• HDFC
• 29 Apr 2017
• General Insurance

HDFC, Tester

In this age of cut-throat competition, immense peer pressure and meeting target deadlines, the only thing we tend to forget is our own responsibilities towards our family. However, remember it is your duty as a family member, to sit with your better half this weekend and take stock of the family’s finances.

Two things we have taken for granted - that you have planned for your child’s education and your own house to live in.

Next, we want you to ask those probing fundamental questions, which we as family members rarely raise or ask.

Are we adequately insured?

Do we have a comprehensive health plan for the family?

How safely can we invest in equities for the long term?

Insurance::

Insurance comes first and must form the bedrock of all financial investments and thereby financial safety. Insuring one's life adequately has to be the core of all your financial investments and a priority. We recommend that you take a "online term plan" which will serve the primary purpose of insuring your life. Thumb rule is, Life insurance should at least be 10 times of your annual income and higher the better.  Remember that age has a lot to do with insurance premium. The younger you buy a insurance cover, lower is the premium. Never let this benefit lapse!

If a 25 year old will pay Rs X per annum for Rs 1 Crore life cover for a 30 year period, a 35 year old will pay 1.6x for the same cover. Once a person enters his 35th year, he should immediately buy the longest possible tenure of life cover. This will save a lot, as premiums keeps rising at a faster rate and really accelerates in later years. At this age, one should not underestimate one’s life. At the second stage of insurance, we should value ourselves much higher than our perception while deciding the sum assured.

Health Insurance

While we plan to stay healthy, certain events can challenge best of our planning and gives us an unpleasant surprise. An accident related operation or any other ailment can set us back by a huge amount. A routine gall bladder removal can set us back by a good Rs 60,000. Angioplasty can cost around Rs 2.5 lakhs and an open heart surgery can cost more than Rs 3.5 lakhs. While having a health insurance plan cannot save you from getting these illnesses, but it can surely take away the financial pain out of these expenses. More importantly, you will not shirk away from costly tests and biopsies or try to postpone them if you have a Health Insurance, which in turn can prevent things from getting worse and nip them in the bud.

In case your husband has a group medical insurance with his employer, it is important to understand which family members are covered and what ailments are included and excluded from the policy. You may need to take a separate health plan depending on your requirements.

Investing in equities for the long term

You save quite a bit from your smart shopping every month. Ask your spouse to pay an equal amount of savings. This will double the corpus. Make it round figure and that amount can be invested every month. If you are smart and have the time and inclination to study, you may choose to sign up a Do It Yourself Systematic Investment Plan (DIYSIP).

You can choose any stock and we will buy those stocks every month for you based on your investment amount.

But if you do not have the inclination and want to play safe then we can confidently suggest an Index Fund. Since Nifty Bees is an exchange-traded fund and is liquid, it fits the bill to the 'T'.

Why do I suggest an Index Fund?

The reasons are many, but the primary reason is that you can confidently average an Index fund all the way to the bottom, which you can’t do with individual stocks. It is synonymous with Indian capital markets. If you have the faith in India and are willing to wait patiently for the long term, this is what you systematically invest in.

For buying this, you don’t need to do research. There is an illustrious history and bright future for India’s capital markets. If you have ever listened to a fund manager he will tell you that historically equities have returned a CAGR of more than 15%. He is saying this on the historic performance of the Index. With an Index Fund you are assured of market returns. You will never complaint that your portfolio has underperformed the markets, because the market benchmark is your portfolio.

The charges in an Index Fund are just 0.5%. With the dividend yield of the benchmark itself being between 1.55% of the Sensex and 1.4% of the Nifty you will get paid for investing in an Index Fund.

The charm of investing in an Index fund is that you don’t have to decide what stocks to buy and what to sell. Even the fund manager of an Index Fund does not have to use his brain for doing this. He just has to track the benchmark index.

The respective index committees decide on the changes and the ETF managers just follow that. The Indices are like the Ganga, they clean themselves as they move forward. The 30 share Sensex has seen 53 changes since inception in 1986. 

The 50 share Nifty has seen 70 changes since 1995. This is how the indices remain relevant with the passage of time.

Warren Buffet is a huge fan of Index investing. While he may have beaten the US benchmark S&P 500 index for many years in a row, he thinks that in the longer term, it is difficult to beat the Index.

If an investor like Warren Buffet admires the Index Fund, what stops lesser mortals like us to become one.

We can confidently recommend investing in an Index Fund. Among the ETFs, the Nifty Bees is the most liquid. So you may start a DIYSIP in Nifty Bees. The recent reduction in the STT will reduce the transaction costs in ETFs.

Parting advice

Ensure that your husband wears the seat belt when he is being chauffeured to office, irrespective of which seat he is occupying. When you are travelling as a family, remember that children should always occupy the rear seat and all passengers, should wear the safety belt. Most passengers in the rear seat don’t wear the safety belt because it is not compulsory by law. That is no reason to not to wear the seat belt. Two-thirds of the people who die in car crashes could have been saved if they were wearing a seat belt. Also remember that, mothers with babies in their lap also should occupy the rear seat or use seat restraint meant for babies. No one can ensure the safety belt rule more than you.

It is important that you, as a family, are together to  enjoy your golden years. Don’t let ignorance ruin your companionship. You will better enjoy the fruits of your DIYSIP together.

On this women’s day make your voice heard. Stand up and take charge.

- V. K. Sharma
   Business Head - Pvt. Broking & Wealth Management