Types of Insurance Policies
Endowment Policies.
These are the policies wherein you can choose a specific term from 5 years to say 40 years or more depending on the age. The premium for a 30-year-old male for a policy of 1 lac comes to around 5000 yearly if you choose a 20 year term. You will have to pay the premium for 20 years and on maturity you will get around 2, 50,000 as per the prevailing bonus rates. Incase of anything of unfortunate demise the nominee gets 1 lac guaranteed plus the accumulated bonus. The rate of return comes to around 6%

Money Back Policies
In this type of policy you get periodical returns say after 4 or 5 years. It is mostly the percentage of the sum assured. For example if you have taken a policy of 1lac then you’ll get a certain percentage of 1 lac say around 20% which you will get every 5 years. On maturity, you will get the maturity amount less money backs, which have already been paid.
Mr.X takes out a policy of 1, 00,000 for 20 years. He will have to pay the premium of around 6,000 yearly. He will get 20,000 (20% of 1 lac) in 5th, 10th and 15th year. On maturity he will get the balance 40,000 (100,000-60,000) plus accumulated bonus of around 1 lac. The net yield in this policy comes to around 5% because the premium rates are slightly higher in money back policies.

Term Plan
A term Plan is a pure insurance cover plan. This kind of policy is suitable to those who want only insurance cover. In this type of plan you get high insurance cover at a very low premium. On survival till maturity the insured person will not be paid anything. But in case of death during the term he will be paid the insurance amount.
Example. Mr. X Age 30 year’s takes out a policy of 5lacs for a 20 year term then his annual premium will be just around 1600 yearly. On surviving the term Mr. X won’t get anything but incase of his demise during the term the nominee will get 5 lacs.

Whole Life Policies
As the name suggests in this policy the premium has to be paid till one survives. This is also a low premium and high risk cover policy. For 1 lac sum assured the premium comes to around 3,500 which the insured person has to pay throughout his life. The sum assured goes on increasing year after year. This type of policy is also for those who require only insurance cover.Example Mr.X takes a whole life policy for 1 lac. He will receive sum assured of 1 lac+bonus on attainment of age 80 or 40 years form the date of commencement of the policy whichever is later. If Mr. X dies in during the term then his nominee will get sum assured of 1 lac+accumulated bonus.

Unit Linked Plans
These policies are linked to share market. A part of your investment goes into the share market. For example if you pay an annual premium of 20,000 then around 6,000 will be deducted for insurance charges, policy document charges etc and the rest will be invested in the share market. Those who do not require any insurance should avoid this product. There is a great debate going on regarding the charges levied by insurance companies. Many argue that a large portion of the investments say around 30-40% is deducted for various expenses and only the remaining portion is invested in the share market thus lowering the returns. It depends from person to person whether or not investments should be made in unit-linked policies.

Tip's for buying an insurance policy

1.Don’t invest in any policy just because one of your friend or relative has invested in it. Your requirement might not be the same as your friend. What might be good for your friend might not be good for you.

2.Ascertain how much insurance cover you require. It’s a common to see a person paying a heavy premium but still remaining under insured. For example a person having a monthly salary of 50,000 and having 2 dependents a wife and child should have an insurance cover of at least 50 lacks but what happens is he takes out an endowment policy of 10 or 15 lacs paying an annual premium of around 60,000. That leaves him underinsured by 35 lacs. Instead he should buy a cheap term plan or a whole life insurance cover.

3.Try to get yourself insured at a young age. Mostly it’s a common practice to see that all other expenses are met with and insurance policy is the last thing on our mind. At young age the premium you pay is slightly less and not many medical tests are required. The insurance premium increases with age and there are various types of medical tests required as per the age. If the tests are not up to the mark then the insurance companies might charge you an extra premium and even reject your insurance proposal.

4.Don’t take out insurance policies just to save tax. There are many lucrative options available to save tax.

5.Don’t buy insurance for investment purpose. Insurance policy will hardly give you any returns and it is solely for your dependents. You family member should be able to maintain the same lifestyle in case of anything unfortunate. Go for a pure term plan that will give you high insurance cover at a very low premium. Even though your premium is not refunded and you don’t get anything if you survive the term, a term plan is the best for your insurance needs.

6.Don’t get carried away by the claims of your insurance agent. Cross check the details provided by him.

Investment options

Banks
Banks are considered as the safest of all options. A person who deposits some amount in the bank earns interest from it. The two main modes of investment in banks, savings accounts and fixed deposits have been effectively used by everyone. However, today the interest rate is declining and inflation rate is increasing day by day. With the banks offering only 8 percent in their fixed deposits for one year, the yields have come down substantially in recent times. On the top of it the inflation continues to play spoil sport. The inflation is creeping up, to almost 6 percent at times, and this means that the value of money saved goes down instead of going up. This effectively mars any chance of gaining from the investments in banks.

Post Office schemes
Post offices in India offer the highest rates of interest. For those who have safety on their mind, they can put some amount in these schemes. In terms of service, post offices have yet to prove themselves. Due do the factor of safety post offices hold major chunk of peoples investment. The term is usually 15 years. Any individual can open a PPF account in any nationalized bank or its branches. The minimum amount to be deposited in this account is Rs.500 per year. The maximum amount one can deposit is 70,000 per year. There is no fixed rule to deposit the amount. One can deposit monthly, quarterly or even at one go. The entire balance can be withdrawn on maturity that is after 15 years. It can also be extended by another 5 years.

Gold
Gold has always been a traditional form of investment and is liquid. Though it has given less return as compared to mutual funds, gold falls altogether in a different category. From investment point of view gold is the most liquid as compared to PPF, LIC and company deposits. Gold bars, coins are available in various denominations such as 1gm 3gm 10gm etc for investment.

Shares
In the past only selected people used to invest in the share market but with when the Indian share market started raising since 2004 many people joined the bandwagon in order to make a quick buck. Share markets are only for those who wants to stay invested for more than 10 years. People with short-term horizon should stay away from this adventure.

Mutual Fund
Mutual funds are managed by fund managers who invest money on behalf of the investors. Money is invested in a number of companies in order to reduce the risk. Those who don't have much knowledge about the share market can take the mutual fund route to invest their money in the share market.
Life Insurance
Life insurance is a contract that pledges payment of an amount to the person assured (or his nominee) on the happening of the event insured against. In case of anything unfortunate, the policy amount is paid to the nominee.
Life Insurance comes to the timely aid of the family in the unfortunate event of death of the breadwinner. The yield normally is around 7-8%. There are various schemes in LIC which one can consider according the needs.

Company Fixed Deposits
Just like Banks Company fixed deposits offer interest on investment. Companies have used fixed deposit schemes as a means of mobilizing funds for their operations and have paid interest on them. Investing in company fixed deposits is not completely safe. There is always a risk of capital erosion. Secondly, Liquidity is also a major problem. Premature redemption attracts penalty.

Tracking the share market daily.

If you are one of those who track the market on daily basis then probably you are not an investor. To be an investor one has to stay invested for a long time of more than five years or may be more. If you have invested in some companies then let those company grow and give them time to deliver results. Fluctuation is a part of share market and so you cannot expect the price to rise immediately after you have purchased a stock. Sitting frequently in front of computer to see your share prices will only result in stress if your share happens to trade low. If you are confident that you have invested in good companies then there is not need to panic even if the market falls drastically. The fall that started in January 2008 saw some good companies falling by as much as 50%. So what do you do in such times? Well as I said earlier, if you have invested in good company then you should buy more and average your cost. But there are many, in fact majority of those who sell and make loses at the time when the market is falling. The same people will start buying at higher levels when the market starts to climb again. The result, investors or maybe I should address them as traders getting trapped and making loses consistently by buying at higher levels and selling at a lower level. If the market starts declining from tomorrow there are very few who would think of buying. Most of the people will panic and try to get out of the market regretting later when market starts to gain.

History repeats itself.

When I say so I really mean it. It’s the same old story people jumping the bandwagon at the end of the bull run and burning their fingers and when its time to invest, nobody is investing. After achieving the peak of 21,000 in Jan 2008 the sensex has touched a low of 7,700. When the sensex was at its peak everybody was taking about long term investment and were purchasing shares as if there was no tomorrow. Now the same people are shying away from the market. Many are waiting for the Bull Run to return but does anybody know when the sensex will head northwards? No one was able to predict the fall in January. Similarly no one will be able to predict the return of the Bull Run. Investors should not wait for the bull market or the bear market. If one has a long term horizon of 8 to 10 years then anytime is good time for investing. We cannot expect Bull Run to continue for ever. Similarly bear market too doesn’t last long. Its plain logic. Whatever goes up comes down and vice versa. Anybody who invested 10,000 in the month of May 2008 would have got only 11 shares Tata Steel at the rate of around 900. If you invest the same amount today then you will get 50 shares of Tata Steel. Then what are we waiting for?

Worrying About The Entry Load?

Entry load is the fees charged by the mutual fund for the expenses they incur. Usually it is 2.25%. That means if you invest Rs.1, 00, 00 then 2,250 will go towards the expenses. Now for some that might seem to be a lot of money. Considering the returns mutual funds generate one shouldn’t worry much about the entry load. After all if you invest directly in share market then too you have to pay the brokerage. Now one might argue that fixed deposits don’t charge anything and they give guaranteed returns. Then why should we invest in mutual funds? Well, that’s true but considering the 8% returns that FDs give we can definitely have a look at mutual funds. On the other hand returns from fixed deposits are taxable. Mutual funds do charge an entry load and they also carry a market risk but if we consider the past record, mutual funds have given a return of more than 20% annually. No other investment avenue has given such high returns. The only thing is to stay invested for a long time. The longer you stay invested greater will be the benefit. If you have the appetite for risk then investment in mutual funds is definitely a good idea.

Busting The NAV Myth.

Mr. X was very happy after he made his investments in mutual funds. He boasted about how he avoided some costly mutual funds whose NAV were above 300 and went for new funds available at Rs 10. His argument was that the old funds have already reached 300 so the chances of it climbing further are very low. In fact he got rid of some schemes he had bought few days ago after his advisor told him to sell high NAV mutual funds and instead invest in funds which have a low NAV. There are thousands of Mr. X who are following the same principle. They fail to realize that NAVs are different from share prices. A fund having a NAV of Rs.10 is the same like a fund having a NAV of Rs 300. In fact a fund with NAV of 300 has proved that it has performed well and has reached 300 whereas a new fund with face value of 10 is yet to prove itself. While rising or falling it is the percentage that counts. If a fund with a NAV of 300 falls to 240 it means it has fallen by 20% in the same way when a fund with a face value of 10 falls to 8 then it has fallen by 20% as well, but many people argue that it has fallen by only Rs.2 while the former has fallen by Rs 30. NAV of Rs.10 should not be the sole purpose of investing in a new fund. Another myth is that fund with a face value of Rs.10 wouldn’t fall much. Well there is no explanation for this. I can only say that a fund with a face value of Rs.10 can also fall to Rs.1. Moral of the story? Invest in mutual funds by not looking at the NAV but at the performance and theme of the fund.