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Interest Rates and Maturity Yields

2011-08-07T14:09:00.004+05:30

Aninteresting discussion with my brother yesterday led me to writing this post.And since I had a gag order at home for not discussing this anymore in the open,I had no other option! Anyway, the topic of discussion was about an investment scheme that offered to double the amount invested in 5.5 years. With interest ratesbeing high, not bad I thought. But, the confusion (and the subsequent argument) arose because the scheme wasoffering returns of 18%+!!

There hasto be something wrong (or fishy)! I was sure, that as a rule of thumb, at 10%interest rate, the time taken to double an investment is around 7 – 7.5 years.But 18% returns was mighty high AND 5.5 years felt too long a time period forsuch returns.

If we take the Rule of 72 or better, have a look at thiscalculator,it would roughly take 4 years for the money to double at 18% returns. And currentlybanks are offering, at the best, an interest rate of 10% per annum. So what arewe talking about here?

Well.. assuspected, it turned out that all of these are correct!! Such a scheme exists.It doubles money in 5.5 years. The returns given is 18%+. But the differencehere is how the “returns” part of the scheme is arrived at and how it is sold/marketed.

The returnsof 18%+ is actually the yield offered by the scheme and NOT the interest rate. Usually investors compare investment products interms of interest rates, so that one can compare the rates and choose one thatgives the best returns. But being a private player and may be to make the sale easy,the investment company has devised a clever marketing tactic of enticing theinvestor with the yield expressed as an impressive % (instead of interest rates). In real terms this wouldbe like comparing apples with oranges. Yield and interest rates are indicatorsof returns, but both are different.

To simplifythings, this is what the scheme offers:

Investmentamount = Rs. 60,000
Maturityterm = 5.5 years
Yield =18.2%
Annualinterest = 13.4%

(fordetailed calculations, please check this spreadsheet)

So is thisgood or bad?

Well.. if we compare the returns (annual interest of 13.4% vs. 10% offered by FDs), the scheme is good. But onealso need to be aware of associated risks. The additional return offered by thescheme has to considered as the risk premium. The more risks the investor is willing to take, the better is the returns. Why else should they market it with 18.2%, when the interest rate itself is a good 13.4%?

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

Importance of disclosing health information

2011-06-17T23:10:00.000+05:30

Last week I read a blog post (in Malayalam) shared in Facebook by one my friends. A heart wrenching story of a father who lost his son. The young man, in his late twenties, passed away in his sleep. If fate was in its cruel mood, the insurance company's denial to pay the insurance amount was probably even worse.

The young man had taken two policies. One was from LIC (sum assured of 1 lakh and annual premium of Rs. 5,000 or so) and another from a new generation private insurance company (ULIP: sum assured is not mentioned and monthly premium was Rs. 5,000). Like thousands of other Indians, both the covers were taken through insurance agents - who were either close friends or relatives. The young man had a previous history of epilepsy and was under treatment from a leading hospital. He was healthy otherwise. Married and working for a private IT firm. The agent in the case of private insurer, even though alerted by the young man, advised them not to disclose the information. In fact the application form was filled up by the agent himself and he assured them with typical "dont worry", "I will be there" and "no problem". At the time of claim, LIC processed the claim without much problem and the private player promptly denied (they found out the treatment history from hospital). And as one could guess, the agent who sold the private insurance policy had vanished (changed jobs and wouldn't take the phone)!

Who is to blame here? The insurer? Insured? Agent? Or the whole system? Though it is easy to blame anyone, in my opinion, the fault lies with all.

The insurer, even though is legally correct in rejecting the claim, cannot possibly escape the blame because they appointed the agent. His casualness with the disclosed information had led to the claim rejection. If they are not training him properly and not holding him responsible, they have to bear the loss. (but in this case, how can one prove this, right?) So dear private insurer, you won. But you lost the goodwill and trust of so many.

The insured, irrespective of the fact that he/she disclosed the information, kept silent on the non inclusion (on false promises by the agent) and signed the documents. A big mistake as far as insurance goes. Ideally the insured has to go through the fine print and ensure that all relevant information is disclosed. Agent can help, but the responsibility lies with the insured.

The agent is perhaps the guilty of them all in this case. He has to know. His greed (or desperation) for an extra sale made him suppress important information. Had he filled it, he would have lost the sale (the insurance company would have at least asked for a medical test). I still have no idea why the young man needed a ULIP.

The system, because such things still happen. Why is it that each insurer wants different sets of information for providing insurance? Why not have an IRDA approved uniform format for insurance forms? Why do we include ULIPs under the general ambit of insurance (whereas in most cases insurance is just 10% and investment is 90%)? Why can’t we call ULIP as an investment product with an insurance cover (and not the other way around)? Why don’t we see one ad from IRDA, educating the general public on insurance products? Why do even LIC promote ULIPs and Endowment plans, where as they should be ideally be ensuring sufficient life cover for general public?

What could be a fair judgement in this case?
The insured and the insurer are bound by a good faith bond of honesty and fairness. Rejection of the claim in that sense by the insurer is justified. Material facts were not disclosed. But that applies only for the insurance component. What about the investment component in ULIP? If that is denied, then is it not better to just opt for a term plan for insurance and investment option for investment purpose? In my opinion the insurer has to either give the investment component as claim or provide an option for the nominee to continue with the investment fund till maturity. They cannot simply take away everything just because a stupid agent was not doing his job properly.

Term plans for topping up sum assured

2011-03-19T21:13:00.008+05:30

With the arrival of a new dependent, i recently reviewed my insurance portfolio and realized that i needed to enhance my life cover. I knew that a lot of new products (especially that available online) has been introduced in last one year. I tried getting an online quote from 3 private insurance providers - ICICI Prudential, AEGON Religare and MetLife.

For my profile, the quotes are as given below:

Age: 34
Policy Duration: 25 years
Sum Assured: 50 lakhs

ICICI Prudential (iProtect) - Rs. 7,000
AEGON Religare (iTerm) - Rs. 7,050
MetLife (Met Protect) - Rs. 7,200

* Premiums are exclusive of service tax and cesses.

But taking insurance from private companies is always a risky proposition. What if they don’t stand by you (dependents, in fact) in need of the hour! I decided to check LIC's offering. For a sum assured of 50 lakhs they had a product (only one) called Amulya Jeevan (Product Number: 190). I got the shock of my life when i checked the premium rates. For my age and profile the premium for Amulya Jeevan is a staggering amount - Rs. 18,600 per year. That’s more than double the premium offered by private insurers!! I understand that each insurer needs to protect their profitability and perform (financially) on a consistent basis. If private insurers can keep their premium so low, why can’t LIC too? Or is it that they are passing on their inefficiencies (and hence the cost) to end customers??

What on earth is wrong with LIC? I know for a fact that they don't promote term plans. In fact, i have had the experience of being laughed at by an insurance agent, when i asked her for a quote for LIC's term plan. But as a responsible, government run, insurance provider, are they not supposed keep the interest of general public in mind? As much as i know, they are minting money by riding on the government support and taking customers for a ride. It’s high time that someone raised their voice and say that LIC is not doing its job!! Don't they have a commitment towards the "aam aadmi"? Rather than promoting ULIPs and money back policies, LIC (and its agents) should be educating the general public about the importance of adequate life insurance.

As for myself, i think i would go for ICICI Prudential's iTerm policy. In comparison to others i believe they are more reputed and safer (irrespective of their bad name). As long as I provide accurate details while taking the policy, i am assuming that there won’t be any problem.

Have you taken insurance? I would love to hear from you on your personal experience - please feel free to leave your comments.

Are ULIPs getting better?

2010-09-18T12:05:00.002+05:30

I was recently approached by an insurance agent with a ULIP. Even though I was not willing to take the policy, he wanted to present the plan and get my feedback.

The plan in question is Birla Sun Life’s Classic Endowment Plan . The basic sum assured for the plan presented to me was Rs.3,75,000. But paying an extra premium I can get the life cover enhanced to whatever I prefer. In this case, we took the enhanced sum assured as Rs. 18,00,000. Policy paying term is 10 years (I pay for only 10 years) and the policy term is for 30 years (I get cover for 30 years). For a 33 year old male, the annual policy worked out to Rs.36,538. (total pay-out of Rs.3,65,380)

If the life insured survives the term, the maturity benefit will be the Fund Value at maturity.

In the event of the death of the life insured prior to maturity, the nominee will receive the greater of either the Fund Value or the Basic Sum Assured (provided there are no partial withdrawals)

Policy can be surrendered after the completion of five policy years, and receive the Fund Value at that time.

To analyse this I put this in an excel sheet and compared it against a term plan + any other investment (with returns same as that of the sales illustration, which was 6%).

Term plans rates have come down drastically these days with Aegon Religare and ICICI Prundential launching aggressively priced products such the iTerm and iProtect. For a 33 year old non-smoking male, iProtect provided the lowest quote of Rs.4,660. After considering service tax, cess, etc. let us take the annual premium as Rs.5,400. This needs to be paid each year for 30 years.

The remaining amount (Rs.3,65,380 – 30 x Rs.5,400) of Rs.2,03,380 is equally divided into 10 yearly instalments and invested in say an equity mutual fund returning 6%. I have not considered any expense charges the returns for Classic Endowment Plan is shown at 6% gross returns.

If the life insured survives the term, the maturity benefit will be the Fund Value at maturity.

In the event of the death of the life insured prior to maturity, the nominee will receive the Fund Value plus the Sum Assured

Policy can be surrendered any time to claim the Fund Value at that time.

The illustration of the two cases is provided in this excel sheet.

The result is not very surprising. Term plan plus mutual fund is still better than the ULIP. But an interesting thing is that the difference after 30 years is not much. In fact, till around 22 years the ULIP fund remains better. Of course, the death benefit is better for term plan plus mutual fund as the death benefit will be the Fund Value plus Sum Assured.

But the point that I want to make is that ULIPs have changed (in fact still changing) for the good. For those averse to “zero returns” insurance plans can consider cost effective ULIPs like the Birla Sun Life Classic Endowment Plan to get dual benefits of sufficient life cover (especially for longer terms) and decent equity returns.

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

Common Insurance Mistakes

2010-06-08T22:50:00.002+05:30

Here is a short story based on a real life example.

Mr.X passed away two months back after a sudden illness. He was 52 and is survived by his wife, college going daughter and school going son.

Mr.X worked in the Merchant Navy and was always aware of the risky nature of his job. So he was more than happy to take a few insurance policies when approached by relatives/ friends who were insurance agents. He kept all the policy documents with his wife for safe keeping. Being a house wife, he knew she was good at filing papers neatly, and she was the one who would need those anyway, if something happened to him. He had 5 policies in all and his yearly premiums were close to 75,000 - more than sufficient to cover the tax exemption limits along with his PF contributions. His annual salary was around 10 lakhs.

Mrs. X and family is still trying to come in terms with his sudden death. Last week, the children started attending their respective classes and only then Mrs. X realized that she would soon need money for paying fees and other expenses. Mr.X also had taken a home improvement loan of 10 lakhs 2 years back for carrying out renovation work of his ancestral home, where they currently reside. Mrs. X knew that the loan is taken care for the time being as EMIs are getting deducted from his saving account where most his savings were held (he also had some linked FDs). Children education expenses itself would run to around 2 lakhs this year and then she would need to make ends meet for their daily living (which she calculated as 1,20,000 at the minimum) - and that's just for this year. What about next year? And the year after?

Mrs. X was starting to feel worried, when she suddenly remembered the policy file with her. She was not very good in money matters and couldn't make out much about the policy documents. So she went to one of the insurance company herself to start the claim process. To her horror, she soon realised that the total insurance amount would be far less than what she would need in the immediate future. Here is the list of policies taken by Mr.X:

Endowment Policy 1 - Premium 8,000; Sum Assured - 1,25,000
Endowment Policy 2 - Premium 20,000; Sum Assured - 2,50,000
Endowment Policy 3 - Premium 10,000; Sum Assured - 1,35,000
Money Back Policy 1 - Premium 12,000 Sum Assured - 1,00,000
Money Back Plicy 2 - Premium 25,000 Sum Assured - 2,25,000

The total sum assured was 8.35 lakhs.

Daughter's college expenses would come to around 3.5 lakhs in the next 3 years. The son's would soon follow. Mrs. X knew that she will have to take up a job to cover their living expenses. She had no idea if the loan could be completely paid up with the available funds in the savings account and linked FDs. Till the time her children starts earning, Mrs. X was sure that life will be tough for her, as well as her children.

The story ends.

Even though some parts of the story has been dramatized, the example is taken from real life. It points out a few common insurance mistakes one can commit.

Insurance is not an investment. Each one is taken for separate purpose and hence should considered separately.
Be aware of what is the sum assured. Premium amount should not be the primary decision criteria while taking insurance.
Be aware of the policy term. Maturity amount and money backs should not be a decision criteria at all while taking insurance.
Make sure you are sufficiently insured - take into consideration your dependent's current and future expenses while deciding on sum assured (not the premium)
Never take tax exemption limits as a yard stick for taking insurance.
Keep reviewing your insurance needs and adjust accordingly - in case of added liabilities, added dependents, children education expenses, etc.
Take term insurance. All other forms of insurance are expensive. (at least cover yourself sufficiently with a term plan, and then opt for other insurance)
Try to understand your existing policies and check if it is sufficient. If not, buy a term plan to cover the short fall.

Now for Mr. X, if he had taken a policy at age 40, for an annual premium of less than Rs. 30,000, he could have got an insurance for 50 lakhs.

New Car - Ritz Zxi

2010-04-27T14:38:00.006+05:30

It has been almost 2 months since i took the Ritz (Zxi, Baker's Chocolate). Over these days i am happy to notice a steady increase in the number of Ritzs on road. And why not, as per my experience (and many reviews on the internet) it is a real value-for-money, practical car. If you have a weak lower-back, has a tall frame to carry with you and do not yet want a "big" car, the Ritz is a boon!

When i decided to go for a new car, my prime consideration was a higher and better riding posture than my good old Zen. And my budget was around 5 lakhs. So the options for me were rather limited. The following were considered:

Swift: Tried and tested. But tired of seeing so many of these on road.
DZire: Big car, with a spacious boot. Diesel VXi and ZXi was out of my budget.
Ritz : Excellent riding comfort.
Polo: Good car again. Struggled to squeeze in to the driver seat though.
i20: Good car. But low platform.
i10: Very popular and successful. But small and cramped interiors.
Grand Punto: Good looks and aggressive pricing. But FIAT service?

Given my past history (a happy one, that is) with Maruti Suzuki and an exchange bonus on the offing, i streamlined my choice to the top 3. Swift was the safest option. DZire (though bit costly) was the big car option. And Ritz was the most economical (though unconventional). The next question was to whether i should go for petrol or diesel option. My average commute is around 1000 - 1200 kms/ month. A quick computation showed that for an ownership of 5 years, the difference is not that much. So why compromise on the better ride quality and lesser maintenance hassles of petrol version?

I took test drives of all three short-lists. I was inclined to take an ZXi option as it had front SRS airbags, ABS, alloy wheels, wider tyres and a host of luxury, comfort and safety features. So zeroing on the Ritz was not that difficult for me (except that most were frowning at its looks). DZire was way over my budget and (in my opinion) the Swift is no better looking than the Ritz. The Swift is costlier and Ritz had a 5K advantage on the exchange bonus (15K for Ritz and 10K for Swift) at that time. Another favouring point for Ritz was the availability - the Swift had a 1 - 2 month waiting period, whereas Ritz Zxi was in stock (lucky me).

Ritz has a tall boy design and is deceptively large for a small car. I could make out the real difference only when i parked my old Zen along side the Ritz. It has ample headroom and leg room in the front. Back is not crammed either. The boot is acceptable for a hatch. The other pros and cons of the Ritz are:
Pros

Comfort getting in and out of the car
Drive quality - the K series engine and well placed gear ratios
Good enough ride in the back seat
Overall build quality

Cons

Not so smooth gear shift
A-pillar blind spots

I took delivery on 3rd March and as on today (27th Apr) it has completed a near flawless 2500 kms. I get a mileage of around 12 - 13 kms/ lit (which should improve by the time of 2nd service) for predominantly city driving (with A/C on). Notable problem other than the gearshift include a possible problem with the catalytic converter (foul smell from the exhaust - a problem currently under observation by the dealer).

So there you have it. A first hand review by a new and happy owner of Ritz. Comments are most welcome.

Truth behind "NAV guaranteed" policies

2010-02-22T22:34:00.003+05:30

There are a host of "NAV guaranteed" policies (ULIP/ ULPP) these days. It comes in different names and variations and easily one of the hottest in sales kits of insurance agents. Here is good hard look at such policies.

"NAV guaranteed" policies sound really good - its like if i buy the units for say Rs.10 and my investment is Rs.100,000, irrespective of how the NAV changes over my term, say 10 years, i get the maximum NAV as guaranteed when the term ends. For example, if the NAV peaked at year 8 at Rs.50, and at the the end of 10 years the NAV is only Rs.30, i still get Rs.500,000 as returns (50*10,000 units). The maximum NAV is Rs.50 is locked!

But can that be true? The answer is yes. But (and that's a BIG but), unlike equity oriented funds, NAV guaranteed products invest highly in debt oriented funds. To over simply things, we can even assume that they park the money safely in fixed deposits for the term. So the reality is that such funds will grow at a very conservative pace (and of course rarely go down) and can be considered more or less on par with traditional insurance products like endowment and money back plans.

These plans are targeted specifically at investors who want to invest in unit linked products, but are skeptical of market volatility. But most will miss the point in the investment rationale. Remember the old saying while you hear about such plans - "low risk implies low returns". If you don't want to take risks, only then opt for such plans. Here again make sure that you understand where your money is going to get deployed and how the fund has performed till date.

Investor beware!

Insurance Advisor

2010-01-31T22:11:00.004+05:30

Just tried creating a cartoon strip using ToonDoo and the topic selected was for obvious reasons!The average insurance advisor that one gets to see these day seem to ask about anything and everything, except insurance!!

(Click the image for a better view. Thanks!!)

Comparing ULIP Fund Performance

2010-01-28T22:10:00.006+05:30

Come Dec/ Jan and there is a big rush of insurance and investment companies and agents to cash in on the tax saving season. They would be the best aware that the typical salaried class would think about investments and tax savings only when their respective finance departments send the deadline for submitting tax saving receipts in Jan/ Feb - "Show the receipts or get taxed (heavily) during the last 2 - 3 months)!".

So I was not surprised when I got a call from a relatively new private insurer last month. As in typical sales talk, they said they had something exclusive for me, which they wanted to present to me in detail. I decided to play along, as i was impressed with their aggressive pricing in some of their other products and marketing strategies.

Just a few minutes of talk during our meeting, and i could easily make out that they wanted to sell one of their unit linked plans to me - a guaranteed plan, a wealth grower or a pension plan - with the scale of push in that order. Expectedly, they were not really bothered about the amount of cover i had/ needed.

To make it simple, given below is a gist of some of their sales statements and my counter questions:

Them: Plan A has a 80% NAV guarantee; so the principal is always protected in case of a fall
Me: If it has a guarantee, then it must be heavy on debt than equity, right?
Them: Plan B has provided close to 85% growth in last 6 months
Me: Impressive. But what about the benchmark performance during the same period?
Them: Since the company is new, the NAV is relatively lower than that for mutual funds/ other companies
Me: So what? Does low NAV mean better returns?
Them: Since we are an insurance company, our investing style is not that aggressive as that of a mutual fund company?
Me: Low risk means low returns, right? And aren't there mutual funds available for these different investing styles?
Them: Our charges are one of the lowest in the industry.
Me: Can you give me a detailed illustration with all the charges, so that i can study these plans in detail?

None of my questions, got a clear answer. Our conversation ended after i was handed over some print outs and brochures and exchanging business cards. As promised, i was sent an illustration of all three plans.

The illustration came in an excel sheet as i requested and hence it was easy for me to do some analysis. The illustration assumed a lavish growth rate of 25% per annum and conveniently avoided policy administration charges and mortality charges. For one of the plans as per the calculations, if I invest Rs.100,000 for 4 years, at the end of 25 years I will end up with a corpus of 5.6 crores. Impressive at first glance. Add to that, the fact that their charges are low in comparison many other insurers. And remember the finance department breathing down our necks? These factors would push most of us to say yes to one of the above plans.

But wait a minute. The illustration that was given to me showed annual returns of 25% - a clear violation of IRDA rules and regulations, that specify that illustrations cannot be provided to investors for returns in excess of 10%. If I bring down the returns to 10% (from 25%), the corpus at the end of 25 years reduces to a mere 27.2 lakhs (from 5.6 crores).

It is also very important to validate two things in any ULIP. (1) The charges and (2) The fund performance.

Charges are tricky in any ULIP. ULIPs usually have different charges (Premium allocation charges, Fund management charges, mortality charges, etc), at different time periods (at the start of investment, monthly and yearly), charged in different ways (deducting from investment and deducting units). 1 to 1 comparison between various ULIPs (even within the same insurer) can be a maddening experience. But in this case, it looked (confession: I am not an insurance expert) relatively alright.

Unlike in the case of mutual funds, the fund performance of unit linked plans are not easily available. Fund performance comparison across various insurance companies are much more difficult. The best option is to go to the insurer's website and then look for NAV performances. In this case, the insurer had various funds such as Wealth Grower, Balanced, Debt, Pension, Guaranteed Plan, etc. For the selected time period i compared the fund return against two large cap oriented defensive funds (Birla Sunlife Frontline Equity and HDFC Top 200). The results were shocking (See excel sheet). Not only were the funds low performing, it lagged behind the two mutual funds by a good margin.

No prizes for guessing what my response was when the insurer called me for the next appointment.

Health is Wealth?

2010-01-18T21:46:00.005+05:30

I was recently asked by a blog reader for a review of ICICI Pru Health Saver policy. Health insurance is also a topic that i covered a couple of weeks back in a guest post at Jago Investor.

ICICI Pru Health Saver policy is a unit linked health insurance plan, where the policy provides Health Insurance as well as creates a "Health Fund" by allocating a part of the premium to market linked investments. Unlike ULIPs the costs associated with unit linked health insurance plans are somewhat opaque. Have a look at this link for an illustration.

As per the link: For a coverage of 5 lakhs for a 30 year old male, the annual premium for ICICI Pru Health Saver is Rs.12,000 (Rs.1,000 per month). To critically analyze this plan, let us consider insurance and investment separately (which I will refer as the alternate plan from hereon ).

For health insurance, consider Reliance Individual Mediclaim policy. For 5 lakhs coverage for a 30 year old male, the yearly premium is Rs. 5359.

For investment, assume that Rs.6,641 (Rs.12,000 – Rs.5,359) is invested yearly in a well diversified mutual fund giving annualized returns of 6% or 10% (as the case may be that it needs to compared against).

If we assume an optimistic 10% returns for the alternate plan and compare it against the illustrated 10% returns of ICICI Health Plan:

At the end of 10th year, the alternate plan beats the returns of ICICI Health Plan by 9% (Fund value of alternate plan – Rs.1,16,424; Fund value of ICICI Health Plan – Rs.1,07,000)
At the end of 20th year, the alternate plan beats the returns of ICICI Health Plan by 21% (Fund value of alternate plan – Rs.4,18,400; Fund value of ICICI Health Plan – Rs.3,47,000)
At the end of 30th year, the alternate plan beats the returns of ICICI Health Plan by 42% (Fund value of alternate plan – Rs.12,01,645; Fund value of ICICI Health Plan – Rs.8,45,000)

Have a look at this spreadsheet for calculations. Note that the returns from both the plans are market linked and hence equally risky.

A point to note here is that there will be some differences in the coverage provided by ICICI Pru Health Saver and Reliance Individual Mediclaim policy. But the broadly both serve the same purpose for the same coverage.

So it is best to opt out from unit linked health insurance plans and consider insurance and investments separately. Health Insurance has to be decided based on policy coverage and service and investments has to be based on expected returns and risk taking abilities.

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

Personal Accident Insurance

2009-12-24T23:02:00.004+05:30

What is Personal Accident Insurance?

Personal Accident Insurance protects the insured against accidental death and any form of disablement.

Why should one opt for Personal Accident Insurance?

Take any statistic on accidents (motor vehicle related or otherwise) in the country. With every passing year, all indicators are alarming and consistently in the red. Personal Accident Insurance provides adequate cover against any such accident.

One may argue that he/ she has sufficient insurance cover already. But keep in mind that life insurance covers only risk associated with death. If the insured dies, his/ her dependents will be provided with the sum assured (sum assured from both life insurance as well as personal accident insurance). But what if an accident leaves someone disabled, either partially or totally? Personal Accident Insurance becomes even more relevant in such a situation - it covers the risk associated with partial and total disablement in case of an accident.

What about the costs?

The premiums associated with Personal Accident Insurance is very low, usually even lower than that for pure term insurance. For e.g: Safe Guard, a policy promoted jointly by Axis Bank and Bajaj Alliance offers accident insurance coverage of Rs.10 lakhs at an annual premium of Rs.990.

To put this in perspective, for a coverage of 10 lakhs, the corresponding premiums for other major insurance covers are given below:

Term Insurance (for 35 year old male) - Rs.4330
Motor Insurance (for 2008 model Honda Civic) - Rs.18,800
Personal Accident Insurance - Rs.990

Conclusion

To conclude, Personal Accident Insurance is a must have in anyone's insurance portfolio. It should not be considered as a substitute for basic life insurance, but it need to augment one's overall insurance requirement. For the applicable premium and the associated benefits, Personal Accident Insurance is well worth the money and is definitely a value buy!

NB: Personal Accident Insurance does not come under tax exemption categories.

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

Heads who wins? Tails who wins?

2009-12-17T20:26:00.001+05:30

"Heads you win. Tails you win" - said the brochure of SBI's Smart ULIP, handed over by a marketing executive.

I knew that the current status of ULIPs in India is not that good and that one should always apply caution when opting for one. I never came across a decent online illustration of ULIPs until today. This illustration in SBI's website details the plan for the customary 6% and 10% returns. It saved me the trouble in decoding various charges deducted at different points in time, in different denominations and at different rates.

As given in the illustration, the premium (for a 40 year old) is 50,000, paying term is 5 years and maturity is at the end of 10 years. Death benefit is 2,50,000 till year 5, and from then onwards it will be the fund value at that point in time. Till the end of 5 years, if the policy is surrendered, there will be a penalty. The maturity value at the end of the term is approximately 4,10,000, if we assume a growth rate of 10% per annum.

As with any unit linked insurance plan, SBI Smart ULIP combines investment with insurance. For analysis, let us consider these two separately.

For insurance, let us consider a term plan by Max New York Life. For a 40 year old: for a term of 5 years and sum assured of 2,50,000, the annual premium is Rs.1,320.
For investment, let us consider a simple FD. The investment amount is 48,680 (50,000 - 1,320) and let us assume a bare minimum interest rate of 7% per annum. The amount of 48,860 plus the maturity amount from previous year is reinvested in FD till year 5.

Till year 5 in this case, the death benefit will be 2,50,000 plus whatever is available in FD at that point in time. There is no such thing as surrender penalty and the returns are more or less guaranteed (it will go up or down every year, but our assumption is that it averages to 7% per annum). The maturity value at the end of the 10 years term is approximately 4,20,000.

The calculations are shown in this excel sheet.

You can notice that the death value, surrender value and fund value is always higher in the case of Term policy plus FD plan. It can be argued that ULIP will give tax benefits, but this can be offset to an extent by opting for a tax saving FD. Please bear in mind that for Tax Saving FDs, there is a lock-in period of 5 years (against 3 years for ULIPs) and the returns are taxable (against tax free returns in ULIPs).

But, the most important thing is that we have considered our 7% guaranteed returns FD example against 10% non-guaranteed returns ULIP plan. If we too take the risky equity route through a mutual fund, and assume 10% annualized return over the 10 year term, the maturity value would become a whopping 5,25,000 (approximately) - 25 - 30% more than that provided by SBI Smart ULIP.

You can change the interest rate cell in the excel sheet to see how much the returns will vary.

One of the unique features of this plan highlighted by the insurer is the guaranteed NAV. Is this something really attractive? It is stated that the guaranteed NAV of SBI Smart ULIP on maturity will be the highest of the NAV during the first seven years. Now, the probability of NAV at maturity (end of 10th year) going below the NAV at 7th year is very low. And smart fund managers can always switch to safer debt options to minimize any such risk during the last 3-4 years. So the guaranteed NAV does not mean anything that particularly attractive for an investor.

So now tell me.. Heads who wins? Tails who wins?

Working with PDF files

2009-12-11T22:07:00.002+05:30

For those who work on PDF documents, here are some useful tips. Creating PDF files or converting files of almost any extension to PDF files can be easily done with freely download-able tools or even using free online tools. Also refer my earlier post on "Extracting text from scanned documents and copy protected pdfs".

Creating PDF files/ Converting files to PDF
PDF files comes in handy, when you don't want someone to edit a file (say a Word document) that you have shared. You can use free tools such as Cute PDF Writer or Primo PDF Writer for creating PDF files or for converting files of almost any extension to PDF files. These tools are installed as a printer and can be chosen for printing the file. The output will be a PDF document of the file.

The steps to be followed are simple:

Download and install the PDF writer
Print the document (when asked to chose the printer, select the PDF writer, instead of the regular printer, and then select the location to save the printed file)
Open/ view the PDF document from the saved location

Converting to PDF files is also useful, when the Word document or Powerpoint file is heavy (with pictures, etc.). These files when converted to PDF files, becomes light in file size and can easily be shared/ sent as email. Web pages can also be converted to PDF files using the same method.

Online tools such as Express PDF and Nitro PDF can convert any file to PDF files without installing any tools. There are also browser add-ons that can convert HTML pages to PDF files from the browser itself.

Extracting few pages out of a bigger PDF file
This is yet another problem, when all that you need is 1 or 2 pages out of a 200 page PDF. Here again the best option is to print the required pages using PDF writer. You need to select only the required pages and print the PDF file. It will create a new PDF file with just the selected pages.

Creating a Portfolio Tracker

2009-11-29T22:55:00.003+05:30

Here is a simple way to create an automated, simple and real-time stock portfolio tracker on the cloud, using Google Spreadsheet.

Have a look at this spreadsheet. It has two worksheets - Summary sheet gives an overview of the portfolio and Data sheet is used to obtain real time data.

Let us take a look at the Data sheet first. It pulls data from Sharekhan's website for stock updates (it could be any similar site). For example let us look at Reliance Industries (RIL) in A11. The data corresponding to RIL is updated from Sharekhan's website in cells B11:C19. This done by using a Google Spreadsheet function - ImportHtml(). If you double click on cell B11, you will notice that it has a formula =ImportHtml("http://www.sharekhan.com/News/CompanyBasicQuote.aspx?sskicode=RIL", "table",9). What it does is that it extracts data from table 9 of the URL and puts it in the sheet starting from B11. For L&T and Airtel, i have used the same formula by replacing the sskicode in the URL with corresponding codes from Sharekhan's website. The data updates happen at regular intervals. Once we have the data, it is utilized in the Summary sheet.

In the Summary sheet, only the highlighted cells (Company, Shares, Investment) need to be entered manually. CMP and % Change corresponds to values from the Data sheet (C11 and C15 in the case of RIL). The rest of the values (Current Value, Profit, Profit %, Weight) are obtained by simple mathematical calculations (double click the cells to check the formula).

The last updated date and time is also from the Data sheet, formatted to show date and time separately. I have also added a couple of charts to get a nice visual representation of the portfolio. (Go to: Insert -> Chart)

Please bear in mind that the accuracy of the data and frequency of updates would depend on the website chosen for data updates. There are numerous portfolio trackers available in the internet (Moneycontrol, Yahoo, Google, Rediff, etc.), but this tracker has an added advantage that it can be customized as per one's on liking. Similar sheets can also be created for tracking mutual funds.

The Student’s Prayer

2009-11-24T23:09:00.003+05:30

I had earlier posted a TED talk by Sir Ken Robinson - Schools kill creativity!! Now here is an article in The Hindu on the same topic - Need for creativity in classroom.

Former Indian President Dr. A.P.J Abdul Kalam has quoted a young Chilean student's poem in the article. The boy, Umberto Maturana, became unhappy at school because he felt his teachers were making it impossible for him to learn. They wanted to teach him what they knew, rather than drawing out what he needed to learn. This beautiful poem reflects the young mind's thoughts. A must read for all parents.

The Student’s Prayer - by Umberto Maturana

"Don’t impose on me what you know,
I want to explore the unknown
And be the source of my own discoveries.
Let the known be my liberation, not my slavery.
The world of your truth can be my limitation;
Your wisdom my negation.
Don’t instruct me; let’s walk together.
Let my richness begin where yours ends.
Show me so that I can stand
On your shoulders.
Reveal yourself so that I can be
Something different.
You believe that every human being
Can love and create.
I understand, then, your fear
When I ask you to live according to your wisdom.
You will not know who I am
By listening to yourself.
Don’t instruct me; let me be.
Your failure is that I be identical to you.”

Courtesy: Thanks Manoj for sharing this!

Jeevan Nishchay - A Review

2009-11-14T00:06:00.007+05:30

Jeevan Nischay is the latest product from India's largest insurance company - Life Insurance Corporation (LIC) of India. It is a single premium closed ended plan falling under the special plans category and similar to the very successful Jeevan Astha. This new policy will be sold to ‘existing‘ customers of LIC and will be sold for a limited period until end of March 2010. Here is a critical review of Jeevan Nishchay.

Let us look at the benefit illustration for a 35 year old opting for a single premium of Rs.25,000 and a term of 10 years.

First Year Death Benefit: Rs.1,25,000
Subsequent years Death Benefit: Rs.44,674
Maturity Sum Assured: Rs.44,674

The basic purpose of any life insurance policy is to provide financial cover to dependents. For Jeevan Nishchay, this is only a mere Rs.1,25,000, and that too only for the first year. For subsequent years, this is only Rs. 44,674!

Let us now consider Jeevan Nishchay as an investment vehicle. If the person survives the 10 year term, he would gets Rs.44,674 (Rs.53,609 with a non-guaranteed loyalty addition). In 10 years, the Rs.25,000 has not even doubled (a bit more than double with the addition of non-guaranteed variable component).

To understand this further let us take two scenarios:

Scenario 1: The insured person dies in year 8. The sum assured is Rs.44,674.
Scenario 2: The insured person survives the 10 year term. The maturity value is Rs.53,609 (with loyalty addition)

Now consider this with a term plan from Max New York Life Insurance. For a 35 year old male, for a sum assured of Rs.2,50,000 and term of 10 years, the annual premium is Rs.1,097.5. The remaining Rs.23,902.5 is assumed to be invested in a debt instrument (bond/ debt fund/ PPF) yielding an average of 8% per annum. The premium amount for the term plan is deducted from this every year over the 10 year term.

Scenario 1: The insured person dies in year 8. The sum assured is Rs.2,94,242.
Scenario 2: The insured person survives the 10 year term. The maturity value is Rs.36,802.

The two cases are explained in this excel sheet:

Term plan + Debt option v/s Jeevan Nishchay:

The sum assured for Term plan + Debt option is almost 6 times more than that for Jeevan Nishchay
The maturity value for Term plan + Debt option is lesser, for the assumed returns of 8%. (if the investment is in equity, which can provide returns in excess of 12% per annum over 10 years, the amount becomes more than that provided by Jeevan Nishchay)

For the stated objective of investment plus insurance, Jeevan Nishchay does not seem to be attractive enough. It looks like a desperate attempt to leverage the brand and the tax saving season with this product. The fact that it is sold to existing customers only, does not seem to be anything more than a marketing/ selling gimmick. Jeevan Nishchay offers very low sum assured value and has low/ moderate returns and hence gets a BIG thumbs down!!

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

5 Must-have Insurance Policies

2009-11-08T20:24:00.004+05:30

I am back to my favourite topic of insurance again. I have written in the past about the importance of insurance and reviewed some of the common insurance policies. This post would be about what all insurance policies should one take?

I would categorize insurance policies under two categories - Policies that offer protection to (1) Self and (2) Valuables.

The three most important policies for self are Life insurance, Accident insurance and Health insurance. Home insurance and motor insurance are the most important from a protection of valuables angle.

Life insurance offers protection against the loss of life of the insured. The protection is in the form of financial means by which the dependents are compensated in the unfortunate event of death of the insured. Consider an example - Mr.X's family comprises of his unemployed wife and two childern aged 2 and 5. If Mr.X dies, and he is not insured or under insured, his family will not only have to deal with his loss for the rest of their lives, but also the loss of the sole bread winner. So it is crucial to assess one's insurance need (what he/ she need to leave behind for dependents, in case of unfortunate death) and associated costs (by way of premiums). The best form of life insurance is term plan - which offers maxiumum sum assured for the minimum cost. But usually insurance companies and agents under promote such plans (as their profit is less in term plans) and even advise against them by citing no returns. Please keep in mind that plans that offer returns can be prohibitively expensive for the same sum assured. (for e.g, for a sum assured of Rs.10 lakhs, term plan premium may be less than Rs.5,000, whereas a money back policy may cost Rs.25,000 or more!)

Accident insurance is somewhat similar to life insurance, but enhances protection by extending coverage to diasabilities arising out of an accident and adding on to overall life cover. These plans too are very cost effective - a personal accident plan with a coverage of Rs.10 lakhs may cost around Rs.1000 only. If we consider the case of Mr.X and his death was caused by an accident, his dependents would get sum assured from his life insurance as well as accident insurance. If he is left disabled, then he will get some financial respite from his accident insurance coverage.

Health insurance provides cover against hospitalization. Going back to Mr.X, suppose he was diagnosed with a heart problem that needed surgery and hospitalization for a period of 2 months. Given the costs involved with speciality health care, a hospitalization/ surgery costs can easily run into five digit bills. This financial burden on Mrs.X would only aggravate the trauma of illness, surgery and hospitalization. A family floater plan (which covers all four family members of Mr.X) with a coverage of Rs.3 lakhs, would be around Rs.5,000 - a far less costly option for the fianacial security.

Home insurance is important because the home is perhaps the most valuable asset for anyone and so is Motor insurance because of the risk attached while driving on our roads everyday. Motor insurance is mandated by law to cover third parties - whereby it will cover damages to third parties involved in an accident. Comprehensive insurance offers cover to own vehicle as well as third parties.

Insurance can be considered as a trade off - a relatively smaller cost (premium) expended to cover (assured sum) potential damages to something valuable (e.g. health, home). The valuable may or may not be replaceable, but its financial impact can be minimized if it is covered under an insurance policy. As a thumb rule, insurance should always be treated as an expense (avoid mixing it with investments, as the purpose of both are completely different)

Life insurance, Accident insurance and Health insurance are must have for anyone with a dependent family and Home insurance and Motor insurance for anyone who owns a home and motor vehicle. There are extensions and variations of these basic policies offered by insurance companies. The need, benefit and costs of such policies need to be analyzed in depth before opting.

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

Illusions!

2009-11-04T22:56:00.002+05:30

Courtesy -> Mail Forward

Panoramio: My copyrighted photos

2009-10-27T22:11:00.002+05:30

Some of my copy righted photos (posted at Panoramio):

Chitty: Self-help financing

2009-10-26T22:57:00.002+05:30

Chitty or kurie is a local form of self-help financing. To put in simple terms, the scheme (run by a trustworthy person or financial institute) pools money from a group of people and provides the lumpsum amount to a chosen person in the group (based on a bid or lot), after deducting commissions and charges.

Let us consider an example. Let us take a group of 40 people joining for a chitty worth Rs.1,00,000. The per month value of the chitty will Rs.2,500. For the first month, everyone in the group pays Rs.2,500 as their contribution. One can opt (based on his/ her need) to participate in a lot to avail Rs.70,000 (70% of the pooled in amount) in the first month of the chitty. Out of the remaining Rs.30,000, Rs.5,000 goes as chitty administration charge and the remaining Rs.25,000 is carried forward to the next month. The Rs.25,000 is also virtually distributed equally among the group, by deducting from the monthly contributions for the next month (25,000/40 = 625).

i.e., for the second month, every one contributes Rs.1,875 (2500 - 625), so that the total contribution becomes 1,875x40 + 25,000 = Rs.1,00,000. The procedure of lots continues for the 2nd month onwards and continues till there is no one opting for lots for the Rs.70,000 prize money. The monthly contributions remain the same (Rs.1,875) till this point.

When there is no one opting for lots for the Rs.70,000 prize money, the scheme starts a bid system. The bids would be for any value higher than Rs.70,000 and the individual bid amount would depend on the individual's need for money at that point in time. For example, let us assume that the bid system started on the 10th month and the bid amount was Rs.75,000. Out of the remaining Rs.25,000, Rs.5,000 goes as chitty administration charge and the remaining Rs.20,000 is carried forward to the next month. The virtual distribution for the next month becomes Rs.500 (20,000/40) and the monthly contribution becomes Rs.2,000.

Thus the system goes forward till no one bids for the amount; the monthly contribution becomes Rs.2,500 and the prize money would max out at Rs.95,000 towards the last few months of the chitty period.

Click here for a spreadsheet illustration of the above example.

The benefit of chitty is derived in two ways.

One is when we consider chitty in comparison with a loan. If one becomes eligible for the prize money in the first month's lot, he/ she gets the entire amount in hand. For a loan of Rs.70,000, and a tenure of 39 months, EMI would work out to Rs.2,279 and total payout of Rs.91,381. The average monthly payout in the example that we took is Rs.2,109 and the total payout is Rs.84,375. So a chitty won in the early months work similar to low interest loan. The added advantage is that the paper work and credit history doesn't really matter (but yes, one need to arrange for a guarantor or collateral for the money to be released) in the case of a chitty. This works really well for local businesses and the likes.

The bidding system also creates a chance for savings oriented people where one can adjust the bid amount to maximize bid amounts in the middle months (where the number of bids may be lesser) and then opt for a standard FD to draw a decent interest for the remaining term. A bid at later stages may not be advantageous in later months, but still can fetch a decent lumpsum at the end of the term and work as a compulsory savings scheme.

There are variations of chiities in Kerala and other South Indian states, where local businesses run such schemes for jewelery and other costly items as the prize money.

References: KSFE, atlevg, Maddy's Ramblings

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

Women’s Insurance

2009-10-11T17:17:00.007+05:30

This post was prompted by my better half. She was going through an issue of Vanitha (a leading Malayalam fortnightly for women) and it carried an article on women centric financial products – savings accounts, insurance schemes, etc. LIC’s Jeevan Bharathi caught her attention - insurance schemes with money back options looks really impressive. The following tries to decode a typical women’s scheme - Jeevan Bharathi.

The Plan

Jeevan Bharathi is a plan specifically for women. It provides life insurance and periodic money back. To understand the plan, let us look at the illustration provided in the insurer’s website.

Age (Yrs.) : 35

Term (Yrs.) : 20

Sum Assured (Rs.) : 100000

Annual Premium (Rs.): 6345

Benefits

The maturity value of the plan (if the insured survives the life term) assuming a rate of return of 10% is Rs.2,00,000. (Rs.20,000 is paid out at the end of 5th, 10th and 15th year; and Rs.1,40,000 is paid out at the end of 20th year)

In the unfortunate event of death of the insured, the amount payable to the dependent is the sum of guaranteed and variable benefits. For example, if the death occurs at the 15th year, the payable amount will be Rs.1,75,000 (Guaranteed: Rs.1,00,000 + Variable: Rs.75,000; assuming a rate of return of 10% again).

Analysis

Before we get into the actual number crunching, a premium of over 6000 rupees is mighty high for a paltry sum assured for Rs.1,00,000. But the bait of getting 20 grand every 5 years and the big catch of almost a lakh and half at the end of the term, I have to say, is really tempting at first look. If we combine the perseverance of our friendly neighborhood insurance agent with the last minute rush for tax saving, the possibility of one opting for this scheme has to be high. But let’s try to understand this plan better.

But before that why would my wife want this insurance plan for? There are three basic objectives:

Life cover
Returns
Tax Saving

My wife also wants the plan to be simple and easy to understand. Let us try an alternate way for achieving the above objectives, at the same time keeping her annual outgo same as Rs.6,345.

For insurance, let us consider Level Term Policy by Max New York Life. For a 35 year old female opting for a sum assured of Rs.2,50,000 and premium paying term of 20 years, the annual premium is Rs.1,040. (This is the lowest sum assured quote that I could manage from the internet!).

For investment let us consider a Public Provident Fund (PPF) account giving an annual return of 8%. Investment per year is Rs.5,305 (so that the total outlay along with the Level Term Policy remains at Rs.6,345) and we assume that the rate of return remains constant (average of 8%) throughout 20 years.

The maturity value of the plan assuming a rate of return of 8% is Rs.1,86,180. (Rs.20,000 is paid out at the end of 5th, 10th and 15th year; and Rs.1,26,180 is paid out at the end of 20th year)

In the unfortunate event of death of the insured, the amount available to the dependent is sum assured of the Level Term Policy plus the amount available in PPF. For example, if the death occurs at the 15th year, the payable amount will be Rs.3,33,000 (Level Term Policy: Rs.2,50,000 + PPF: Rs.83,000; assuming a rate of return of 8%).

Click here for an excel sheet with the above calculations.

Conclusion

The maturity value for the Term Plan + PPF route is almost equal to that of Jeevan Bharathi. Death benefit for the Term Plan + PPF route is almost double that of Jeevan Bharathi. Tax benefits are applicable for the entire premium amount in both the cases. As an added benefit, the return from the plan is more or less guaranteed (and please notice that we have compared 8% guaranteed returns from PPF against 10% non-guaranteed returns from Jeevan Bharathi). If instead of PPF, my wife opts for a good tax saving mutual fund, and considering a long term investment window of 20 years, expecting average annual returns in excess of 10 – 12 % would be fair. (for a 10% return, the difference in maturity value would be Rs.26,598)

So I would put Jeevan Bharathi as an expensive insurance/ investment product. The cost outweigh the benefits in a BIG way. Your comments are most welcome.

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

Wealth: Division vs Multiplication

2009-10-07T22:46:00.008+05:30

Dr. Adrian Pierce Rogers (September 12, 1931 – November 15, 2005) of Love Worth Finding Ministries, Pastor Emeritus of Bellevue Baptist Church.

"You cannot legislate the poor into freedom by legislating the wealthy out of freedom. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that, my dear friend, is about the end of any nation. You cannot multiply wealth by dividing it."

The same explained with a more practical,and simple example:

An economics professor at a local college made a statement that he had never failed a single student before, but had once failed an entire class. That class had insisted that socialism worked and that no one would be poor and no one would be rich, a great equalizer.

The professor then said, "OK, we will have an experiment in this class on the socialism plan".

All grades would be averaged and everyone would receive the same grade so no one would fail and no one would receive an A. After the first test, the grades were averaged and everyone got a B. The students who studied hard were upset and the students who studied little were happy.

As the second test rolled around, the students who studied little had studied even less and the ones who studied hard decided they wanted a free ride too so they studied little. The second test average was a D! No one was happy. When the 3rd test rolled around, the average was an F. The scores never increased as bickering, blame and name-calling all resulted in hard feelings and no one would study for the benefit of anyone else.

All failed, to their great surprise, and the professor told them that socialism would also ultimately fail because when the reward is great, the effort to succeed is great but when government takes all the reward away, no one will try or want to succeed.

Could not be any simpler than that.

Sources: Mail forward, Scott’s Morning Brew

Mathemagic!

2009-10-06T22:06:00.000+05:30

Arthur Benjamin does "Mathemagic".. another good one from TED.

Direct Link

Time Pass!

2009-09-30T22:41:00.002+05:30

Please move your cursor across the picture..

Courtesy -> http://www.cesmes.fi/

Happy Life or Bad Insurance?

2009-09-28T18:03:00.016+05:30

One more example of how lack of knowledge on part of investors is exploited by insurance companies.

As an example, let us look at Jeevan Anand, an insurance policy by LIC. Jeevan Anand, like many other endowment insurance policies, provides life cover for the term as well as returns at the end of term. It guarantees a certain sum in case of death/ maturity, plus there is a variable component, which depends on number of factors including future investment performance of LIC. For illustration purposes, and as specified by IRDA, LIC has given a table assuming 6% and 10% returns. The statutory warning in the site also says that these assumed rates of return are not guaranteed and they are not upper or lower limits of what the insured might get back.

As given in the illustration at LIC’s website, let us consider a 35 year old male opting for a sum assured of Rs.1,00,000 and premium paying term of 25 years. The annual premium for such a plan is Rs.4,535. As per the plan:

The maturity value of the plan (if the insured survives the life term) assuming a rate of return of 10% is Rs.2,41,000.
In the unfortunate event of death of the insured, the amount payable to the dependent is the sum of guaranteed benefit and variable benefit. For example, if the death occurs at the 21st year, the payable amount will be Rs.2,13,000 (Guaranteed: Rs.1,00,000 + Variable: Rs.1,33,000; assuming a rate of return of 10% again).

Is this a good plan?
To analyze this, let us consider splitting the insurance and investment components so that the total outlay remains constant at Rs.4,535.

For insurance, let us consider Level Term Policy by Max New York Life. For a 35 year old male opting for a sum assured of Rs.2,50,000 and premium paying term of 25 years, the annual premium is Rs.1,407. (I couldn’t get a quote for a sum assured of Rs.1,00,000 or anything less than Rs.2,50,000 as the premiums were lower than that allowed by the insurance company).

For investment let us consider a PPF or FD giving a nominal annual return of 8%. Investment per year is Rs.3,128 (so that the total outlay along with the Level Term Policy remains at Rs.4,535) and we assume that the rate of return remains constant (average of 8%) throughout 25 years. As per this plan:

The maturity value of the plan assuming a rate of return of 8% is Rs.2,46,969.
In the unfortunate event of death of the insured, the amount available to the dependent is sum assured of the Level Term Policy plus the amount available in PPF/ FD. For example, if the death occurs at the 21st year, the payable amount will be Rs.4,04,595 (Level Term Policy: Rs.2,50,000 + PPF/ FD: Rs.1,54,595; assuming a rate of return of 8%).

The illustration for the Level Term Policy + PPF/ FD plan is given here.
Alternatively, click the icon below to view it in Microsoft Excel Web App (need signing in to Widows Live) or download (no signing in required).

Results:

The maturity value for the Level Term Policy + PPF/ FD plan is higher than that for Jeevan Anand. Remember that we have taken only a relatively safe return of 8% in comparison with the “non-guaranteed” 10% of Jeevan Anand. If we assume 10% return for an investment in mutual fund, the maturity value becomes Rs.3,38,393 – a value much higher than that offered by similar returns in Jeevan Anand.
The death benefit for the Level Term Policy + PPF/ FD plan is much higher than that for Jeevan Anand. The death benefit is basically what an insurance policy is for and Jeevan Anand is way back in comparison.

The above is not an attempt to put any insurance plan or the insurance provider in bad light and the policy examples are taken only for analysis. Keep in mind that having insurance and having good insurance are two different things. Insurance companies and agents will push plans that give them profits and it is up to us to understand and choose what is good for us!

Comments are most welcome.

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

Sufficient Life Cover

2009-09-24T21:23:00.011+05:30

This would be my third blog on the topic - Insurance. This is in continuation to my earlier posts on the importance of term insurance and on how one needs to be careful and cautious on bundled insurance products. It is a sincere attempt to increase awareness on the importance of insurance.

Before I start, let me tell you a bit of history. I took my first life insurance policy almost 10 years back. My objective was two fold: to save tax and to get a handsome amount at the end of the term. And I had two vital questions before I opted for the policy: what was the premium (mine was around Rs.8500 per year) and how much money will I get back (I was told that I would get around 1.25 lakhs + bonus + some other profit share). With a wide grin on my face and without much further thinking, I became a proud insured person. And one had very little option at that time.

Ten years later and having gained some basic understanding of insurance, I keep asking people whether they have their life insured. Nowadays most have. And when I ask what is the sum assured, the most likely answers are either that they don't know or that they pay Rs. X as quarterly/ monthly premium. Some go on to say that they will get Rs. Y lakhs at the end of "n" years. In another instance, I was laughed upon by an insurance agent when I said that I need to know the premium amount for a “term insurance” of 20 lakhs. Why on earth would someone want to spend Rs.6500 per year for a policy that gives zero returns at the end of policy term! The agent seemed genuinely confused!!

Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss. So if I have a car worth 5 lakhs, I can prevent the monetary impact of loss (by accident/ theft) of my car (valued at 5 lakhs) by paying a relatively smaller premium (of say Rs.12,000). So an insurance policy hedges the risk of loss of a valuable asset for a small price. Mind you, motor insurance is mandated by law. Any vehicle plying on public roads needs to have at least third party coverage, where if the vehicle meets with an accident, the policy can cover damages to the third party. Even though insurance is a matter of solicitation, law mandates it to cover the risk for third parties! If one wants to cover own damages, then the premium to be paid is higher (comprehensive vehicle insurance).

Given below are some basic facts about insurance:

Insurance is important
Insurance has a cost and it needs to treated as an expense
Insurance is not an investment
More the insurance cover, the more the premium
More the risk, more the premium

Let us get back to some basic questions: Do you have life insurance? Do you have sufficient life cover?

Take half an hour from your schedule and assess your insurance portfolio. For each policy, verify how much insurance cover you have. If in doubt, get in touch with your agent or life insurer – it may be spread across LIC policies, ULIPs and similar products. But take stock of what is the total “sum assured” for all your policies. The result can be very disturbing. “Sum assured” is that amount that your family may have for livelihood, education and expenses, in case something happens to you – Is that sufficient? Do you have that comfort feeling?

The sum assured should be sufficient and comfortable for the purpose of insurance – monetary assurance to your dependents in case, god forbid, of your loss of life. Most people fall well short of this “sufficient and comfortable” life cover because of two reasons – they are not aware of the importance of life insurance or they already have one or more high premium policies due to which they cannot afford another one. I have tried to cover the first reason till now. The second one need some real thought.

It is not sufficient that you have insurance (one or more, from different insurance companies/ agents), you must have adequate cover. People usually become “under insured” because they opted for money back policies, endowment plans and ULIPs. These are expensive forms of life insurance – one pay higher premium for lower sum assured (of course one get “returns” from that). But remember that investment is not the primary purpose of an insurance policy. It is insurance. Period. And the primary evaluation criteria while taking a policy should be the cover (sum assured) associated with it. Other criteria of importance are the premium (cost involved) and the policy term (coverage period).

If you do not have sufficient insurance, please bear in mind that life insurance is not very expensive. When I say life insurance, I mean pure term insurance. Term insurance is the most economical and effective form of life insurance. One can add a fresh term plan to the insurance portfolio by buying a new policy. Make sure that it has sufficient cover and extends to a term of your needs. Since term plans are “less profitable” for insurance companies, they offer lower commissions to agents and they in turn never promote term plans. So it is up to us to ensure that our most basic insurance needs are met in the most effective and economical way. Make sure that you have adequate life cover and then, and only then, think about end of term returns and annual premiums.

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

Simple Investment/ Insurance?!

2009-09-10T21:49:00.004+05:30

Here is a perfect example of insurance products taking investors for a grand ride.

Go to simpleinsurance.co.in for a chart of various investment/ insurance options:

For example, consider the Retirement Plan. For a 30 year old male, with an investment of Rs.2000 per month for 30 years, the plan with an optimistic 10% per annum growth rate will give a pension of Rs.15,315 per month for life from the 31st year onwards.

But are these plans good investment options?

Now here is the catch. All of these plans are unit linked. Any unit linked plan is confusing - with a variety a charges (asset allocation charge, fund management charge, mortality charge, etc.) deducted differently (either in terms units or deducting directly from the investment) at different times (at the beginning of the investment, monthly or yearly) and unpredictable growth rates (which are limited by the IRDA to 6% and 10% for illustration purposes). So each of these plans need to be evaluated in terms of their overall attractiveness.

How can these plans be evaluated?

The best way to evaluate investment/ insurance plans is by separating the insurance (if bundled) and investment components. Compare the investment returns with that of a fixed deposit after adjusting best available rates for the bundled insurance (if any).

The Rs.15,315 pension per month for the Retirement Plan looks impressive on a cursory glance, especially for an outlay of just Rs.2,000 per month. The IRDA specified 6% and 10% returns are jacked up to 15% (or more) by the agents and last minute tax planning pressure gives in for most to opt for this plan.

But let's have a closer look. Let us put the Rs.2,000 per month in a bank fixed deposit (FD) at a nominal 8% interest compounded annually. That makes Rs.24,000 annual investment in FD. For the next 30 years, let us assume that the interest rate remains constant at 8%. The Rs.24,000 per annum investment at 8% will accumulate to Rs.29.36 lakhs.

This amount (Rs.29.36 lakhs) if reinvested again in FD at 8% interest will give annual interest of Rs.2.35 lakhs or a monthly interest of Rs.19,575 for life. Now compare with this the Rs.15,315 per month by the Retirement Plan. The FD comprehensively beats the returns of the Retirement Plan by a massive Rs.4,260 per month (21.8% more). And don't forget that the FD return is more or less guaranteed where as Retirement Plan's 10% return in risky and market dependent (it could be less, or more). Also, the accumulated Rs.29.36 lakhs is preserved for passing on to the next generation.

The case becomes even more compelling if we consider an SIP investment of Rs.2000 in a well diversified large cap mutual fund for 30 years (which can give returns in excess of 10% per annum) and then putting the cumulative amount in an FD to draw pension for life!

Click here to view an excel sheet with the above calculations.

So what's the verdict?

Isn't it obivious? In the above example a simple FD or a PPF (or mutual fund) would work much better than the pension plan. The situation is not very different for the other plans either.

Investors need to be extremely cautious while selecting investment options. Insurance companies trick the investor emotions with children plans and retirement plans and misleading returns. They have devised clever ways to disguise costs and still work within the regulatory framework to (mis) sell insurance products. Deviating from their fundamental purpose (and duty) of selling insurance, most of these companies (including nationalised ones) have aggressively marketed and promoted bundled and complicated products. The profit sucked out of the investor's money goes as profit to the insurance company and as hefty commissions to insurance agents.

Courtesy - Deepak Shenoy (@deepakshenoy)

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

A performing artist

2009-08-29T11:23:00.000+05:30

A performing artist..
Watch and listen till end.. the fun starts from the 46th sec!!

Some F1 statistics:

Formula 1 engines typically produce power in excess of 300 BHP at engine speeds in the range of 20,000 rpm (almost 3 times normal road cars) and road speeds crossing 350 kmph
The gearbox can reach temperatures of 150°C during a race and the brake discs can exceed temperatures of 1,000°C. Tyres can reach temperatures of 160°C.
An F1 race car can do: 0 – 60mph in 2.3 seconds; 0 - 100mph in 3.8 seconds; 0mph - 100mph and back to 0mph again in 5.5 seconds; Top speed back to 0mph in 3 seconds
The energy required to slow a car from 315kph to 185kph is the same amount needed to make an elephant jump 10 metres in the air!
The F1 car can generate lateral accelerations of 5G during cornering
A Formula One engine weighs just 95kg
A Formula One driver burns approximately 600 calories per Grand Prix and loses on average two kilograms in weight. The drivers' heart rates reach peaks of 190 beats per minute during a Grand Prix
On an average, the F1 drivers will typically change gear up to 2,800 times per Grand Prix

Source -> Wikipedia, William F1

Sitting in my office

2009-08-27T21:56:00.000+05:30

Here i am sitting in my office @ night..
Thinking hard about life
How it changed from a maverick college life to strict professional life..
How tiny pocket money changed to huge monthly paychecks
but then why it gives less happiness..
How a few local denim jeans changed to new branded wardrobe
but then why there are less people to use them
How a single plate of samosa changed to a full Pizza or burger
But then why there is less hunger..

Here i am sitting in my office @ night..
Thinking hard about life
How it changed..

How a bike always in reserve changed to bike always on
but then why there are less places to go on..
How a small coffee shop changed to cafe coffee day
but then why its feels like shop is far away..
How a limited prepaid card changed to postpaid package
but then why there is not time for messages or calls..

Here i am sitting in my office @ night..
Thinking hard about life
How it changed..

How a general class journey changed to Flight journey
But then why there are less vacations for enjoyment..
How a old assembled desktop changed to new branded laptop
but then why there is less time to put it on..
How a small bunch of friends changed to office mate
But then why we always feel lonely n miss those college frnz..

Here i am sitting in my office @ night..
Thinking hard about life
How it changed.. How it changed..

Courtesy -> Mail forward

Schools kill creativity!!

2009-08-24T22:37:00.000+05:30

Must watch/ listen for every parent, or anyone for that matter.. thought provoking indeed!

Music or Noise?

2009-08-23T00:06:00.000+05:30

You will only know if you are an F1 (Ferrari) fan..

Amazing Airlines!

2009-08-21T22:56:00.000+05:30

Courtesy -> Airliners.net

Bittersweet Symphony

2009-08-19T23:40:00.001+05:30

Amazing song..

Date picker in Excel

2009-08-19T22:49:00.000+05:30

Ever wondered if you could put a date in an Excel spreadsheet using a date picker? Similar to the one available on online forms, date pickers can come quite handy when one needs to enter dates in a cell. No more worry about the date format and confusions about the date itself.

Here is a simple way to put date picker in MS Excel.

Download the Date Picker Add-in
Paste the file (samradDatePicker.xla/ xls) in the XLSTART folder (In Office 2007, XLSTART folder is typically found at C:\Program Files\Microsoft Office\OFFICE12\XLSTART. In Office 2003, it may be located at C:\Program Files\Microsoft Office\OFFICE11\XLSTART)
Restart Excel
Right click on any cell and there will be "Pick from Calendar Option" from where the date can be selected
Format/ resize the cell to display the date as per your preferences

Further details on the add-in at Microsoft Excel Blog, Sam Radakovitz

Funny Advertisements!

2009-08-12T23:26:00.000+05:30

Sit back, Relax and Enjoy the Flight

2009-08-10T22:42:00.000+05:30

The best form of Life Insurance

2009-08-08T23:24:00.002+05:30

Let me write something this time, which I wanted to for a long time, but haven’t yet (my apologies for being lazy). It was not that I haven’t tried to promote this, but believe me, it is not very easy to convince people on this (be it friends or family). So here it is, and the topic is Term Insurance.

Before I even start on this, let me tell you (you can treat this as a disclaimer) that I am not a financial expert and nor an insurance agent. I don’t work for any insurance or mutual fund firm.
I was on train from Trivandrum (where I live) to Chennai (where I wanted to attend a workshop on software maintenance). To pass time during the 12 hour journey, I bought a book on money matters (perhaps because I didn’t find any better magazine then) and ever since that time, I have not had any doubts on what is the meaning Term Insurance, why it is important and why it should not be compromised (or mixed or confused with any form of investment).

What is Term Insurance?

The one and only “true” form of life insurance
Simplest and purest form – the insurer pays the premium for the coverage period and his/ her life is covered for the value of sum assured
The most cost effective (read as: “cheapest”) form of life insurance
As an added benefit, provides tax benefits under section 80C

Why is Term Insurance so important?

Let us consider a case study: There is a sole bread winner of a small family (let us say, a husband – his family comprising of his wife and child). Whatever be the income of the husband, his family is dependent on him (and his income). Now god forbid, if something happens to him, what will happen to his family? This is a situation where life insurance (especially term insurance) assumes a lot of significance. If the husband was insured, for lets say 5 lakhs, his bereaved family would have received that amount for their immediate livelihood. Will it cover the loss of a human life – the life of a husband? the life of a father? No. Hell No. But what a term insurance will do in this case is - it will definitely cover the loss of financial security due to the loss of that human life. The loss of human life is an unfortunate incident, one in which no body has any control of. But we can make the right choices in our living lives that, in case something happens to our lives, our dear and near are taken care of, at least financially. A term insurance is such an option available to all, where one can ensure such a comfort (not that it means comfort in the literal sense!)

Why isn’t Term Insurance very popular?

One has to blame primarily blame India’s national insurance agencies for this in the first place. The have diluted continuously diluted the meaning of “life insurance” for decades, earning profits by selling endowment and money back policies. When Indian opened up financially, they started selling ULIPs along with the private companies (who can be perhaps forgiven for doing so). The bottom line - if some one wants life insurance, term insurance is the most effective option. If someone wants to sell life insurance, term insurance is the least preferred option (read as: less commission for agents, less profitability for insurance companies)

Car – Life Insurance Analogy

The simplest way to understand term insurance is when one compares term insurance with motor insurance. Let me try to explain this:
If I have a four wheeler (or two wheeler), I am required by law to have a motor insurance (at least a third party insurance). The logic is: if there is an accident, the insurance company will cover for all the losses arising out of that accident (losses for the other vehicle only in case of third party insurance). If the market value (maximum sum assured) of the four wheeler is 3 lakhs, the premium to be paid for comprehensive insurance of the vehicle is around Rs.8000. No one talks about money back or endowment or unit linking here.
The premium for life cover of around 20 lakhs in the case of term insurance is only around Rs.6500 (much much cheaper than car insurance in the above example). The question here is: if you value your car for 3 lakhs (for covering damages to your car), shouldn’t you value your own life for a much higher amount (for covering damages to your life – to benefit your dependent family)?

The truth

Let us accept one fact. In the current scenario, there is gross under selling of term insurance. The so called insurance advisors combine (read as: confuse the customer) life insurance with investment and sell (because of the obvious attractiveness of commission of other insurance products) money back policies, endowment policies and ULIPs. The soft spot: when one is asked, would you like to have money back or lose it, the answer is obviously money back. But the price that one pays for such options is huge.
For example: I have an endowment policy where I pay Rs.9000 for a sum assured of about Rs.1.3 lakhs (I get a portion of this back when the policy matures). I also have a term insurance where I pay Rs.6500 for a sum assured of Rs.20 lakhs!! If I consider a term insurance of Rs.1.3 lakhs, the premium would be peanuts and if invest the remaining in a decent mutual fund, it will easily give me a return higher than that offered by the endowment policy!!
But why is no one aware of this? The reason is simple – the greed of customer fully utilized by commission hungry agents and happily promoted by insurance companies.

How to ensure sufficient life cover?

For life insurance, the total sum assured should be approximately 5 – 8 times the annual salary of the insured
Take a term insurance to cover majority of this and the rest , if required, can be ULIPs, money back policies and endowment policies
Be bothered about what is the sum assured of your insurance policy and NOT just the yearly premium (the agent will surely be bothered about the latter one, as his commission depends on that)
Never trust an insurance advisor/ agent who talks only about tax saving and not talks existing/ sufficient life cover
Always try to keep life insurance separate from investments – both have their own purpose, meaning and benefit – for you as well as for your agent (and both are, and should/ would be very selfish)

Inspiration - Deepak Shenoy, Smart Investor, Outlook Money

Disclaimer: The views posted in this blog are my own and are based purely on my own way of assessments. Readers are requested to consult with their financial/ insurance advisers before making any investment/ insurance decision, do their own due diligence and validate factual information.

Magic in Water!

2009-08-06T23:09:00.001+05:30

Please move your cursor across the picture..

Courtesy -> Artists In Devon
More at -> Water

Incredible Song - Bulla Ki Jaana

2009-08-02T18:10:00.000+05:30

Lyrics with meaning

Welcome to India!

2009-08-01T17:06:00.000+05:30

I am a Malayalee!!

2009-08-01T16:47:00.000+05:30

Public pays and public suffers!!

2009-07-31T19:26:00.001+05:30

This one clearly shows the careless attitude of the governments and wastage of tax payer's money.. public pays and public suffers!!

3 Corporate Lessons

2009-07-28T22:11:00.000+05:30

Courtesy -> Mail forward, SlideShare

Sixth Sense - Crazy!!

2009-07-27T21:27:00.000+05:30

And an Indian behind the whole thing!! It's crazy..

Courtesy -> @greatbong

An Obituary Note - Common Sense

2009-07-22T19:17:00.000+05:30

Today we mourn the passing of a beloved old friend, Common Sense, who has been with us for many years. No one knows for sure how old he was ,since his birth records were long ago lost in bureaucratic red tape. He will be remembered as having cultivated such valuable lessons as: Knowing when to come in out of the rain; Why the early bird gets the worm; Life isn't always fair; and maybe it was my fault. Common Sense lived by simple, sound financial policies (don't spend more than you can earn) and reliable strategies (adults, not children, are in charge).

His health began to deteriorate rapidly when well-intentioned but overbearing regulations were set in place. Reports of a 6-year-old boy charged with sexual harassment for kissing a classmate; teens suspended from school for using mouthwash after lunch; and a teacher fired for reprimanding an unruly student, only worsened his condition. Common Sense lost ground when parents attacked teachers for doing the job that they themselves had failed to do in disciplining their unruly children. It declined even further when schools were required to get parental consent to administer sun lotion or an Aspirin to a student but could not inform parents when a student became pregnant and wanted to have an abortion. Common Sense lost the will to live as the churches became businesses and criminals received better treatment than their victims. Common Sense took a beating when you couldn't defend yourself from a burglar in your own home and the burglar could sue you for assault. Common Sense finally gave up the will to live, after a woman failed to realize that a steaming cup of coffee was hot. She spilled a little in her lap, and was promptly awarded a huge settlement.

Common Sense was preceded in death by his parents, Truth and Trust, his wife, Discretion, his daughter, Responsibility, and his son, Reason. He is survived by his 4 stepbrothers; I Know My Rights, I Want It Now, Someone Else Is To Blame, and I'm A Victim.

Not many attended his funeral because so few realized he was gone.

Courtesy -> Mail Forward (An internet search reveals that the original version belongs to Lori Borgman. So i guess the credit should go to Lori)

Dogbert!

2009-07-20T19:12:00.001+05:30

Courtesy -> Mail forward

Achmed - The Dead Terrorist

2009-07-17T23:17:00.000+05:30

Courtesy -> http://www.youtube.com/watch?v=1uwOL4rB-go

Software Projects and Requirements

2009-07-15T21:58:00.000+05:30

Pic courtesy: http://www.linuxkungfu.org/

The Shepherd Story

2008-12-02T22:17:00.000+05:30

A shepherd was tending his flock in a field, when a new sports car screeched to a stop on the road nearby in a cloud of dust. The driver, a young man in expensive designer clothes and sunglasses, leans out of the window and shouts over to the shepherd, "If I tell you exactly how many sheep you have here, can I take one?"

The shepherd looks up slowly up at the young man, then looks at his peaceful flock, and calmly answers, "Sure, why not?"

The young man steps out of his car holding a state-of-the-art palmtop pda, with which he proceeds to connects to a series of websites, first calling up satellite navigation system to pinpoint his location, then keying in the location to generate an ultra-high resolution picture of the field. After emailing the photo to an image processing facility, the processed data is returned, which he then feeds into an online database, and enters the parameters for a report. Within another few seconds a miniature printer in the car produces a full colour report containing several pages of analysis and results. The young man studies the data for a few more seconds and returns to the shepherd.

"You have exactly one-thousand five-hundred and eighty-six sheep, including three rams, and seven-hundred and twenty-two lambs."

"That's right," says the shepherd, mildly impressed. "Well, I guess that means you get to take one of my sheep."

The young man makes his choice and loads the animal onto the back seat of his car, at which the shepherd says, almost as an afterthought, "Hey there, if I can tell you what your business is, will you give me back my sheep?"

The young man, feeling confident, agrees.

"You're a consultant," says the shepherd.

"Wow, that's right," says the young man, taken aback, "How did you guess that?"

"No guessing required," answers the shepherd, "You showed up here even though nobody called you. You took a fee for giving me an answer that already know, to a question I never asked, and you know nothing about my business. Now give me back my dog."

Source: http://www.businessballs.com/

The Stock Market story

2008-11-25T22:00:00.000+05:30

It was autumn, and the Red Indians asked their New Chief if the winter was going to be cold or mild. Since he was a Red Indian chief in a modern society, he couldn't tell what the weather was going to be.

Nevertheless, to be on the safe side, he replied to his Tribe that the winter was indeed going to be cold and that the members of the village should collect wood to be prepared.

But also being a practical leader, after several days he got an idea. He went to the phone booth, called the National Weather Service and asked 'Is the coming winter going to be cold?'

'It looks like this winter is going to be quite cold indeed,' the weather man responded.

So the Chief went back to his people and told them to collect even more wood. A week later, he called the National Weather Service again.

'Is it going to be a very cold winter?'

'Yes,' the man at National Weather Service again replied, 'It's definitely going to be a very cold winter.'

The Chief again went back to his people and ordered them to collect every scrap of wood they could find. Two weeks later, he called the National Weather Service again. 'Are you absolutely sure that the winter is going to be very cold?'

'Absolutely,' The Man replied. 'It's going to be one of the coldest winters ever.'

'How can you be so sure?' the Chief asked.

The weatherman replied, 'The Red Indians are collecting wood like crazy.'

This is how Stock Markets work!!!

Courtesy: Mail Forward

Peg after Peg

2008-11-07T23:47:00.000+05:30

I never take risk while drinking..

When I come from office in the evening, wife is cooking
I can hear the noise of utensils in the kitchen
I stealthily enter the house
Take out the bottle from my black cupboard
Shivaji Maharaj is looking at me from the photo frame
But still no one is aware of it
Becoz I never take a risk..

I take out the glass from the rack above the old sink
Quickly enjoy one peg
Wash the glass and again keep it on the rack
Of course I also keep the bottle inside my cupboard
Shivaji Maharaj is giving a smile
I peep into the kitchen
Wife is cutting potatoes
No one is aware of what I did
Becoz I never take a risk..

I: Any news on Iyer's daughter's marriage
Wife: Nope, she doesn't seem to be that lucky. Still they are looking out for her

I again come out; there is a small noise of the black cupboard
But I don't make any sound while taking out the bottle
I take out the glass from the old rack above sink
Quickly enjoy one peg
Wash the bottle and keep it in the sink
Also keep the Black Glass in the cupboard
But still no one is aware of what I did
Becoz I never take a risk..

I: But still I think Iyer's daughter's age is not that much
Wife: What are you saying? She is 28 yrs old... like an aged horse
I: (I forgot her age is 28) Oh Oh...

I again take out potatoes out from my black cupboard
But the cupboard's place has automatically changed
I take out the bottle from the rack and quickly enjoy one peg in the sink
Shivaji Maharaj laughs loudly
I keep the rack in the potatoes & wash Shivaji Maharaj's photo & keep it in the black cupboard
Wife is keeping the sink on the stove
But still no one is aware of what I did
Becoz I never take a risk..

I: (getting angry) you call Mr. Iyer a horse? If you say that again, I will cut your tongue...!
Wife: Don't just blabber something, go out and sit quietly...

I take out the bottle from the potatoes
Go in the black cupboard and enjoy a peg
Wash the sink and keep it over the rack
Wife is giving a smile
Shivaji Maharaj is still cooking
But still no one is aware of what I did
Becoz I never take a risk..

I: (laughing) So Iyer is marrying a horse!!
Wife: Hey go and sprinkle some water on your face...

I again go to the kitchen, and quietly sit on the rack
Stove is also on the rack
There is a small noise of bottles from the room outside
I peep and see that wife is enjoying a peg in the sink
But none of the horses are aware of what I did
Becoz Shivaji Maharaj never takes a risk..

Iyer is still cooking
And I am looking at my wife from the photo and laughing
Becoz I never take what???

Source: Yet another mail forward

8 Monkey Experiment

2008-11-07T23:32:00.000+05:30

Put eight monkeys in a room. In the middle of the room is a ladder, leading to a bunch of bananas hanging from a hook on the ceiling.

Each time a monkey tries to climb the ladder, all the monkeys are sprayed with ice water, which makes them miserable.

Soon enough, whenever a monkey attempts to climb the ladder, all of the other monkeys, not wanting to be sprayed, set upon him and beat him up.

Soon, none of the eight monkeys ever attempts to climb the ladder.

One of the original monkeys is then removed, and a new monkey is put in the room. Seeing the bananas and the ladder, he wonders why none of the other monkeys are doing the obvious. But undaunted, he immediately begins to climb the ladder. All the other monkeys fall upon him and beat him silly. He has no idea why.

However, he no longer attempts to climb the ladder. A second original monkey is removed and replaced. The newcomer again attempts to climb the ladder, but all the other monkeys hammer the crap out of him. This includes the previous new monkey, who, grateful that he's not on the receiving end this time, participates in the beating because all the other monkeys are doing it. However, he has no idea why he's attacking the new monkey.

One by one, all the original monkeys are replaced.

Eight new monkeys are now in the room. None of them have ever been sprayed by ice water. None of them attempt to climb the ladder. All of them will enthusiastically beat up any new monkey who tries, without having any idea why.

This is how company policies get established.

Source: Another mail forward.

The Ant and The Grass Hopper

2008-11-07T23:15:00.000+05:30

The Old Version..
The ant works hard in the withering heat all summer long building his house and laying up supplies for the winter. The grasshopper thinks the ant's a fool and laughs & dances & plays the summer away. Come winter, the ant is warm and well fed. The grasshopper has no food or shelter so he dies out in the cold.

The Modern Version..
The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks the ant's a fool and laughs & dances & plays the summer away. Come winter, the shivering grasshopper calls a press conference and demands to know why the ant should be allowed to be warm and well fed while others are cold and starving.

NDTV, BBC, CNN show up to provide pictures of the shivering grasshopper next to a video of the ant in his comfortable home with a table filled with food. The World is stunned by the sharp contrast. How can this be that this poor grasshopper is allowed to suffer so?

Arundhati Roy stages a demonstration in front of the ant's house. Medha Patkar goes on a fast along with other grasshoppers demanding that grasshoppers be relocated to warmer climates during winter. Amnesty International and Koffi Annan criticize the Indian Government for not upholding the fundamental rights of the grasshopper. The Internet is flooded with online petitions seeking support to the grasshopper (many promising Heaven and Everlasting Peace for prompt support as against the wrath of God for non-compliance). Opposition MP's stage a walkout. Left parties call for "Bharat Bandh" in West Bengal and Kerala demanding a Judicial Enquiry. CPM in Kerala immediately passes a law preventing Ants from working hard in the heat so as to bring about equality of poverty among ants and grasshoppers.

Lalu Prasad allocates one free coach to Grasshoppers on all Indian Railway Trains, aptly named as the 'Grasshopper Rath'.

Finally, the Judicial Committee drafts the "Prevention of Terrorism Against Grasshoppers Act [POTAGA]", with effect from the beginning of the winter.

Arjun Singh makes Special Reservation for Grass Hopper in educational Insititutions & in Govt Services.

The ant is fined for failing to comply with POTAGA and, having nothing left to pay his retroactive taxes, his home is confiscated by the Government and handed over to the grasshopper in a ceremony covered by NDTV.

Arundhati Roy calls it "a triumph of justice". Lalu calls it 'Socialistic Justice'. CPM calls it the 'revolutionary resurgence of the downtrodden' Koffi Annan invites the grasshopper to address the UN General Assembly.

Many years later.. The ant has since migrated to the US and set up a multi billion dollar company in silicon valley. Hundreds of grasshoppers still die of starvation despite reservation somewhere in India..

As a result of loosing lot of hard working ants and feeding the grasshoppers India is still a developing country..

Source: A mail forward

Extracting text from scanned documents and copy protected pdfs

2008-09-21T14:44:00.000+05:30

Consider a situation where you need to copy text from a pdf document and you cant because it is copy protected. Worse still, the text that you need is in a scanned document or image! Ever wondered how you can do that?

Well.. there is a way! Read on, to find to find out how.

A pre-requisite for this is that you should have Microsoft Office Document Imaging feature installed in your computer (which is typically installed by default, along with Microsoft Office)

Open the pdf or the image file from which you need to extract the text
Print the file using the Microsoft Office Document Image Writer, by selecting it from the printer name drop down.
This will print the document to a .mdi file ( Document Imaging Format). On the save prompt give a file name and save the file.
The file will automatically open, and from the Tools menu, select Send Text to Word option.
Choose a preferred location for saving the Word file and click OK.
Click Ok for the prompt "You must re-run OCR before performing this operation. This may take a while".
This will extract text from the .mdi file and save it to the Word file. The Word file will also automatically open at the end of the operation.

This is simple right? But remember that formatting may not be correct and the accuracy of text extraction will depend on the quality of the scanned image. But it can effectively serve the purpose when it comes to getting the text out of irritating copy protected pdfs and scanned text documents.

I found this useful information from the internet when i was required to type 4 text filled pages, because the pdf was copy protected. Took me just 30 minutes to google out the information, understand the technique and get the extracted word file. (I would have taken 30 minutes per page to type)

Courtesy and credit goes to the original poster.

Earlier there was another way for pdf files. Use gmail's "view as html" option to get the copy protected pdf file displayed in html format and then simply copying the text. Though i have not used it myself, i saw many posts and blogs suggesting this. But unfortunately, the feature no longer works in gmail.