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October 17, 2016

What does one need to note when purchasing an insurance policy?

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Purchasing an Insurance Policy in India:
1. Buy insurance for risk cover

The purpose of an insurance policy is to protect the family members of a person from any financial complexities in case of his/her premature death. Such unfortunate eventuality to a breadwinner in the family can put the other family members in serious financial problems. Insurance seeks to offer financial help in such times.

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Purchasing an Insurance Policy in India:

1. Buy insurance for risk cover

The purpose of an insurance policy is to protect the family members of a person from any financial complexities in case of his/her premature death. Such unfortunate eventuality to a breadwinner in the family can put the other family members in serious financial problems. Insurance seeks to offer financial help in such times.

This, therefore, must be the main objective for buying an insurance policy. Any other benefit such as tax advantage etc. must be of secondary consideration.

2. Do not consider insurance as an investment option

The primary aim of the insurance policy is to provide a risk cover. Therefore a part of the premium paid is first appropriated towards this purpose. The balance amount is invested in financial instruments, which are generally very safe ones. Also, the commissions and charges are substantially higher than other investment options.

Consequently the returns from an insurance policy are nothing much to talk about therefore it cannot be considered as a feasible investment option in comparison with other competing financial products.

3. Preferably buy only a term policy

Term policies are pure insurance products with no investment option. They are the cheapest and the simplest among the available plans. But cheapest does not mean they are inferior to other costlier insurance policies. As far as the basic purpose of risk cover is concerned, there is no difference. And usually for most of us this term policy must be more than sufficient.

In such policies the premium paid is foregone at the expiry of the policy and one does not get anything if one survives the policy term. This fact that one does not get anything back is possibly the most important psychological factor for the low popularity of a term policy.

4. Do not prefer savings-linked insurance policies

In contrast to the term policies, savings-linked insurance policies are such as money-back, endowment and whole-life provide the risk cover and also give back some returns to the insured at the end of the policy term, in case nothing happens to him/her in the interim. The premiums of such policies are much higher than the term policies. This assurance of getting some returns at the end of the policy term is why most people choose for such savings-linked policies in comparison with term policies.

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Money Mistakes you need to Avoid to Become Rich

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It is the end of the month and I am broke again. Just waiting for my salary. The money just isn’t enough. Every month has a new expense. The spectacles are broken…The bike needs repairs…My laptop was stolen…Somehow expenses rise to meet my income. What can I do differently to change my situation? What money mistakes do I commit that lead to this sorry state of affairs? These questions constantly…

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money-mistakes-f-713x401

It is the end of the month and I am broke again. Just waiting for my salary. The money just isn’t enough. Every month has a new expense. The spectacles are broken…The bike needs repairs…My laptop was stolen…Somehow expenses rise to meet my income. What can I do differently to change my situation? What money mistakes do I commit that lead to this sorry state of affairs? These questions constantly plague you.

Remember: It’s not your salary that makes you rich, it’s your spending habits – Charles A Jaffe .

Why a financial goal?

“An investor without investment Objectives is like a traveler without a Destination” – Ralph Seger

A financial goal is a target you set for yourself :
• You want to go for a foreign holiday
• You want to buy a new car
• You want your children to study in a good college.
This is only half the financial goal. The next step is how you plan to achieve this.

You have to keep aside money from your paycheck (salary) regularly each month to achieve this goal.Set aside as much of each paycheck as you can for investing. This should be no less than 10 percent of your income.

You have to identify investments which suit your risk profile (How much risk you are willing to bear to achieve these goals).If you are willing to take risks (an aggressive investor) then an investment in equity (stocks and mutual funds) is the way. Investing in equity has a huge risk but may give you a good return.
A return of 20-30% is not uncommon in stocks. This investment would help you reach your financial goal is no time. If the markets crash your losses are huge and it may take several years to reach your goal.
Remember : No risk …No return.If you are a conservative investor you can invest in fixed deposits, PPF or even debt mutual funds. The returns are much lesser than equity but these investments are relatively safe.

Remember : A slow and steady approach to reach your financial goal rather than not arrive at all.

Avoid Common money Mistakes

Living on debt
Debt : A trap which a man sets and baits himself, then deliberately gets into. A loan is living today on your future income. A loan is given to you (say by a bank) to meet your current needs and expenses and you have to pay it back from the income you would earn in the future with interest.

A home loan is a good loan
You can take a home loan to buy your all important home to fulfill your physical and emotional needs. This is a necessity and as you cannot afford to purchase the home on your current salary, you take a home loan and then repay the bank through the EMI payments.

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Financial Planning for Money Goals

financialplanning

Money is the most important thing in life and yes…. it is always in shortage. This means you have to plan for your limited finances. Remember the only time money talks is when it says goodbye. You may have a shortage of money but your needs only increase .This is where financial planning for money goals comes in.

Financial planning

You have goals in life which need money.

  • Money for your…

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financialplanning

Money is the most important thing in life and yes…. it is always in shortage. This means you have to plan for your limited finances. Remember the only time money talks is when it says goodbye. You may have a shortage of money but your needs only increase .This is where financial planning for money goals comes in.

Financial planning

You have goals in life which need money.

  • Money for your children’s education.
  • Money to buy a car
  • Money for a holiday in India or abroad
  • Money for your retirement.
  • Money set aside for investments
    Financial planning involves clearly defining your financial goals and setting aside money regularly to meet these goals.Just earning money is not enough. Deciding where to spend how much money (Decisions based on most important needs) is financial planning.

Risk decides financial planning

Your ability to bear risk decides returns you will get from an investment. If you are willing to bear a higher risk you will be able to get higher returns. If you invest in equity (shares/mutual funds) you will get a higher return but bear a higher risk. (Your money could increase or be lost) This is why mutual fund investments come with a disclaimer Mutual fund investments may be subject to market risks. Please read the offer document carefully before investing. If you are not willing to bear a higher risk, then you must settle for lesser returns. You will choose safe investments such as fixed deposits where your money is safe but your returns are less.

Do not put all your eggs in one basket

Spread out your investments. Do not invest all your money in a single investment avenue. If you invest only in equities and the stock market crashes you will suffer a huge loss. Keep a portion of your money in safe instruments such as a fixed deposit and at least a part of your money in gold. At least 5-10% of your money needs to be invested in gold which is a safe avenue (option).

Avoid unnecessary debt

The temptation to swipe your credit card may be great but exercising self control is very important. Credit cards have a high interest rate of around 30-36% a year. If you are not able to pay back the borrowed amount within the billing cycle (You get a time of 30 days and an additional 25 days called grace period) you have to pay this interest. Do not avail a personal loan unnecessarily on mere whims and fancy. Avail this loan only in an emergency.

For More Information on Financial Planning for Money Goals Click Here

Download MoneyMindz-Financial Freedom App

Just Place a Missed call on 022 – 62116588 to receive a call back from our Financial Experts.

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