i.e. Rs.10 Lakhs as sum assured and Rs.10. Lakhs in accrued bonus.

 iii. Claim Settlement Ratio: In the event of the death of the policyholder mid-way during the policy tenure, the nominee will have to file for a claim. Therefore, in order to ensure that in the unfortunate event of demise of the policyholder, the nominee faces minimal chances of claims rejection, it is important to note the claims settlement ratio of the insurer.

 iv. Customer Service: Look for reviews, ratings and feedback of the insurer to understand if their customer service is prompt and forthright when needed the most.

 v. Financial Standing: Evaluate the financial standing, the reputation and number of years that the insurer has been in business.

Read your insurance document carefully before you commit – avoid policies with complex features that you find difficult to comprehend. Endowment plans might offer lower returns but they also offer the much needed peace of mind knowing that your Investment Insurance Policy and insurance needs are both addressed with a single plan.