Investors Rejoice! Sep 18, 2009

Rising markets but ULIPs yet to recover from the downfall

Sep 18, 2009

Weekly Facts
	Close	Change	%Change
BSE Sensex	16,711.11	494.3	3.05%
Re/US$	48.15	0.5	0.99%
Gold Rs/10g	15,940	330.0	2.11%
Crude ($/barrel)	70.42	0.8	1.21%
FD Rates (1-Yr)	4.25%-7.0%

Weekly change as on Sep 17, 2009

Investors Rejoice!

Impact

What was initiated by SEBI on August 1, 2009 with the abolition of entry loads on mutual funds is proposed to be expanded to cover distribution of all financial products. The D Swarup Committee on Investor Awareness and Protection, in its consultation paper has made far reaching and comprehensive recommendations on this subject including a proactive approach to creating investor awareness. The paper is currently being discussed and reviewed amongst interest groups.

The recommendations have twin objectives - setting up a regulatory system with common standards for financial advisors and integrated approach to financial education.

Recommendations:

No-load structure - all retail financial products should go "no-load" by April 2011. This will remove the bias of selling products with the highest commission

Financial education for advisors and investors - The proposal to set up the Financial Well-Being Board of India (FINWEB) is an approach to convert awareness into knowledge

Entry barrier - a common minimum entry barrier for all financial advisors which will include a knowledge-linked training programme and a common examination pattern. In addition, there would be different licenses based on the skill sets of the advisor and the type of products and services he can sell

Code of Conduct - to establish a standard code of ethics across all products and organisations, to ensure that all advisors are registered with FINWEB and to set up a body with the power to admit, discipline and demit members

Disclosure norms - investors should be informed about the total cost borne by them, the income earned by advisors from the sale and maintenance of a product, the risk carried by the product and the role of the product and its outcome

Reporting norms - to include documentation of sale proceeds and a declaration counter-signed by the investor acknowledging the disclosures made by the advisor. This will avoid the practise of hit-and-run financial products wherein an advisor hits an investor with a product and runs

Punitive actions for advisors - penalties, loss of license to do business or criminal proceedings in case of mis-conduct / mis-selling

Dispute Redressing - investors will have a common interface to complain about financial products, services and outcome

We believe these recommendations have a two-fold effect

Increase investors knowledge of financial products and the way they are structured

Ensure that the products are sold keeping only investors' interest in mind, without being influenced by commissions earned by distributors

Importance of Critical Illness Insurance

Impact

WHAT IS CRITICAL ILLNESS INSURANCE ?

Critical illness insurance covers specified illnesses viz. cardiac arrest, coronary artery bypass surgery, cancer, multiple sclerosis, kidney failure, major organ transplant, etc. Policies for such illnesses are issued by life insurance and general insurance companies. This is available as a separate product or as a rider in a normal medical insurance policy. The person insured pays an extra premium (between Rs.3000 to Rs.8500), depending upon the term, age, coverage and desired sum assured.

FEATURES & BENEFITS

It covers specified number of illnesses (10 in some cases of rider policies and 30 in case of most stand alone policies)

There is a premium guarantee for a certain number of years for most policies (can change subject to approval of the Insurance Regulatory and Development Authority)

Average age of entry is 6 years, but varies widely from product to product

Coverage term and age up to which covered (up to 75 years is considered to be optimum) varies from policy to policy

Survival condition expressed in number of days (example 30 days) in some policies for claim admittance

Waiting period for claims in almost all cases (typically 3-6 months)

Claim payments made as per pre-decided payouts (as a percentage of the sum assured are typically 50% to 100%.) Some policies limit the claim for particular illnesses

After the claim payout is made for an illness, balance sum assured can be carried forward for other illnesses (offered by some policies - this is a very useful option)

Benefit amount is paid over and above the other medical policy claims, as this is a defined benefit policy

Tax benefits available under section 80D or 80C of the Income Tax Act, depending upon the plan structure

ANALYSIS - DO YOU NEED ONE?

Well, do you need one? The answer is yes. At times like these, one does not need the additional stress of worrying about expensive treatments.

We are of the opinion that the policy is not a replacement for a medical insurance - it is an additional coverage, for a specific need .

Here are some check points to enable you to take the decision:

Assess your family health history, nature of work, financial capacity to absorb such an expense, etc.

Take a view on the age up to which the cover is sought

Study your policy benefit details

Study the claim history of your insurer

(Source: DNA Money Article dated September 11, 2009, Contribution from Mr. Suresh Sadagopan)

Shopping made easier this Diwali!

Impact

In light of the upcoming Diwali festival, many consumer durable companies have re-launched interest-free financing schemes to make it easier for customers to purchase their products. The way this works is that the manufacturer bears the entire interest rate cost of the funding while the processing fee may be passed on to customers or shared between manufacturers and dealers. This results in a win-win situation, as the customer can avail of the product by simply paying instalments, while the company increases its revenues through mass sales.

For instance, Samsung has tied up with Bajaj Finance to offer its customers a triple-zero finance scheme, under which there is no initial payment, interest charge or processing fee for all its products until October 31, 2009.

Voltas has launched a 0% finance scheme on its mid and high-end air conditioners and water coolers. Sony and LG have also introduced similar schemes that offer attractive deals on their products.

Although these schemes are very appealing, customers should find out the details of these schemes from the relevant companies before purchasing their products.

Shubh Nivesh - Where is the labh?

Impact

SBI Life has launched its new product - SBI Life Shubh Nivesh. It is a traditional endowment plan with an option of a whole life cover. It is designed to meet the following needs of the risk-averse investor:

Wealth Creation

Savings

Protection

Income needs

The plan provides flexibility with respect to cash flows to the investors as there is a

Lump sum payment at maturity

Regular income for a chosen period - deferred maturity payment options (depending upon your needs)

SBI Life's Shubh Nivesh has the following two options for investors:

ENDOWMENT ASSURANCE	*WHOLE LIFE ENDOWMENT
The sum assured with all accrued bonuses will be paid on death during the endowment term	The sum assured with all accrued bonuses till the end of the endowment term will be paid to the policyholder
OR	AND
On survival, till the end of the endowment term	An amount equal to the basic sum assured will be paid on the life assured attaining 100 years of age or on the death of the life assured, if earlier.

* Investors will have to opt for the whole life endowment option at the proposal stage itself
AT A GLANCE

	Minimum Years	Maximum Years
Entry Age	18 years	60 years
Maturity Age	23 years	65 years
Policy Term	5 years	30 years
Sum Assured	Rs.75,000	No limit

TAX BENEFITS:

The plan entitles the investors to a tax benefit u/s. 80C and u/s. 10(10D), of the Income-tax Act, 1961.

Though the benefits offered by this plan are attractive, the premium paid by investors will be higher than that of a pure term insurance plan. The primary disadvantage of the whole life cover is that the internal rate of return may not be competitive as the other savings alternatives.