Shiv left a comment yesterday informing everyone that the SBI Bond allotment has now been completed and the bonds will list on the 23rd of March 2011.
You can check your allotment status on this link.
Further, Neel has left a comment about receiving a 7% interest in his bank account already.
There have been quite a few comments about when the dates for this will be announced so I thought I’d do a small post with this information.
Thanks to Shiv and Neel for sharing this information!
One of the questions that came up a few times in the last term insurance post was how much insurance should you get and Hema wrote a comment with a rule of thumb that states you need about 10 times your annual salary.
That sounds reasonable enough to me and I wouldn’t want to get into an analysis paralysis with determining how much insurance I need because term insurance can be bought without spending a lot of money, but I did want to share the way I thought about it, and see what feedback I can get.
The first thing to do is to determine if you need term insurance at all or not. The answer to that is straightforward – if you have people who are financially dependent on you then you need term insurance, else you don’t.
If your parents are not financially dependent on you, your spouse is working, and you don’t have kids, then I don’t really see a need for insurance.
But, if someone is financially dependent on you then you need to take out insurance.
So, once you determine that you need insurance, the next step is to think about how much insurance you need. One way of thinking about that is to think of your dependents and their annual financial needs, then buffer it up by 20% or so.
For example, say you determine that their annual expense will be 5 lacs, so at a 20% buffer you need 6 lacs per annum. To generate 6 lacs per year you need capital of 60 lacs assuming the investment can generate 10%.
Then think about the assets you already own – your savings for retirement, any real estate (apart from the house you live in), jewelery, or whatever you think can be practically cashed in.
Subtract that from the capital amount, and you will get a number that you should have cover for.
I expect that most people will be able to do this calculation mentally and it shouldn’t take more than 5 minutes or so. In my opinion this will be a good ball park in terms of  your term insurance need and can get you started.
This kind of thinking is better than having no framework at all, but the only thing I’d caution you against is that this calculation doesn’t take into account escalating costs.
So, you could say that your family’s expenses will rise significantly once your children start going to school, and this method doesn’t take that into account. Or if inflation continues to be high then this method doesn’t protect your family many years from now as well.
If you feel that’s the case, then get more cover – how much more depends on how much more in premium you’ll be able to afford. No point in talking about cover without thinking about premium – just like risk and return.
One last thing about this is to bring to your notice this insurance calculator I found which allows you to input a lot of parameters and seems quite exhaustive. You can play with it and see if it gives you a reasonable number.
In my last post I expressed my preference on buying two different insurance policies, as a means to hedge risk and quite a few of you pointed out that it doesn’t make sense because there is no chance of a claim getting rejected if all the information provided upfront is accurate and honest.
I understand this point of view, but would rather stick to two policies because there will always be some things that you don’t know that you don’t know.
There are things that you know you don’t know, and then there are some things that you don’t know you don’t know.
For example – you buy an oil ETF that tracks oil prices by buying future contracts because you are bullish on oil. You know that this ETF will not be able to track oil 100% due to expenses or other tracking errors, so this is a known – unknown, but you don’t know that you don’t know big institutional traders can game the system because they know this ETF has to square off its positions every month end, and that eats your profits big time.
So you are hit by a factor that you didn’t even know existed.
That’s primarily my reason for buying two policies – what if the cheaper company goes bust, who is liable then? What other things don’t I know about this?
Obviously not everyone is so risk – averse (or cynical?), but that’s my rationale for two insurers.
Those were my thoughts on whether you need insurance, how much you need, and how many policies you should buy. Time for your thoughts now.
In the past month I’ve received at least three emails about how you could time the market, or what strategy you could follow in down markets.
I’ve either responded saying I have no special insight on how to trade or specifically on how to trade in down markets, or I’ve said that timing is hard because it’s really really difficult to be greedy when others are fearful or fearful when others are greedy.
The events unfolding in Japan are a great example of why I say that. The Nikkei was down about 10% yesterday, and 6% the day before that.
The market is reacting to news in real-time, and there is panic and fear all around. I don’t know if Indian investors have a way to buy Japanese equities, but would you really have the courage to buy Japanese stocks in such an environment?
The news that’s coming out of Japan is really bad, and you might think this is an exception, but don’t forget that when Lehman collapsed in late 2008 – people were talking about the whole financial system coming to the edge of a collapse, and that looked like a pretty scary event too.
9/11 was very scary as well, and buying stocks was the last thing on anyone’s mind then.
The markets don’t move in a linear manner, and what I’ve seen over the years is that people make a buck here, another there, and then there is a huge fall that wipes out all their earnings in the previous years. I’ve even illustrated it by showing annual nifty returns, and how one bad year jolted everyone.The fact that we had spectacular gains in 2009 is no solace for people who lost money in 2008, and cashed out.
If you are playing the market for the short run, or are not sufficiently diversified I think you will make gains for a few years, but ultimately all of that will be lost in one fell swoop and you will be left in much pain.
On the other hand if you are diversified and are getting into the market with small sums then you might be able to withstand the big crash when it comes and even continue to invest through it.
Hindsight is 20 – 20, but events in real time make it very difficult to know what to do at that point in time. We don’t know today whether Japan will come out of this alright, or will their infrastructure be hampered for years to come, or if they will come out stronger from this tragedy the way they did after the war.
There is just no way of knowing that and of course there is absolutely no way of knowing when such a big fall will happen as well. And for that reason I’d recommend you to think about diversification and systematic investing seriously.
Got the following question in an email which Gurpreet responded to.
I have changed job and new employer has opened new PF account. I have a choice of withdrawing old PF amt or transferring to new.
If I withdraw PF, will it be treated as taxable income? If yes, can I save tax by investing partially in any government schemes / bonds?
Here is the response.
PF withdrawal is taxable if a person has worked in the company for less than 5 years. Tax cannot be saved even by investing in any govt schemes / bonds. It just gets added to income from salaries, and then the taxability will depend upon the Gross Income of the assessee.
| Head | Statutory PF | Recognized PF | UnRecognised PF |
| Employers contribution to PF | Exempt from tax | Exempt up to 12% of salary (Basic +DA) | Exempt from tax |
| Deduction under sec 80C | Available | Available | Not available |
| Interest credited on PF account | Exempt from tax | Exempt up to 9.5% | Exempt from tax |
| Lump sum payment received at the time of retirement or termination of service | Exempt from tax | Exempt from tax: | Only employees share of contribution is exempt |
| a. If the employee has worked for at least 5 years with the employer | |||
| b. If the service is terminated on account of ill-health or by contraction or discontinuance of the employer’s business or any other reason beyond control of employee | |||
| c. If the employee transfers the balance in his PF to his new PF a/c maintained by his new employer |
Any thoughts on this – has anyone done this?
Today we’re going to deviate from the regular topics, and instead take a look at a different subject – one on which I’ve fielded a few questions on emails lately, and has  finally popped up on the Suggest a Topic page as well.
Shilpa asked me to write about how you can go about setting up a website, so in this post I’m going to share the mechanics of setting up a website, and also offer some opinion on what has worked for me, and what hasn’t, so that you can keep that in mind while getting started with your own website.
The first thing you need is a name for your website. This will have two parts to it – the TLD (Top Level Domain) like .com, .net, .in etc. and the name itself like OneMint or TheHindu.
A name is called a domain and has to be registered for a fee. I have registered all my domains with GoDaddy, but I don’t know if they are the cheapest or not. I registered one with them a long time ago, and just stuck with them. I’m sure you can do a little bit of research and find better deals yourself. Â This doesn’t cost much – maybe $20 or so per year after taxes, and that’s part of the reason I never tried to switch.
Choosing a name can be harder than you think because you’ll find that a lot of meaningful names  have already been taken, so keep the Godaddy window open, and as you think of names – search for them there to see if they are available or not.
My preference is to get a dot com because that’s what most people think about first when they think of a website name, and there have been examples where someone bought a dot net domain, and after their site became popular had to buy the dot com domain from someone else for a lot of money.
So I’d personally stick to dot com as far as possible. A possible exception to that could be if the name has a really nice ring to it. For example – about.me – this name has a great ring to it, and it’s not hard to remember either. I’d also suggest avoiding hyphens or numbers in the name because that creates confusion also.
Getting a name and registering it is the first thing you need to do in order to setup a website, and after you’re done with that you will need hosting space.
Think of hosting space as the real estate from which you will operate your website. There are several hosting companies that offer you space for a fee, and the one that I use is Hostgator.
They are certainly not the cheapest, but for OneMint’s size and traffic – I think they are good value. If you don’t have reliable hosting then you can find your site down at times, so if you are serious then I’d suggest spending a little extra and get someone that has a reputation for being up most of the times and has decent customer support.
Now that you have a name and real estate, the next thing to do is to set up the office – you need a mechanism to publish articles, post pictures, create categories etc.
In my opinion – the best way to do that is to install WordPress. That’s what I use as the back-end to this site, and it is an extremely powerful platform that allows you to create a website, and is used by millions of people all over the world.
It is free to use, and is easy to install. However, how easy it is to use depends a little bit on how technically inclined you are, and if  you have never done any software related work before then I don’t think you will find it easy. Don’t get me wrong – I mean you will be able to accomplish it, but it’s not likely to be easy.
The other alternative to WordPress is Blogger, but I’m a big fan of WordPress because of its ease of use, and powerful features, so I’ll strongly recommend it.
I do very little WordPress related work on this site myself, and almost always consult with Kim Woodbridge, who is quite easily the best WordPress consultant that I know. She is an expert, and really honest as well; I think we have worked together for almost 2 years now, and in that time my respect and admiration for her has only grown.
If you are not able to cope with WordPress yourself, or need help on its advance features then I’d strongly recommend her.
Now that you have a name, real estate, and office as well – the next step is to do some design work, and make it all pretty.
The thing to do this with in the online world is to get a theme for your website. There are several free and paid WordPress themes, and these are fairly easy to install. You can download one that you like, and give your site the look of that Theme. You can also customize the theme and make your site look unique.
I use Thesis, which is a popular paid theme, but if you’re just starting out then you should just get a free theme, and play with it first.
After these steps you should have a running website which is branded as well, and as far as the basics are concerned you’re done. However, there are two more tools that are free, and are a must for any website.
Google Analytics is a program from Google that gives you traffic information about your website. It shows you how many visits you are getting, from where, who is referring people to your site, what keywords are working, and amazing stuff like that. It’s an amazing tool, and it’s free to use. You should definitely install and use Google Analytics on your website.
Feedburner is another Google product that lets you send daily emails to your subscribers. This is the program that I use, and it’s great to connect with your subscribers as it gives them a way to get your content whenever it is published.
These are the key building blocks of a website – this is not the only way to do it, but is one that I have used, and several others are using around the world. It is inexpensive, and robust, and will work for most of your needs.
The list of things you can add here is endless, but for anyone starting out this should be enough. As always – questions, comments and observations welcome!
First up this week is the news that the Indian per capita income rose by 14.5% during 2009-10 to Rs. 46,492 at current prices or Rs. 40,605 in 2004-05 prices. The rural per capita income is Rs. 16,327 and urban is Rs. 44,223. That’s a pretty big divide, and the fact that 74% of the population lives in rural areas makes it worse.
One way to deal with this is to make things simpler for entrepreneurs and small business owners to carry out their business. There are millions of way to do that, and one thing that the government did in that direction was to make it slightly simpler for Americans to get an India visa. They are not required to produce a birth certificate anymore!
How will this help raise the per capita income?
If more Americans come here – on business or pleasure – they will spend more money, which will then benefit some Indian in one way or another. When I was in Goa last – I met someone from Italy who wanted to stay in India every year for 6 months or so, but wasn’t able to because of visa limitations. That’s just insane!
Let’s look at something sane now – Roger Nusbaum’s piece about the importance of saving, and how at a certain points in your life savings rate can become more important than your investing returns.
I haven’t written enough about the thrift aspect of personal finance lately, and I think I need to do a post on this in the coming week, and probably illustrate some of the points that Roger makes in an Indian context.
Moving along, let’s look at an insurance piece now -Â Hemant’s views on LIC Samridhi Plus – it’s a hard – hitting article and if you were thinking about this policy then I strongly recommend you read it.
Finally, NYT on Japan’s tragedy – our thoughts and prayers are with them, and I hope for the least damage to them.
I’m always looking for new things to do, and am really excited about the first ever infographic that I created!
It took quite a while to develop, but was quite a fun exercise. I hope you like it, and all the best to India!
As expected, there was a phenomenal discussion on yesterday’s post about term insurer’s sample quotes, and among the many great comments there – Salil left a comment about Form L-40, which is a mandatory disclosure that all life insurers have to make about the number of outstanding claims, new claims filed with them, number of claims they settled, and the number that they repudiated.
I went to the IRDA website, and sure enough it had links to the disclosure pages of all the insurers, and I was able to consolidate the data from those links.
I chose December 31st 2010 quarter because I wanted to compare a recent quarter and that was one which most insurers had info about. In a few cases where I didn’t find information about that quarter I took another quarter and that is showed in the table header.
I left the insurers that had no quarterly data available but there were just 3 of those.
The next thing I did was to consider data only for deaths because that’s what we’re interested in.
I have split the data into 3 tables because that is easier to read.
Now, the claims repudiated are further reported as claims repudiated that were less than 2 years old, and claims repudiated that were greater than 2 years old. Insurers that have been around for longer like LIC will have a lot of claims that are more than 2 years old, and they can’t ordinarily challenge those claims. However, the fact that there are claims repudiated that are more than 2 years old shows that there are some exceptions to this – most probably where you can establish fraud. If any of you know what this is then please do leave a comment. In the case of LIC – out of the 506 claims they repudiated 443 were of less than 2 years, and 63 were greater than 2 years, so about 12.5% of the claims they repudiated were older than 2 years – not an insignificant number.
This makes for great reading along with the sample quotes because this shows you the volume of business each insurer is doing, and how they fare in terms of paying out claims.
| 1 | Insurer | Aegon Religare | Bharti AXA Life Insurance | Bajaj Allianz Life Ins | Birla Sunlife | Canara HSBC OBC Life Ins | DLF Pramerica |
| 2 | Claims O/S at the beginning of the year | 22 | 127 | 2,548 | 173 | 74 | 14 |
| 3 | Claims reported during the year | 27 | 222 | 6,485 | 3,113 | 72 | 17 |
| 4 | Claim settled during the period | 13 | 168 | 6,268 | 3,029 | 50 | 6 |
| 5 | Claims repudiated during the period | 20 | 24 | 465 | 146 | 11 | 6 |
Here is the next table.
| 1 | Insurer | Future Generali | HDFC Life | IDBI Federal | India Life (for 31st March 2011) | ING Life | Kotak Life |
| 2 | Claims O/S at the beginning of the year | 2 | 208 | 70 | – | 112 | 411 |
| 3 | Claims reported during the year | 230 | 1,196 | 105 | 13 | 1,550 | 631 |
| 4 | Claim settled during the period | 162 | 1,139 | 75 | 7 | 1,462 | 627 |
| 5 | Claims repudiated during the period | 51 | 40 | 19 | 1 | 58 | 33 |
Here is the last one.
| 1 | Insurer | SBI Life | Shriram Life (June 2010) | Tata AIG | LIC | Reliance Life | Sahara Life (Sep 2010) |
| 2 | Claims O/S at the beginning of the year | 685 | 475 | 26 | 53,765 | 957 | 281 |
| 3 | Claims reported during the year | 5,745 | 212 | 883 | 181,165 | 4,025 | 233 |
| 4 | Claim settled during the period | 4,622 | 197 | 702 | 182,211 | 3,272 | 156 |
| 5 | Claims repudiated during the period | 894 | 138 | 152 | 506 | 256 | 70 |
Finally, here is a chart on the claims settled as a percentage of new plus outstanding claims for the quarter of December 31st 2010 (in most cases). (Click twice to magnify).
Now you have quote data, and you have volume data, so you can take a look at that and see how that stacks up. I’ll not give any opinion on these numbers because I’m still not very certain what to make of them myself, and feel that we need to look at some more data.
In the meantime, please leave your comments on what you make of all this data, and also on how to build to this post.
This is turning out to be the best reader driven discussion we’ve had so far, and it’s only appropriate because a lot of you have much more knowledge on insurance than I do.
Finally here are the links to the sources, and apologies for not responding to comments – had limited time and thought this exercise was more meaningful.
http://www.aegonreligare.com/financials.php
http://www.bharti-axalife.com/pdf/Q3-L-40_Claims_data.pdf
http://www.bajajallianz.com/Corp/aboutus/financial-info.jsp
http://insurance.birlasunlife.com/AboutUs/PublicDisclosure/tabid/386/Default.aspx            http://www.canarahsbclife.com/lifeapp/portal/canh/financialStatement
http://www.dlfpramericalife.com/PublicDisclousres.aspx
http://www.futuregenerali.in/LifeInsurance/LifeOther/LifeOtherPages/PublicDisclosure.aspx# Â http://www.hdfclife.com/AboutUs/AboutUsFinancialHighlights.aspx
http://www.idbifederal.com/Pages/FinancialStatement.aspx?Year=null
http://www.indiafirstlife.com/web/indiafirst/public-disclosure
http://www.inglife.co.in/aboutus/financialstatement.aspx
http://insurance.kotak.com/about-us/corporate-overview.php#
http://www.reliancelife.com/rlic/AboutUs/Financepage.aspx
http://www.saharalife.com/temp/viewreport.asp
http://www.sbilife.co.in/sbilife/content/37_4190
http://www.shriramlife.com/formslist6.jsp;jsessionid=04B83A3EB4E5C4834D20C039209DEA79Â Â Â Â Â Â Â Â Â Â http://www.tata-aig-life.com/public-disclosure/public-disclosure-2011-q3.html
http://www.licindia.in/publicdiscloser/2010-2011/122010/index.html
There was a very well researched comment on the forum the other day where reader SM Gupta had researched term insurance quotes from various insurers, and presented his findings.
You can see the comparison below.
Sample Quotes:
| Company Name | Plan | Annual Premium |
| Met Life India Insurance | Met Protect | Rs. 5,800 |
| Aegon Religare Life Insurance | iTerm Plan | Rs. 5,900 |
| ICICI Prudential Life Insurance | iProtect | Rs. 5,900 |
| Kotak Mahindra Old Mutual Life Insurance | E-Term / E – Preferred Term | Rs. 6,370 |
| Kotak Mahindra Old Mutual Life Insurance | Preferred Term Plan | Rs. 7,638 |
| Bharti AXA Life Insurance | Elite Secure | Rs. 9,850 |
| Future Generali Life Insurance | Smart Life | Rs. 10,050 |
| HDFC Standard Life Insurance | Term Assurance Plan | Rs. 11,871 |
| Aviva Life Insurance | Life Shield Plus | Rs. 12,243 |
| Bajaj Allianz Life Insurance | New Risk Care | Rs. 13,540 |
| Tata – AIG Life Insurance | Life Raksha | Rs. 13,900 |
| Birla Sunlife Insurance | Term Plan | Rs. 15,332 |
| LIC of India | Amulya Jeevan | Rs. 15,450 |
You can see that there is a wide range in these quotes, and the natural question is which one to of these policies should you choose. I haven’t double checked these quotes, but the ball – park seems right to me.
Unfortunately, I can’t answer that question since I’m not well versed with insurance, but I thought I’d post this here with my own thoughts, and also share what I have done myself as far as term insurance is concerned, and then leave it open for discussion.
When I searched for term insurance I found out about this wide range, and ultimately decided to go for a LIC policy even thought it cost more.
One of the primary reasons for opting for LIC was that we have known a particular LIC agent for a very long time, and he has provided my family excellent service in the past for car and other insurance needs.
We have had our share of Mediclaims and car insurance claims that have been processed without hassle, so that added to my confidence in going with him.
No one contemplates mortality, but if something were to happen, then I feel comfort in the thought that this gentleman is more likely to assist my family than a stranger.
The second reason is that LIC has a fairly high claim settlement ratio, and while I’m not intimately familiar with how these numbers are calculated – it does inspire confidence that they payout on a large number of claims.
The third reason is that I plan to split the total insurance into two policies – one LIC and one other insurer, as that makes it easier to manage the insurance if in the future I decide that I don’t need so much cover, or if one insurer declines to pay, then at least there is the other one.  So far, I haven’t been able to get to the second insurance cover, but that was the initial plan.
The last reason was that while in percentage terms the numbers might vary a lot – in absolute terms it is not very significant, and I’m not too concerned with paying the extra money.
So those are some of my thoughts – please add to the discussion, as I’m sure a lot of you have dealt with the insurance question, and chosen one over the other. You can leave a comment here, or at the forum post.
There was a question on the forum on how you can save capital gains that arise from selling property, and Loney responded to that by the suggesting the Section 54EC Capital Gains exemption bonds.
I have not written about them earlier, so I thought I’d do a post on these bonds now. So, here is a post with some details on 54EC bonds.
These bonds are specifically meant for people who have made some long term capital gains, and would like to save capital gain taxes on this amount.
Only long term capital gains are eligible for these bonds though, and short term gains are not covered under section 54EC.
The maximum gains are capped at Rs. 50 lacs in a year, so you can invest in a maximum of Rs. 50 lacs worth of 54EC bonds in a year to avail of the tax benefit.
Please note that the section is not cut and dry, and there are conditions on how much money will be exempted based on whether the profit made is more than the cost itself, and I will try to detail out the sections in a later post, or if you have a link that does a good job of explaining this then please leave a comment and I’ll link to it.
REC (Rural Electrification Corporation) is issuing these bonds, and from the current information present on their website I see that they will be issuing these bonds till March 31st 2011.
Here are their contact details:
(Application Form can be downloaded from the website : http://rec.rcmcdelhi.com)
Our Registrar to the Issue :
RCMC Share Registry (P) Ltd.
B-106, Sector-2, NOIDA
U.P. -201301
Ph.: 0120-4015880-81
Fax: 0120-2444346
Email:bonds@rcmcdelhi.com
Website : http://rec.rcmcdelhi.com
& Non-Priority  Sector Bonds
Email : bonds@rcmcdelhi.com
Investor’s Relation Cell
Core-4, SCOPE Complex
7, Lodhi Road
New Delhi – 110003
Email: investorcell@recl.nic.in
Phone : 011-24361320, 011-2436 5161 extension 527
Tollfree No. : 1800-200-1333
NHAI is also issuing 54EC bonds, and their details can be found on this page.
Currently, both REC and NHAI are offering 6% interest on their bonds.
The lock in period of these bonds is 3 years, so you can’t sell them before the 3 years.
Yes, the interest from these bonds is fully taxable, and there is no exemption on that. TDS is however not charged on them.
Resident individuals, HUFs, partnerships, companies, banks, financial institutions, regional rural banks, co-operative banks, insurance companies, provident funds, super annuation funds, gratuity funds, mutual funds, FIIs, trusts authorized to invest bonds, NRIs investing out of NRO account on non repatriable basis can invest in these bonds.
So, everyone except your pomeranian can invest in these bonds.
A lot of bank branches sell these bonds, so you can ask at your local bank. Unfortunately, I don’t have a list of branches with me, so you will have to rely on other sources, or check with your local branch.
No, you don’t necessarily need a demat account for them because the bonds are issued in paper as well as demat form.
I’ve tried to cover whatever points I could think of about these bonds, but I’m sure there are several aspects that I missed, so feel free to ask any questions in the comments section, and of course any other observations are also welcome.
