Friday, December 06 2024
Source/Contribution by : NJ Publications

When it comes to life's significant moments like child education, marriage, retirement, etc., we probably have a plan in place. We even try to plan out our unplanned expenses by creating an emergency fund. But the fact is no matter how much planning we do, there will always be some unexpected expenses knocking at our door. Under such cash-strapped times, your first instinct might be to dip into your savings and sell off investments, even if it means taking a loss. Unfortunately, most of us prefer redeeming mutual fund units, considering the liquidity it offers.

Though this option might seem convenient in the short term, it may have a huge impact on the investors wealth creation journey in the long-run. So, is there any better option available? The answer is “yes”. Instead of liquidating your mutual fund investments, you can avail a loan against them. Similar to using gold or real estate as collateral, you can borrow money from banks or financial institutions using your mutual fund holdings and such facilities are called Loan Against Securities (LAS).

With LAS, one can continue his/her investment regardless of the circumstances he/she faces and continue to achieve his/her short term financial needs. Let us understand this with an example!

If one started an SIP of Rs. 10,000 monthly in Sensex TRI on 10th April 1999, his value after 25 years, i.e. as on 31st March 2024 would be Rs. 2,74,34,408 against the total investment of Rs. 30,00,000. However, during his investing journey if he had withdrawn Rs. 14,00,000 in total at different intervals for his unplanned expenses, the post-withdrawal value would be only Rs. 1,81,33,917 i.e. his overall wealth would have been reduced by almost 34%.

On the other hand, instead of withdrawing money for his unplanned expenses, if he had opted for LAS of the same amount @15%, he would have paid an interest of Rs. 5,98,353 in total. Even after paying this interest, he would be in a win-win situation because his SIP will continue to grow and his corpus would be more i.e. Rs. 2,68,36,055 (Rs. 2,74,34,408 - Rs. 5,98,353) even after adjusting the interest component.

Hence, one can earn more if he/she isn’t withdrawing rather choosing a loan against mutual funds. However, before opting for such loans one should consider a few important points which we will cover in this article.

How much loan can be taken?

Many banks set both a maximum and minimum limit on the amount of loan you can obtain. The limit of the loan depends upon the value and the volatility of the security that is pledged against the loan and this amount may differ from one bank/NBFCS to another as per their policy. For example, for equity or hybrid funds you can avail a loan of 45% to 50% of net asset value and in case of debt funds, the limit may exceed upto 65% to 80% of net asset value. However, not every mutual fund scheme can be pledged, one should check upon the list of eligible schemes with their respective banks or financial institutions in order to avail the loan.

At what interest rate?

Generally, the interest rate depends on the tenure of the loan and the institution from which it is taken. The interest rate on LAS is usually in the range of 11% to 16% per annum.

Any additional charges?

Generally, the processing fee is in the range of 0 to 1% of the loan amount or a fixed amount. Also, there can be additional document charges for the fresh loan and a top-up loan.

What will happen to the existing lump sum or SIP investments in mutual funds?

A loan against mutual funds does not impact your ownership rights over the mutual fund units, allowing you to capitalize on potential market appreciation and compound growth. The bank will only sell them if you fail to repay the loan as agreed.

Is it still really better than any other option?

Loan against mutual funds v/s redemption

An investor gets a choice between taking a loan against mutual funds or redeeming the mutual funds units. Early redemption of mutual funds units can lead to exit load. But in the case of loan against mutual funds, no such load would be charged to investors. Similarly, there are tax implications when equity or debt schemes are redeemed, while in case of LAS, no such question would arise for long-term or short-term capital gains. Moreover, your investment will continue to grow and you can benefit from the power of compounding in the long-term.

Loan against mutual funds v/s personal loans

Loan against mutual funds are backed by collateral which makes it less risky for lenders, hence, they charge less interest rates as compared to personal loans. The process of issuing such loans is comparatively quicker than that of other loans as the procedures are paperless in nature which can generate liquidity for investors when required. But, not every bank or financial institution provides a loan against mutual funds for every scheme like there are banks that provide loans only for a certain list of schemes selected by them.

Bottom Line

Any facility made available can be good as well as bad while financing it for oneself. With appealing interest rates, flexible repayment options and fast approvals, loan against mutual funds present an attractive choice for borrowers. However, it's crucial to consult financial advisors before making any financial decision, as achieving financial well-being depends on aligning your choices with your long term financial needs.

Friday, Nov 15 2024
Source/Contribution by : NJ Publications

Introduction

Living abroad as a Non-Resident Indian (NRI) brings a unique set of experiences. While you're building a life overseas, it's crucial to consider your healthcare needs back in India. Here's where NRI health insurance comes in – a safety net that safeguards your financial well-being in case of medical emergencies during your visits to India. This guide explores the intricacies of NRI health insurance, empowering you to make informed decisions about your health security.

NRI and Health Insurance Eligibility

Being an NRI means you're an Indian citizen residing outside India for more than 182 days in a year. This residency status can impact your eligibility for certain benefits, including healthcare. However, the good news is that NRIs, Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) can all purchase health insurance plans in India. The eligibility criteria may vary slightly depending on the insurer and the specific plan, so it's always best to check directly with the insurance company.

The Need for Health Insurance

Imagine this: you're visiting your family in India and experience an unexpected medical situation. While you might have health insurance in your country of residence, it likely has geographical limitations and might not cover treatment in India. Additionally, healthcare costs in India have been steadily rising, making comprehensive medical coverage essential. NRI health insurance acts as a financial shield, protecting you from the burden of out-of-pocket medical expenses during your stay in India.

Benefits of Health Insurance for NRIs

NRI health insurance plans offer a multitude of advantages, ensuring peace of mind and well-being. Here are some key benefits to consider:

Key Considerations

While NRI health insurance offers significant advantages, there are some important considerations to keep in mind:

FAQs

If an NRI gets health insurance in India, can he/she avoid taxes back home (outside India)?

No. If an NRI purchases medical insurance in India, he/she is not eligible to save taxes in the home country. Tax savings are only possible in India if you file your ITR.

What if NRI returns to India permanently?

If an NRI returns to India permanently, they have to inform immediately about their resident status.This will have multiple impacts on the policy. You do not get NRI discounting on the renewal premium. (So the premium amount increases.)

If policy allows treatment outside India, removal of coverage restriction benefit can be availed as per policy terms & conditions.

Conclusion

A health insurance policy is a crucial financial safety net for NRIs visiting or residing in India. By understanding the nuances and benefits, NRIs can make informed decisions to protect themselves and their families from unexpected medical expenses.

Friday, Oct 18 2024
Source/Contribution by : NJ Publications

Comprehensive Car Insurance: A Guide to Protecting Your Investment

Introduction

Comprehensive car insurance is a crucial component of responsible vehicle ownership, providing comprehensive protection against a wide range of risks beyond accidents. Let's dive into the key features, benefits, and factors that influence premiums, so you can make an informed choice and drive with confidence.

Comprehensive car insurance typically includes:

• Natural Disasters: Protection against damage from events such as earthquakes, floods, and cyclones.
• Theft and Vandalism: Coverage for vehicle loss or damage due to theft or vandalism.
• Collision with Animals: Coverage for damage if your vehicle hits an animal.
• Third-Party Liability: Covers damages to others' property or injuries caused by your vehicle.
• Fire: Protection against damage from fire.
• Riots and Strikes: Coverage for damage caused during civil unrest.

Benefits

Beyond these core coverages, comprehensive car insurance often offers:

• Return to Invoice: Ensures you receive the full purchase price in case of total loss, regardless of depreciation. This is particularly beneficial for newer or high-value vehicles. Usually, this add-on is provided upto vehicle age 3 years. However, this may change depending on the insurance company, claim experience and vehicle make/model.
• Zero Depreciation: Eliminates depreciation charges for repairs or replacement parts. This can significantly reduce out-of-pocket expenses, especially for older vehicles. Usually, this add-on is provided upto vehicle age 5 years. However, this may change depending on the insurance company, claim experience and vehicle make/model.
• Engine Protect: Covers damage to your vehicle's engine due to accidental water ingress or oil leakage. This is essential for protecting against costly engine repairs, which can be particularly expensive for newer or high-performance vehicles. Usually, this add-on is provided upto vehicle age 5 years. However, this may change depending on the insurance company, claim experience and vehicle make/model.
• Personal Accident Cover: Insurance for the driver and passengers in case of accidental injury or death.
• Emergency Assistance: Services like towing, battery jump-starts, and tire changes.

Factors Affecting Premiums

Apart from vehicle registration zone, several other factors influence your premium:

• Vehicle Model and Value: Newer, more expensive vehicles generally have higher premiums due to their greater value and potential for higher repair costs.
• Driving History: A clean driving record can lead to lower premiums, as it indicates a safer driver. However, a history of accidents may result in higher premiums.

Choosing the Right Comprehensive Car Insurance

When selecting a policy, consider:

• Coverage Limits: Ensure the limits are adequate for your needs. Factor in the value of your vehicle and your driving habits.
• Network Garages: Check for a wide network of garages for convenient repairs and cashless settlements. A larger network can provide more flexibility and convenience in case of a claim.
• Claim Settlement Process: Understand the insurer's procedures for filing and processing claims. Select insurers with prompt and efficient claim settlements.
• Customer Service: Choose an insurer with good customer service. A responsive and helpful insurer can make the claims process smoother and less stressful.
• Policy Exclusions: Be aware of any specific exclusions that might limit coverage. Some policies may have exclusions for certain types of damage or driving conditions.

Conclusion

Comprehensive car insurance is a valuable investment that provides essential protection for your vehicle. By carefully considering the factors discussed above, you can tailor your policy to meet your specific needs and ensure you are adequately protected against various risks. Remember, choosing the right comprehensive car insurance policy can provide you with peace of mind and financial security on the road.