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Money Thread

Discussion in 'Hangout' started by Bala, Sep 23, 2010.

  1. Bala

    Bala Esperto

    Messages:
    1,070
    Villupuram
    Great going Raviji,I was watching the sensex scaling a peak of 21k on NDTV profit.
    I wish that all your inestments multiply as many times as possible
  2. J Ravi

    J Ravi Esperto

    Messages:
    2,293
    Bangalore
    Thanks a lot, Bala, for your good wishes.
  3. sdp1975

    sdp1975 Amatore

    Messages:
    206
    Bangalore
    How good is the powergrid FPO ? Price band is yet to be announced and there's a 5% discount on issue price for retail investors.
  4. Per one of the reports I read, the key factor here will be the pricing. I had bought Power Grid during its IPO offer and sold it when it doubled. I bought it again at the 100 Rs levels. I would go for it only if a good discount is being offered. I am looking forward to the SAIl FPO in Jan though.

    I got myself a SBI Gold ETF via the Equity SIP option in icicidirect. Will review this after a few months. I don't think Equity SIP is the best option but lets see.

    And cheers to 21k :)
  5. J Ravi

    J Ravi Esperto

    Messages:
    2,293
    Bangalore
    Just a few minutes back, I applied online for 1105 shares [maximum permissible for retail individual investors (RII)] of PowerGrid FPO by ASBA using my Axis Bank saving account. RII will get the allotment of shares at 5% discount as compared to others like QIB/HNI. My daughters and son will also apply shortly. Tomorrow is the last day for RII.
  6. Bala

    Bala Esperto

    Messages:
    1,070
    Villupuram
    Best wishes Raviji for your investment to multilply as many times as possible.
    How about some Pharma shares like the REDDY's and how about investing in palladium and silver??,the last two having outshone gold by atleast 2 to 3 times??
  7. Aanand

    Aanand Amatore

    Messages:
    195
    Pune
    Here's my tuppence worth...

    Life Insurance

    How much should be the ‘sum assured’?
    The Principle.
    It is the amount required by surviving dependent(s) to maintain current life style, without being forced to take on unacceptable financial risk when investing it.
    This should dictate the decision – not the amount of premium affordable / tax saving required.

    A hypothetical example.
    Assume that the annual expenses of a family of two (with one earning member and only one financially dependent member i.e. spouse) are Rs.4,80,000/- (i.e. average monthly expenses of Rs.40,000/-).
    Also assume that they have no unpaid loans.
    Say that the amount of life insurance (sum assured) required would be 12.5 times of annual expenses i.e. Rs.60,00,000/-.
    Will the surviving spouse be able to maintain current life style with this amount?
    Or, will a lesser amount be sufficient?
    (Remember, this surviving spouse does not have earning power.
    Also, that the expenses would go down, to some extent, since only one person will now need to be financially supported by this corpus.)
    Suppose, the surviving spouse is able to maintain the current life style with an annual expense of Rs.3,60,000/- (i.e. average monthly expenses of Rs.30,000/-).
    How long will this corpus of Rs.60,00,000/- last?
    About 16.5 years.
    How will the spouse survive (let alone continue to maintain life style) after that?

    This implies that it is necessary for the corpus to be invested in such a way that it grows by at least Rs.3,60,000/- per year.
    That means that the corpus should yield an average return of approx 6% per year.

    Now, also consider inflation.
    If we take the average inflation as 6% per annum then the average rate of return on investment will need to be 12% per annum.

    What about taking into consideration taxes also?
    Taxes would already have been taken into consideration when compiling the annual expenses.
    So, let’s leave that out here.

    Is this average rate of return of 12% achievable?
    If so, from an investment in (a mix of) which asset classes?
    If a return of 12% is achievable, without taking on unacceptable risk, then the corpus of Rs.60,00,000/- for the surviving spouse is enough.
    However, if getting an average rate of return of 12% would require taking on unacceptable risk, then the corpus for the surviving spouse (i.e. sum assured for the earning spouse) would need to be higher.
    ------------------------------------------------------------------
    Now, suppose the corpus / sum assured is Rs.72,00,000/- (15 times expenses)?
    Then the average rate of return for this amount when invested would need to be about 5% per annum.
    Add the 6% inflation and the average rate of return will need to be 11%.
    Is this achievable without taking on unacceptable risk?
    ------------------------------------------------------------------
    For the sum assured of Rs.60,00,000/-, how much is the annual premium that one will need to pay in case of ULIP, endowment, money-back life insurance and Term Insurance?
    For most families, the only Life Insurance they can really afford, is Term Insurance - provided they want to have the desirable sum assured.
    Lowering the sum assured in order to afford the premium of a money-back insurance / ULIP will mean unacceptable financial risk to the surviving member of the family.

    In sum:
    1. As a thumb rule, the desired sum assured should be at least 12.5 times of annual expenses. Any thing less will be financially disastrous for the surviving member of the family.
    2. In case the surviving members are more than one e.g. children, parents, siblings etc. then the sum assured should be at least 15 times current annual expenses, if not more.
    3. Additionally, if there are unpaid loans e.g. house loan, car loan, student loan, credit card loan etc. then that amount should also be added to the desired sum assured.
    4. The only affordable Life Insurance is the Term Insurance if one wants to secure the financial independence of one’s dependents.
  8. Bala

    Bala Esperto

    Messages:
    1,070
    Villupuram
    Anandh,great info and clear vision on insurance.I am in complete agreement with all your valuable views,but the general public is not at all aware or ready to spend money on insurance especially the term insurance.It's stupidity that they pay 10k term insurance for their car but not ready to spend the same amount fot their precious life and family
    Personally,the sum assured of my policies should be around twice that of my annual income but by God's grace there are other source of income for the dependents,though not of the same magnitude.
    Thanks for your valuable inputs.
  9. J Ravi

    J Ravi Esperto

    Messages:
    2,293
    Bangalore
    Thanks, Bala, for your kind wishes.

    I have holdings in Orchid Chemicals only. But, you can invest in good pharma shares like Reddy's whenever there is a market correction like yesterday. Sorry, I have no exposure in palladium and silver, and so, no idea. I have investments in Kotak Gold ETF only. There is a rumour that the government might ban online trading of precious metals from this December. But, I really don't know whether it would become a reality, and if so, when.
  10. Aanand

    Aanand Amatore

    Messages:
    195
    Pune
    Bala,
    Delighted to read your feedback.
    Thanks a pile.

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