The adage “Health is Wealth” is true. A couple of days in hospital will set you back by few lakhs of rupees and long-term illness can end up messing around with your finances Hence it is important for you to take care of your health by eating healthy, exercising and insuring it by buying a medical insurance. Here we discuss more about this type of insurance.

What is medical insurance?
Medical insurance is the insurance that compensates you for expenses incurred during hospitalization to treat the ailments suffered or accidental injuries experienced when the policy is in force. It means the insurance company bears the hospitalization expenses that you have to bear during the term of the policy.

Premium
To enjoy this benefit, you have to pay a certain sum as premium. Premium is computed using factors such as your age and health. As you grow older, the premium you pay goes up. However if you have not claimed any compensation and your policy is old, you can enjoy the benefit of either higher insurance cover without paying anything extra or by reducing the premium for later years.

Extra benefits
If you take medical insurance for your whole family, instead of only for yourself, you can get good discounts. Also since many insurance companies are offering the provision of cashless hospitalization by joining hands with third party administrators (TPAs), you don’t have to make any payment to avail of the medical treatment. Alternately, you can avail of the treatment, pay for it and then claim this amount from the insurance company.

Tax benefits
The premium paid is qualified for a subtraction from gross total income, and is Rs 20,000 for senior citizens and Rs. 15,000 for others.

Why be an early bird?
Earlier you take the insurance cover, the better as you can benefit from lower premium, since you are healthy and don’t suffer from any diseases. Most medical insurance products do not cover the existing ailments and so you can easily get a cover if you start early. Also medical check up becomes unnecessary at this time.

Points to consider when taking medical insurance:

• Find out which illnesses are exempted.
• Find out if the insurance cover pays for injuries caused by war, riots and terrorism.
• Find out the diseases that are excluded during the initial policy period.
• Find out if the policy offers cashless hospitalization and the hospitals that provide you with this facility.
• What is the compensation offered for disability (partial and complete)
• For dependents, find out the highest age for availing the cover.
• Be aware of the benefits you are eligible for, if you don’t file a claim.

We all know that equity is the best asset available to help you become rich and achieve your various dreams. However you need to be very careful when investing in equities. So how do you become a smart investor? What should you do to get the best returns from your investments? Here are some important tips that you must follow to be successful in equity investing.

• Think long-term: Equities are a long term investment option. Ensure you remain invested in the stock market for at least 5-6 years.
• Invest in quality stocks: Look at the company’s performance, its various ratios like PE ratio, debt-equity ratio, EPS etc. Compare these ratios with its competitors’ ratios. Find out the company’s growth prospects and check if the company has sufficient cash in hand to tide over any financial emergencies.
• Don’t listen to noise: Noise is the useless information that emanates from the stock markets. E.g. during the recent financial crisis, many large FIIs withdrew their monies from Indian stock markets. This led to market crash, which scared many local investors, who withdrew from the markets, thus worsening the situation. But despite all this, Indian economy remained healthy.
• Check out the reputation of company management: Find out what is the reputation of company management. This will prevent the occurrence of Satyam-like episodes to a great extent.
• Don’t be swayed by market movements: Market movements are for the traders, who are interested in making the quick buck from the stocks. You, as an investor should not worry about market movements as you are going to be in the market for a long time. Over a period, stock prices even out, helping you recover your losses.
• Read the company’s financials carefully: Go through the company’s balance sheet carefully. Attend the AGMs of the company and understand more about the company’s future plans.
• Be aware of the risk-reward ratio: Certain stocks like mid and small caps are very rewarding but very risky. These stocks can easily become very illiquid, or the companies can close down. This exposes your investment to excessive risk. So be aware of it before investing.
• Diversify your portfolio: While equities should comprise 70% of your portfolio, divide the balance amongst other asset classes like FDs, gold and realty. This will protect you against market downturns.

Investing in stock market is a long term game. It is risky, yet rewarding. It is important to balance your risk vs rewards to get the best from your stocks.

We all wait till March before starting with our tax-planning. As a result, we rush through our investments before the financial year is over. In the process, we end up making poor investment choices that do save tax but do not offer attractive returns. Hence it is advisable to start our tax-planning way in advance.

Once you have decided to begin with your tax-planning, you must know where to invest to get the best possible returns. Here are some best investments.

ELSS: Nothing beats the returns from equity-linked savings schemes (ELSS), if you can handle the risk. There are many ELSS funds that have managed to give superlative returns. Choose funds with a track record of at least 5 years. The main advantage of ELSS is that it has only 3 years lock-in period, which is the least.

Insurance: Besides protecting you against unforeseen events, insurance also helps you save tax. But don’t buy insurance simply to save tax. Instead calculate how much insurance you actually need and find out if you have a shortfall. Only then, buy the insurance. If possible, opt for term plan, as it is the cheapest policy offering you highest possible life cover.

PPF: One of the oldest and the best debt products, PPF is totally exempted from tax. The sum invested, the interest earned and the maturity amount are all tax-free. However the maximum amount you can invest is only Rs. 70,000 in one financial year.

Home loan: The principal portion of your EMI for the home loan can help you in reducing your tax liability.

Premium towards medical insurance: Now you can get a deduction of up to Rs 15,000 towards the medical premium paid. This insurance could be for you or your dependants (spouse and children). If you are paying premiums for your parents, you can get further deduction of up to Rs. 15,000 ( up to Rs. 20,000 in case of senior citizens).

The way to do the tax planning smartly, is to contribute the maximum amount towards your PPF. Then invest the rest as per your financial needs. E.g. if you don’t have adequate insurance cover, first buy insurance before considering other investment options.

We all know that interest rates on loans tend to fluctuate. Even a small reduction in rate in the interest rate on home loan can end up saving you a substantial sum of money. Moreover with the stiff competition prevalent amongst lenders, you are sure to get a far better deal, if you opt to switch your home loan lender.

However changing lenders is not as easy as it sounds. You need to be aware of some things before you take the decision of changing the lenders. Here are some things to watch out for.

Weigh the savings vis-à-vis the costs of switch over: When you decide to change your lender, calculate the costs involved in transferring the loan. Most banks charge prepayment penalty that can completely wipe out your savings. Also the new lender will charge processing fees in order to process the loan. Watch out for these costs before you decide to change over.

Loan tenure: If you decide to change the lenders, either your EMIs may reduce or the loan tenure can reduce, if your EMIs remain constant. Though you may have to pay foreclosure charges, it is still worth it, since the savings will be significant.

Find out the duration for which the low rate is applicable: Most lenders offer low rates for the initial few years, after which it reverts to the bank’s actual rate. Most of the times, this rate is higher than what you are currently paying, so watch out.

Use loan comparison websites: With the advent of technology, you can compare the loan offers from different lenders in the convenience of your home. You can also find out how much you will save by switching the lender.

Quality of customer service: Find out if the lender can provide you with good quality customer service. Check its reputation on various websites offering user reviews. It will give you an idea of what to expect after switching over.
 
While it is great to change lenders in order to benefit from lower interest rates, you should also look at the above factors to get the best deal.

Want to invest in equities? Then you can invest in them either directly or indirectly. When it comes to indirect investment, you have two options: mutual funds and portfolio management service (PMS). Let us understand more about PMS and see if it right for you.

What is PMS? PMS is a customized investment service offered to big investors, who have a lot of money to invest. There is a fund manager to look after each PMS account. You give him a restricted power of attorney to invest money on your behalf. The investment is made on your behalf after taking into account your investment objectives, time frame and risk appetite. So a portfolio of a 28 year old with a small child, looking to build corpus for his child’s education is quite different from the portfolio of a 55 year old man looking to build retirement corpus.

Pros: Here are some of the advantages of PMS.

• Customized asset allocation: The portfolio each investor gets is determined by his risk tolerance level, duration for which you intend to remain invested and why you want to invest. E.g. if you want to invest your money in order to purchase a house within 2 years, your asset allocation will comprise mostly of debt instruments. But if you are planning to invest for your 2 year daughter’s marriage, you are most likely to get equity recommendations.
• 24×7 access: Most PMS service providers let you view your account online. You can analyze the performance of your investments and get information on your capital gains, booked/un-booked gains, updated value of your investments etc.
• Tax efficiency: The fund managers manage your investments in such a way so as to reduce your tax liability.
• Qualified fund managers: Most PMS services are run by professional fund managers who are experts. Thus you can rest assured that your money is in safe hands.
• Reduces your responsibility: You don’t have to spend time looking after your portfolio. Your fund manager is there to look after it and take decisions that will benefit you.

Cons: PMS also has its own share of drawbacks.

• Inability to compare the performance of fund manager: As most of the PMS services are not regulated, it is difficult for you to tell which fund manager has given you the best performance.
• Expensive: PMS managers charge a flat fee + a certain percentage of profits made by your investments. Usually it is the profits that make up the larger portion of the fund manager’s charges. This can work out to be expensive for you in long run.
• Not suitable for expert investors: If you have time and have good investment experience, then PMS are not for you. However for that you need to be emotionally detached. If not, then PMS is your best bet.

Is it for me?: Yes, if you have lot of money and not able to detach yourself emotionally from your investments and have no time to research before investing.

“Invest Rs. 2000 a month and get Rs 5 lakhs after 5 years.” “Give a better future to your child by investing in our insurance plans.” These and other similar advertisements bombard us everyday. The basic aim of these ads is to market insurance plans as investment vehicles. But is it true? Do insurance plans really make good investment options?

To answer this question, first let us understand the main objective of insurance. The primary aim of insurance is to protect you and your near and dear ones against any unforeseen calamities. Let’s say, you have met with an accident, due to which you are unable to work. It will affect your income and you and your family will suffer financial hardships. But if you have an insurance cover, you can claim compensation, that will help you ride through the tough time.

Now when you look at insurance as an investment option, a portion of the premium you pay towards your life cover is invested. Depending on your risk profile, you can choose to invest in equities or debt. As a result, the life cover you get is significantly reduced. Also to manage your investments, the insurance company has to hire expert fund managers, which cost money. The fees for their charges are deducted from the value of your investment. Consequently, the value of your investment decreases.

Moreover the charges and the portfolios of these plans differ vastly amongst different insurance companies. This makes it difficult to compare the returns of these plans. Hence insurance + investment combo doesn’t make smart investment decision. Instead, it is better to take both of them separately. Remember the key to successful investment is disciplined and consistent approach.

You use your credit card to pay for your purchases, pay the bills and various other purposes. Your card issuer then sends you the card statement for the transactions that have taken place in your account. Do you know how to read it? What do all the terms in the statement stand for? Here we explain the most important terms in simple terms.

• Payment due date: Payment due date is the last date by which the card issuer expects to receive your payment. If you pay after this date, you are charged penalty.
• Minimum amount due: This is the smallest amount you must pay. However it is advisable to pay more than this amount in order to avoid paying interest on the outstanding amount. Normally the rate charged on the unpaid balance is very high. You can very easily fall in debt, if you continue to pay only the minimum amount due.
• Total amount due: This is the actual amount you are expected to pay. It includes any previous outstanding amount, transactions that have taken place in your account and any payments you have made.
• Total amount due = Outstanding amount + New Transactions – Payments/Credits
• Finance charges: If you have paid your previous bill late or have paid only the minimum amount due or your cheque has been returned, then your card issuer will charge penalty for you. These penalties are listed under finance charges
• Credit limit: This is the highest spending limit available for you to spend.
• Cash limit: This is the highest limit available for you to withdraw cash by using your credit card. However you must remember that you will be charged for this withdrawal unlike the withdrawal done by using a debit card.

These are the most common terms that you will see on your card statement. If your card offers reward points, then you can see the reward point summary at the bottom of the statement. Similarly, if the bank wants to send any important messages to its customers, it may be printed at the bottom of the statement. So it is very important you read your card statement very thoroughly.

It is becoming a fashion in India to have more credit cards. Unfortunately, the more credit cards you have, the more trouble you will land in. It is not uncommon to see thugs going to credit card holders’ houses to collect the payments. It is alleged that some banks in India use violence in collecting the payments. In Western countries, you won’t see thugs visiting your house to collect credit card payments. The violent method practiced by some banks in India show that it is not only financially prudent to limit the number of credit cards you have, but it is also good for your personal health!

Following are the common mistakes consumers make when they deal with credit cards:

Not paying the bill

This will definitely invite local goondas to your house. Your blood pressure will rise along with the interest rates charged by banks. You will also see more fees and penalties. So if you cannot afford to pay their credit card bill, do not use the credit card.

Paying Late

Credit card companies are notoriously prickly about late payments. These will result in additional fees, interest charges and other penalties.

Paying Only the Minimum on Your Card

It’s the fastest way to become a pauper. If you pay only the minimum payment required per month, it is very unlikely that you will ever pay off the debt. It is wise to pay the entire balance by the deadline. If you cannot do that, at least try to pay 25% of the balance by the due date.

Having Too Many Cards

If you’re getting credit cards just for the sake of showing off to friends and family, you will suffer sooner or later. I know, that’s a strong statement, but that’s a fact. For starters, having too many cards will make it easy for you to miss the payment. If you have only one or two credit cards it’s easier to check the statements every month and pay the bills on time. If you have 10+ credit cards, checking the statements alone is a big hassle; you will likely procrastinate until you miss the due date. Lesser number of credit cards will help you organize your spending; it will also help you to pay the bills in time.

Credit cards have seen widespread use, due to the convenience they offer. No need to carry cash, buy now pay later, facility to avail EMI facility etc. have made this mode of payment very popular amongst shoppers. But do you know it works? What happens from the time you hand over your card at the cash counter to make the payment to when you actually get your card bill?

When the cashier swipes your card in the store’s point-of-sale (POS) system, your transaction details are immediately transferred to the merchant’s bank through the communication link. Here your details like card limit, availability of adequate balance and card expiry date are captured and transmitted to your card issuing bank. These details are present in the magnetic strip, found at the back of the card.

Your bank will check all the details and authorize the transaction, if everything is in order and generate an approval code. The authorization is sent to the merchant’s bank, which blocks the purchase amount from your credit limit, so as to pay the merchant later on. The approval code is transferred to the merchant and is fed in by the cashier. It generates two copies of charge slip, which is actually an agreement that makes you responsible for paying your bank.

You sign one copy and hand it over to the cashier and keep the other copy with you. The merchant collects all the other charge slips, prepares batches from them and deposits them in his bank account. His bank sends these batches for clearing and settlement to the credit card association. This purchase amount is charged to your bank, which in turn charges the amount to your card account. 

Though you may think credit card transaction is simple, in reality it is not. There are many steps involved in processing the transaction. You need to be aware of these steps in order to understand how credit card actually works.