DV-Mint – Page 23

March 13, 2022

Investing in Uncertain Times

Investors, like most people going about their daily lives, don’t like doubts and uncertainties – like the Covid-19 pandemic, or the Russia-Ukraine crisis. So, we would anything we can to avoid it.
Of course, it’s a good idea to avoid entirely what you can’t totally get your mind around, successful investing is largely about dealing well with uncertainties.
In fact, uncertainties are the most fundamental condition of the investing world.
Seth Klarman wrote in Margin of Safety –
“ Most investors strive fruitlessly for certainty and precision, avoiding situations in which information is difficult to obtain. Yet high uncertainty is frequently accompanied by low prices. By the time the uncertainty is resolved, prices are likely to have risen.
Investors frequently benefit from making investment decisions with less than perfect knowledge and are well rewarded for bearing the risk of uncertainty. The time other investors spend delving into the last unanswered detail may cost them the chance to buy in at prices so low that they offer a margin of safety despite the incomplete information.
What Klarman suggests is that if you need reassurance and certainty, you’re giving up quite a bit to get it. Like high fees to experts who would predict the future (which you falsely believe as certainty, which it isn’t), or expensive prices for stocks (because everyone knows their future is clear, which often isn’t).
On the other hand, if you can get in the habit of seeking out uncertainty, you’ll have developed a great instinct. Plus, in the long term, it’s highly profitable.
Mohnish Pabrai wrote in his brilliant book The Dhandho Investor –
“ Wall Street sometimes gets confused between risk and uncertainty, and you can profit handsomely from that confusion. The Street just hates uncertainty, and it demonstrates that hate by collapsing the quoted stock price of the underlying business. Here are a few scenarios that are likely to lead to a depressed stock price:
High risk, low uncertainty
High risk, high uncertainty
Low risk, high uncertainty
The fourth logical combination, low risk and low uncertainty, is loved by Wall Street, and stock prices of these securities sport some of the highest trading multiples. Avoid investing in these businesses. Of the three, the only one of interest to us connoisseurs of the fine art of Dhandho is the low-risk, high-uncertainty combination, which gives us our most sought after coin-toss odds. Heads, I win; tails, I don’t lose much!

While value investors are typically averse to taking high risks, that’s more a reflection of the price they’re willing to pay for any given investment than the types of situations they most often pursue, which are often fraught with uncertainty.

As businesses constantly evolve and change in response to challenges and opportunities, the lack of clarity around those changes. And the risks inherent in the potential outcomes can cause share prices to diverge widely from underlying business values.

The ability to recognize and capitalize upon that dynamic, and understand whether it’s temporary or permanent, is a key element of what sets the best investors apart.

Source: SafalNiveshak

March 10, 2022

How To Rebalance Your Investment Portfolio

Let’s have a look at how portfolio rebalancing works. In a word, rebalancing is selling one or more assets and reinvesting the proceeds to reach your target asset proportions. In order to realign your asset allocation with your risk tolerance, you would either sell some of your stock investments and transfer the money into bonds or buy more bonds or any other asset class in the portfolio.
Why is balancing and rebalancing a portfolio so important?
The goal of portfolio balancing is to attain your ideal risk and return potential proportions in your investment portfolio.
When you first design and commit funds to an investment strategy, that is known allocating your assets. As a simplified example, you may want to have 70% of your portfolio in stocks and 30% in bonds. When you initially fund your portfolio in this manner, it would be what you consider a balanced portfolio.
The issue is that these proportions in your portfolio do not remain constant over time. Let’s imagine the stock market doubles in value in five years, while the bond market rises at a slower rate. The value of the equities in your portfolio would outperform the value of the bonds, putting your investment portfolio out of balance dramatically.
You can and should rebalance your investment account to maintain a balanced portfolio over time. If your original risk tolerance spurred you to invest 70% of your money in stocks, then your rebalanced portfolio should be 70% stocks once again.
Which rebalancing method is ideal?
Option 1 : Sell high-performing investments and buy lower-performing ones.
Option 2: Allocate new money strategically. For example, if one stock has become overweighted in your portfolio, invest your new deposits into other stocks you like until your portfolio is balanced again.
You may prefer the second option because rebalancing in the “traditional” way — without investing any additional money — requires you to sell your highest-performing assets. We’re generally fans of the second option since rebalancing by contributing new funds enables you to leave your winners alone to (hopefully) continue to outperform.
Determining how a balanced portfolio looks for you
Unfortunately, there’s no perfect method of determining your ideal asset allocation in a balanced portfolio.
One method of determining the best asset allocation for you is called the Rule of 110. Subtract your age from 110 to determine what percentage of your portfolio should be allocated to stocks, with the remainder mostly in bonds. For example, I’m 39, so this means that about 71% of my portfolio should be in stocks, with the other 29% in bonds.
You can use this method, but it’s also important to consider your individual situation. For example, if you consider yourself to be a risk-tolerant person and short-term market fluctuations don’t bother you, then your balanced portfolio could shift a bit in favor of stocks. On the other hand, if stock market volatility keeps you up at night, then you can err on the side of caution by allocating more money to bonds or even to cash. A portfolio that is balanced for me may not be — and is probably not — balanced for you!
When should you rebalance your portfolio?
Once you’ve determined your target asset allocation and have created a balanced portfolio, the next logical question is, When should I rebalance my portfolio?
There are two basic approaches to rebalancing. You can either rebalance your portfolio at a regular interval (such as once a year) or just when it becomes plainly unbalanced. There is no right or wrong way to rebalance your portfolio, but once or twice a year should do unless your portfolio’s value is exceptionally volatile.
One big advantage of portfolio rebalancing for long-term investors is when market values plummet, our tendency is to liquidate our holdings before things worsen. And, when market prices appear to be rising and “everyone” appears to be making money, that’s when we want to invest. This is natural human behaviour, yet it is the polar opposite of buying low and selling high.
One of the most significant advantages of having a balanced portfolio over time is being compelled to sell high and purchase low. For example, if the stock market falls and equities lose 30% of their value, your bond allocation is likely to become excessively high in your portfolio. Selling some of your bond investments and buying equities while they’re cheap could help you restore balance to your portfolio. Having a well-balanced portfolio and taking steps to maintain it can help you avoid depending too heavily on emotions when making key investing decisions.

Source: Pickright

March 7, 2022

5 Ways You Can Take Advantage Of A Stock Market Crash

No matter how hard you prepare, there is also some impact on your investments when the stock market crashes. A lot of experts list things to be prepared for when the stock market crashes but what after it does? There are not many experts who have listed foolproof solutions. Not everyone is patient or financially stable until the stock prices go back up again and, in such situations, the pressure is quite high. To start off, we suggest you take a deep breath and relax your body and the second step would be to check out the checklist below that will help you with what to do when the stock market crashes.
Nothing – If you are a long-term investor
The first and foremost thing to do if you are a long-term investor is do nothing. A long-term investor has less to worry about the stock market situation as it doesn’t impact them with major hits. The reason for this is simple, the stock market’s volatility; if the market is on its knees today, in the coming few days, it will be up in the sky again. It is best to do nothing as a long-term investor as the wave continues to flow with both upward and downward thresholds.
Additionally, it is an open window to buy more stocks for long-term investment as the prices are on the downward threshold. This way, you can book more profit for the future by spending only a little during these times.
Invest only as much as you can after saving enough for the next 5 years
A stock market crash is no good news for the short-term marketers and it is always disturbing. The common reason for this is the money involved in the market is actually the money taken as a loan or by submission of entire assets. We do not recommend any marketer to invest money in the stock market without saving enough for the next 5 years.
A stock marketer needs to be intelligent and know the stock market’s volatility. Blindly investing in the stock market is no good and will ultimately lead to heavy losses. If you are investing in stocks today, ensure you have enough fuel left if the money is taken away. A trick that I personally use is to invest certain money in the stock market which is meaningless to me. So, even if the money is drowned tomorrow, I am still running with the regular stream of income.
Diversifying Income Portfolio
As a clever marketer, one should also build assets outside the stock market that can ensure continuous money flow even when the stock market crashes. Diversifying the income portfolio can reduce the impact of the stock market crash. We suggest you build more and more assets when the stock market is working in profits for you. A continuous running stream of income ensures you are financially stable even after the stock market crash. Start today and build a strong and more diversified income portfolio excluding the stock market. As the saying goes by Warren Buffet, “Don’t put all your eggs in one basket,” we suggest you do the same, be diversified.
Buy More Stocks, if you can
There is a perfect opportunity to buy more stocks when the market crashes. If you have saved enough and have other assets that generate income for you, this is the right time to buy more stocks. The reason for this is simple, a stock market crash signifies all the prices are down and this is the perfect opportunity to buy low and sell high.
We all know the thumb rule of the stock market, buy low and sell high. In the case of a stock market crash, you can buy more short-term and long-term stocks that will book profits when the market is up again. But are you going to buy the stocks blindly because they are at a low price? I bet that would be a mistake. We get it, the stock market crash is luring investors who want to buy more but that does not mean you can buy stock blindly. Here, as a stock marketer, one needs to have patience and solid research of the company. This research includes important data such as the estimation of how long it will take the companies to raise the stock prices by giving a great performance if the expense ratio and other statistical data point the investors in the right direction and if the stock market crash has, directly and indirectly, impacted the company in a way that can disturb the performance of the companies.
After all of the above is taken into consideration, one can invest and book more profit after the stock market crash. However, all of this hard research needs to be done in minimum time before the stock market crash impact is reduced and the prices rise again.
Get more long-term investments
This is a perfect opportunity to invest in long-term stocks is right when the market is hit the rock bottom. The reason for this is simple, long-term stocks that last for over 10-25 years yield more profit because of the indirect impact of deflation and high-profit margins. You must be wondering how deflation can be one of the reasons for higher profits, the reason is what you invest today will hold lesser value in the coming 10,12,15 years because of the deflation, and that time, the investment may be considered minimal but the profits will be much more in numbers.
Final Words
We understand stock market crashes are disheartening but to make a wise decision is all it takes along with patience. If you can, buy more stocks after the crash and look into investing in long-term stocks. The stock market is volatile, if it is rock bottom today, it will also rise in the near future.

Source: Nirmal Bang

March 3, 2022

Things you didn’t know about Life Insurance

On the surface, a Life Insurance seems quite straightforward. An insurance company will receive premiums from the policyholder and in exchange, they will choose to pay out a death benefit to the policyholder’s beneficiaries. However, most life insurance plans can be a lot more complex than this. People fail to realise that there are a lot more options and types of life insurance policies out there that have perks and can be used to one’s advantage.
Here are a few things you didn’t know about Life Insurance:
1. Income source in your time of need
A policyholder need not have to pass away to receive their death benefit early from their Life Insurance policy. In fact, this is a common life insurance myth. The fact is that many plans offer critical illness riders that can pay out funds in case someone were to become disabled, experience a heart attack, suffer from an invasive form of cancer, stroke, or more such things. Hence, Life Insurance plans can provide an important safety net for those who are unable to work or have mounting medical bills. For these reasons, it is recommended that one use these funds while a person is alive, rather than using them solely as a death benefit.
2. A personal pension plan
Some financial advisors recommend that one can treat a Life Insurance as one’s own personal pension plan. In fact, there exist many retirement-oriented Life Insurance plans. These are pension plans, ULIPs, endowment plans etc. To add to this, Life Insurance is very tax-friendly in India, making it an attractive means of lowering one’s tax burden, both prior to and during one’s retirement.
3. Waiver premiums by adding a rider
Did you know that you have the option of premium waive riders that come with multiple policies? It is these provisions that often help those who are disabled keep their coverage, without continuing to pay premiums. As suggested in the name itself, this kind of rider eliminates the need to pay premiums for those who have a qualifying illness or injury. Similar to living benefits afforded to policyholders by some Life Insurance policies, premium waivers are rarely utilised but are incredibly useful.
4. Maturity Payout
One of the biggest Life Insurance myths is that the company will not return your premiums if you survive your policy’s term. This may be true for some policies but not all. In fact, you can opt for the return of all your premiums if you reach the Life Insurance policy’s end and never make a claim. You will be required to pay extra money for the return of your premium rider. However, without being aware of this feature, some people may let go of all of their invested premiums when they could have had it returned to them. Many policies naturally offer a maturity payout in the form of the Sum Assured which is secured to the policyholder, if they survive the policy term.
5. Can be utilised as collateral
A Life Insurance fun fact that you probably weren’t aware of, is that depending upon the policy, one can use their Life Insurance as a collateral to secure a loan. Besides term insurance plans, this feature tends to apply to all other Life Insurance plans. To explain this simply, a plan that comes with a maturity benefit can also be used as a collateral if one wishes to borrow funds, thereby offering you financial flexibility when you are in need of it the most. Hence, if you are desperately seeking to take a loan, you can use your Sum Assured as a collateral for the same.
6. Tax-Free Source of Income
A whole Life Insurance plan that builds up a cash value over a time period can serve as a tax-favored repository of funds that can be utilised by you in your time of need. This cash value can be used for nearly any financial requirement you might have, whether it is to fund your children’s education or to pay for a vacation. This cash value is also completely tax-free since it is not considered to be a profit.
Conclusion
The truth about Life Insurance is that it is more than just a financial security for your loved ones, in case you are not around. This Life Insurance myth needs to be busted so more people can discover Life Insurance plans worth putting their money into. Some other Life Insurance fun facts are that it can serve as a loan collateral, become a tax-free income source and aid your retirement goals. You also have the flexibility to waive off your premiums in case of an accidental disability or illness.

Source: ICICI Bank

February 27, 2022

Everything you ever wanted to know about Package Motor Insurance

A package policy is an insurance cover which in addition to covering third party liabilities, covers the insured against damages caused to their own vehicle such as accidental damage, fire, vandalism, acts of god, natural calamities, etc. A package cover comes at a higher premium compared to a plain third-party (TP) cover simply because it offers wider protection.
A basic third-party insurance protects the vehicle owner against any liability that could arise when a third-party gets injured or dies in case of an accident. Third party insurance is mandatory by law in order to drive on Indian roads, and hence, most people buy it to adhere to regulatory requirements. However, a package motor insurance covers damages to one’s own vehicle in addition to third-party damages and liabilities.
Factors Affecting Motor Insurance Premiums
A host of factors influence the premium of package insurance covers. Key factors include:

• Make and model of the vehicle

• Age of the vehicle

• Add-ons opted for

• Customer profile

• City of the customer

Motorists can choose the suitable coverage required for their vehicle. In case of only a TP cover, the premiums are regulated by the Insurance Regulatory and Development Authority of India (IRDAI).

What Makes a Package Motor Insurance Policy Attractive?

- • Extensive coverage: A package motor insurance provides protection to the insured’s own vehicle, personal injuries to oneself and passengers based on the type of policy chosen. For instance, a package policy will cover the damages caused due to rain or natural disasters like floods and earthquakes. If the vehicle owner has only a third-party cover, they would have to bear the expenses arising out of such events from their own pocket.
- • Value for money: Car owners can be at ease, as they do not have to fret over costly repair expenses. In fact, if they take add-ons such as depreciation cover and consumables, the only requirement would be for them to pay for the voluntary excess (in the case opted for) and compulsory deductibles during the claim amount. Note that unless the insured has opted for a zero depreciation cover, the depreciation in addition to the deductible would be payable out of pocket.
- • Relevant Add-ons: Unlike a third-party car insurance cover that gives the applicant limited coverage on their vehicle, package insurance offers enhanced coverage options. Also, it can be further leveraged by opting for add-on covers such as zero depreciation cover, roadside assistance, engine protection and passenger cover etc., at a small added cost.
- • Option to customize IDV (Insured’s Declared Value): IDV is the current market value of your car. A lower IDV can result in a lower premium, which can be tempting, but it also offers lower coverage in case of theft or loss of the vehicle. New-age insurers offer the benefit of customizing the IDV of the vehicle (subject to prescribed limits) while opting for insurance, and we suggest taking adequate cover.

Events Covered Under a Package Insurance Cover
Accidental damage: If the insured or the insured’s car suffers any loss due to an accident, a package cover will pay for the damages.
Theft: Car thefts are not very common in India. However, a few localities are prone to thefts, and hence, such an eventuality cannot be ignored completely. If an insured’s car gets stolen, they can file a claim for the same if the vehicle is covered under a package motor insurance policy.
Damage caused by natural disasters or severe weather: Damages sustained by the vehicle due to natural disasters such as floods, earthquakes, hurricanes, tornadoes, etc., can be covered under a package insurance scheme. People who live in disaster-prone areas would benefit by opting for one such policy. For example, residents that live near the coastal belt can insure their vehicles against damages from frequent cyclones and floods that occur during monsoons.
Vehicle damage caused due to civil disturbance: Due to the political instability in certain areas of the country, often, vehicles tend to sustain damages in the event of riots or violent protests. Such damages too are covered under a package policy.
Fire: Destruction to the car caused by fire can be recovered by opting for a package insurance policy. Such covers reimburse damages caused due to garage fire, engine fire, and fire caused due to mechanical dysfunction.

What’s Not Covered In Package Motor Insurance

Certain events and incidents may not be covered even if you have a package motor policy. One such example is if your vehicle endures damage due to a collision, then a car insurance claim cannot be made. A few other situations that are not covered under the package insurance cover include:

Electrical or mechanical breakdown: Generally, under the standard motor policy, a mechanical and electrical breakdown is not covered unless the insured can prove that damage was caused due to flooding.

Driving without a license: In case you are found driving the car without any valid driving license, then the damages and/or losses incurred will not be covered.

Drunk driving: A package policy does not cover any losses or damages incurred if you are caught driving the car under the influence of alcohol.

Damage to tyres: It does not cover any loss or damages to the tyres of your vehicle unless it is a direct result of a car accident.

Loss caused due to nuclear weapon/war: It does not cover any loss or damage caused to your vehicle as a result of war, mutiny, nuclear weapon or other such dangers.

Advantages of Opting for Package Insurance

Covering damage to one’s own vehicle: It ensures that the insured wouldn’t need to bear the resulting financial loss regardless of the severity of the damage. However, the cover wouldn’t pay for the exclusions that are explicitly mentioned in the policy document.

Covering third-party damage: In cases where the insured ends up injuring another person due to their negligence, a package insurance policy guarantees the coverage of the loss caused to the third party. This policy covers the non-criminal liability expenses even when the insured is proven at fault and has caused bodily or property damage to a third party.

Provision of add-on covers: Facilities such as zero depreciation cover and engine protection cover are not offered under a third-party liability policy, but they can be bought as add-on covers to ensure maximum protection from unfavorable events.

Procedure of Filing a Package Insurance Claim

Step 1: Registration of claim: The insured would be required to intimate their insurer about the claim. This can be done by visiting the official website or by writing to the insurer via email.

Step 2: Submission of the form and documents: The insured will need to download and fill the claim intimation form with details of the insurance policy, insured vehicle, owner of the insured car, etc. In cases of theft, the insured may also have to submit a copy of the First Information Report (FIR).

Step 3: Survey the damages: In this step, either one can perform a self-survey or opt for a digital survey . If the insured opts for self-inspection, the insurer will require you to share images for inspecting the damages caused to the vehicle. In the absence of a self-survey facility, the damages are evaluated by a surveyor or a workshop partner.

Step 4: Tracking the claim: Once the insurer is informed and the claim form is submitted along with the required documents, the claim is processed. The insured can track their claim status on the insurer’s website or a designated portal.

During renewals, one can also upgrade their policy from a third-party cover to a package insurance policy. The process of renewing car insurance has been made simple by new-age Insurtech companies. After choosing the insurer, policy and add-ons of one’s choice, the process can be initiated by filling in the vehicle details like make, model, variant, registration date and previous policy details.

Despite the extensive coverage a package motor policy offers, you may still wonder if you should opt for a package cover or stick to only a third-party cover. It is more effective to have package car insurance for a relatively new vehicle as the market value would be high, and any potential damage can result in a huge financial burden.

Bottom Line

Even if one does not choose a package coverage, it is important to bear in mind that in case of any unforeseen damage to the car, the steep bill and potential losses will be borne by the individual alone. Hence, it is necessary to weigh the costs of such potential repairs/ fixes against the premium that one would pay towards a package insurance cover. In most cases, opting for a package policy is a smarter option as it covers the insured against most forms of unforeseen events or damages that can be caused to their vehicle.

Source: Forbes

February 23, 2022

All That You Need To Know About Commercial Insurance

Commercial insurance or business insurance is a type of insurance that covers risks related to any business. There are various kinds of insurance policies available in the market to help different businesses get financial coverage for various business risks. It could be insurance for a shop, mall, factory, warehouse or a vehicle.
What is Commercial Insurance?
Commercial insurance offers protection to businesses from any unforeseen issues. Some of the most common insurance policies are shopkeepers’ insurance, warehouse insurance, transit insurance, product and public liability insurance, employee liability insurance, marine insurance, property insurance and many more. These policies provide a safety net to business owners in case of any problem.
Types of Commercial Insurance
Let us look at some of the types of commercial insurance available in India that can help minimise and handle various risks related to businesses.
1. Shopkeepers’ Insurance: Shopkeepers’ insurance policy is an ideal choice for retail shopkeepers dealing in grocery, apparels, small restaurants, sweet shop, etc. The comprehensive policy covers all the risks and contingencies faced by small or mid-sized shop owners. It covers the losses related to following issues:
• Fire & Allied Perils
• Burglary and housebreaking
• Machinery breakdown
• Personal accident
2. Transit Insurance: When valuable business goods are transported from one location to another, for example, from supplier’s factory to the retail outlet, you should consider transit insurance to cover any loss due to damage or loss of the consignment. The responsibility of taking the transit insurance policy must be determined in the sales contract, and the insurance must be taken well before goods leave the supplier’s premises. Transit insurance only applies to the goods transported over land. Following are the goods which are covered under transit insurance:
• Packaging material
• Manufactured goods
• Raw materials
3. Commercial Vehicle Insurance: Vehicle owners who are in the business of transporting passengers or goods must take commercial vehicle insurance that covers the commercial vehicle against various types of external damage. Some of the important features of commercial vehicle insurance are:
• Death or bodily injury caused by the use of the vehicle
• Any damage to the property because of the use of the vehicle
4. Liability Insurance: This policy offers protection to businesses and individuals from risk that they may be held legally and liable for, especially in the case of hospitals and business owners. For example, a factory owner may face a liability claim from the employees who gets electrocuted inside the factory. The employee liability insurance may help in such a situation and handle the treatment costs along with legal costs, if any arise.
5. Warehouse Insurance: Businesses in which majority of the functions are dependent and happens in multiple warehouses may consider buying a warehouse insurance. It covers natural calamity, fire and similar unforeseen situations. Moreover, you can get the compensation against human-made hazards like theft and burglary.
6. Marine Insurance: When goods are shipped to international destinations through the sea, it undergoes several changeovers. It travels by rail, road, water and perhaps airways as well. It also changes many hands before it reaches the final destination. The shipowners take Hull and Machinery insurance to protect the ship’s basic structure and machinery. The cargo owners take marine cargo insurance to protect the consignment under transit. The marine policy may cover specific time-frame or the voyage or both. Make sure to strike the correct balance between adequate coverage and reasonable insurance premium to avail optimum coverage for your cargo.
7. Office Package Insurance: This type of insurance protects one’s office and everything under the roof, including the infrastructure. It offers protection to the office premises, in case of any damage due to fire, theft, burglary, earthquake, etc. It also provides personal accident coverage. One should understand all the points that are included and excluded in the policy. For instance, the policy does not cover any problem arising due to illegal activity or war-like situation.
Coverage under Commercial Insurance
Various types of commercial insurance offer coverage for various cases and situations. Let us understand some types of coverage provided by various insurance companies.

- Home insurance covers the house and the content inside the structure
- Group health insurance covers medical expenses during hospitalisation
- Liability insurance covers costs of lawsuits and other damage to person or property due to your business, profession or vehicle
- Transit insurance offers coverage for loss or damage to any cargo during transportation

The above mentioned list is not limited to these points. The complete list is available on the official website of various insurance companies

Claim Process

In case of any unforeseen damage, you need to immediately inform the insurance company about the eventuality through its 24/7 insurance helpline. You should be aware of the claim process and follow it properly in order to avoid any claim rejections. However, the claim process and the documents required vary for different insurance companies and plans. Here is a basic understanding of how to go about the claim process.

• Inform the insurance company, if you need to make the claim

• Provide the details like policy number and other documents, including duly filled in claim form
• Provide the witnesses, proofs, FIR copy, medical reports, etc., as per the requirement of the type of your insurance plan
• On receiving the documents, a surveyor from the insurance company will verify all the details
• If accepted, the claim is processed within the stipulated time, else it might be rejected
Exclusions under Commercial Insurance

While offering coverage, insurance companies do not include all cases and situations. The damage and loss that are not covered by the insurance firms are called exclusions. There are different sets of exclusions for different insurance types and plans. The list mentioned here does not include all the exclusions. To know them in detail, please visit the official website of that particular insurance provider.

• For any insurance policy, any regular wear and tear or wilful negligence is not covered

• Any loss due to war or war like perils is not covered

Companies Offering Commercial Insurance Plans in India

With more awareness, an increasing number of people are now considering buying various types of commercial insurance for their business needs and requirements. Some of the companies selling different types are:

• HDFC ERGO

• New India Assurance

• Bajaj Allianz

• Bharti AXA

• United India Insurance

• ICICI Lombard

• TATA AIG

Important Aspects

Not all insurance companies provide all kinds of insurance policies and the coverage varies from company to company. According to your need, make sure to examine all terms and conditions of the insurance policy that suits your specific business needs. Some of the points to be considered are:

• Make sure not to underestimate the valuation of the property under insurance. You may save a few hundred rupees but may land up in huge losses in case of an unfortunate event

• Make a complete declaration of the nature of your business, your perceived risk and probable causes of loses. The insurance company may reject your claim, if significant information is not disclosed or misrepresented while taking the policy

• Avoid exaggerated or false claims, as it can result in denial of the insurance. The serious misleading claims are considered fraud, and the insurance company may file police complaints against such an act

Advantages of Commercial Insurance

To safeguard your business and property from any unseen circumstances and to handle the associated financial risks, it makes sense to opt for commercial insurance. Some of the advantages are:

• If you are running a company or owning an office, you would need insurance to protect your premises and employees. For this, you can select the appropriate type of commercial insurance for yourself. This protects you from all possible financial risks

• In case your business deals with commercial vehicles, you cannot ignore commercial vehicle insurance. This gives you a chance to manage the heavy costs incurred in case of any accident or eventualities

• In case your profession or business happens to deal with clients or third party, a liability insurance under commercial insurance is a must in order to manage the losses and any costs for legal issues

Source: Paisabazaar

February 20, 2022

Mistakes To Avoid For A Good Business Credit Score

For new business owners looking to set up their business or a medium, small and micro enterprise (MSME) wanting to explore new business opportunities for scaling up, it is necessary to know that strong creditworthiness is imperative to avail credit from formal lenders to achieve your business goals.
Here’s what you need to know about the common mistakes an MSME should avoid in order to stay creditworthy to avail business loans.
What is a Business Credit Score?
Your business’ credit score is calculated based on your credit behaviour over the previous 36 months. In case you have not availed any loan during this tenure, the credit bureau will not be able to assign a credit score due to dearth of data.
The proprietor’s credit behaviour and personal credit score, in the case of both a partnership and proprietorship, also counts when the business is assessed for lending.
Therefore, it is best that the business avails some loan, or the proprietor has credit card dues, and they are repaid on time, such that you can have a good score when you have to opt for a loan.
Whether it is to invest in new equipment, or to expand the business, or to pay off supplier credit, every business owner may have to take a loan at critical points in their business lifecycle. However, if your credit score is low, many banks and lending institutions will not approve your business loan application.
Your credit score would also impact the rate of interest and the structure of the loan that you will get from non-banking financial companies (NBFCs). Hence, it is imperative to understand what mistakes could impact your business’ credit score.
Mistakes To Avoid For A Good Business Credit Score
High intensity of loan build-up
Credit score gets impacted if a business owner takes too many loans in a short period of time. This is perceived by lenders as a sign that the customer is credit hungry. Availing too many unsecured loans may raise red flags with lenders, so it is necessary for business owners to make use of a mix of unsecured and secured loans.
Guaranteeing a third-party loan
If a business owner stands guarantor to a loan availed by a third party and that third party defaults, the business owner’s/ guarantor’s credit score could be impacted even though he is not directly paying that loan.
By acting as a guarantor, you agree to be responsible for the repayment of the loan. In the first place, avoid giving such guarantees. If you must, you should be very cautious at the time of giving the guarantee, as someone else’s behaviour could impact your score. And if you have done so, nudge the person to adhere to the repayment timelines.
Not monitoring and updating the credit report
Another common mistake which people make is ignoring disputed amounts in the credit report. For instance, if no action is taken on incorrect dues, the amount would start to accumulate and draw interest. This would then balloon into a large sum and reflect in your outstanding credit. Do not ignore any disputed amount and follow up till it is fully resolved.
A business owner must also monitor his business’ credit profiles on a regular basis and not just once, viz. monthly, or quarterly. Going through the credit report is a must to understand the reasons for the low score.
If there are any irregularities that may be reflected in the credit score, it is even more important to raise the dispute on time as improving a low score takes time. Some examples of such irregularities are that a loan may be mistakenly attributed to the business that the business has not taken, or a loan that has been paid off completely may not be shown as “closed” by the lender.
Applying for loans from multiple lenders
When applying for a business loan, applying to too many lenders at once does not actually work in your favour. It is important that you apply only where you’re fairly confident that your application will get approved. It is also wise to restrict your loan application to only a couple of lenders when enquiring within a short period.
If you are working with a direct selling agent or a referral agent, while handing over your loan application to them, clearly communicate and ensure that they send your loan application only to a certain number of lenders. Be cognizant of too many loan enquiries; every enquiry on your credit report is noted and too many of them will bring down the credit score.
Restructuring of a loan
When businesses opt for loan restructuring, the same is shown as ‘restructured’ in their credit report as well. Banks and NBFCs are cautious of lending to such MSMEs. Any relaxation or waiver of terms of loans raises red flags with lenders that the MSME is incapable of repayment.
Bottom Line
Good credit report based on a business’ timely repayment and responsible financial behaviour indicates to lenders that the business is a creditworthy borrower. Lenders provide pre-approved loans to such customers, and a higher quantum of loan at that, without asking any questions. The loan process becomes smoother. Is there any downside, one may ask? Not at all. So, follow these tips and strengthen your business credit score before you avail your next loan.

Source: Forbes

February 16, 2022

Is it a good time to invest in equity?

We don’t invest thoughtfully in equity because we try to follow the mantra “buy low, sell high” and fail to do it. It is seen that when markets hit rock bottom, most investors focus on exiting their investments to preserve their capital rather than trying to take advantage of lower prices and deploying additional capital. Or they do not think long term and put off their investment.
The common reasons investors give when they wish to avoid or postpone their investment are…
“It’s too late!”
Or “It’s not a good time.”
Or “Why should I invest now?”
Or “When should I invest in Mutual funds?”
Or “What is the best time to invest in mutual funds?”
If you too are giving these reasons when it comes to investing, then you are making a big mistake. Remember, you should not delay investing; start your investment journey right away! The best time to start your investment journey, if you haven’t already started, is ‘Today’!
Here are a few tips to help you begin your investment journey.

1. Do Not Delay, It Can Cost You

When we stall or avoid investing, we are simply delaying or completely evading successful wealth creation. Delay in investing reduces the power of compounding as the investment term decreases.

To understand better, let us see the amount three friends – Ajay, Vijay and Ram – would get at the end of their investment tenure. If Ajay starts investing INR 2,000 per month at the age of 25, for his retirement at age 60, and two of his friends, Vijay and Ram, begin investing 5 and 15 years later, respectively, then the future values of each will be different.

It is seen in Table 1 that the future value reduces with the reduction in the investment term (subtract the age of the person from the retirement age).

Table 1: Effect of delayed investment

Even though they have all earned the same rate of returns per annum on their investment, Ajay who started investing early will have the biggest corpus by far at the time of retirement. Therefore, starting the investment journey early is a boon, if you want to build a huge corpus for your financial goals.

In fact, let us assume that even though Vijay delays his investment by five years, he invests an additional sum of INR 1.20 lakh per annum to catch up with Ajay, and Ram invests INR 3.60 lakh per annum to catch up with both. Even then, the corpus will be INR 1.11 cr for Vijay and INR 99.05 lakh for Ram, which is less compared to Ajay’s future value. The difference is nothing but the cost of delay.

2. Choose the Right Asset to Deal with Volatility and Risk

Choosing the right asset is important as it will help in growing wealth for you. Equity as an asset class can help you grow your wealth manifold but along with higher returns comes its volatile nature, which investors tend to confuse with risk.

Volatility reduces over a period of time but risk may not. Risk is about choosing the right product. For example, if you chose a company with bad management, it could be a risk; irrespective of how the market moves, the price of the share may never appreciate.

The stock of Kingfisher Airlines is a perfect example (graph 1). The stock in 2006 was at INR 76, and later in 2007 it reached its peak of nearly INR 300+ only to fall drastically and never recover. In the end, an investor would have lost all his money because the stock was delisted. This is a classic example of a risky proposition which resulted in a permanent loss; but it was not volatility.

Graph 1: Price movement of Kingfisher Airlines

Now, if instead you choose a company with good management, the price may be stagnant and may not move for a really long period of time, but eventually it will deliver results. Choosing a management is risk and the price movement is about volatility. Volatility is a market related phenomenon and risk is more intrinsic.

For example, the price of Reliance Industries remained within the range of INR 400 to INR 500 from 2010 till January 2017. Later, the stock rallied and has kept its momentum (as seen in graph 2). The stock price moved from INR 544 in February 2017 to INR 2,370.25 in December 2021.

Graph 2: Price movement of Reliance Industries

When you choose equity mutual funds you are investing in a basket of multiple stocks of various companies. This diversification prevents you from larger losses when the market gets tepid. So while you still have to deal with volatility, the risk factor is reduced. This is one of the primary reasons that mutual funds are an ‘all season’ investment plan.

Equity markets by nature will be volatile. It is a given. In the short term the volatility will be more and as the time horizon increases, volatility reduces.

The best way to understand volatility is to look at rolling returns. In the table 2 given below the maximum and minimum rolling returns over 20-year periods have been taken.

What this means is that if you had invested on any day during this period and held the investment for one year, your minimum return was -51.70% and maximum return was 97.32%. As the time period increases the difference between the two becomes less. In the third year, the minimum returns are negative still, but the gap between the negative and positive maximum returns reduces.

Further, in the 5th year, the minimum returns have turned positive along with maximum returns and the difference between the two has decreased further. Lastly, in the 10th year, the difference between the minimum and maximum returns narrows and both are positive. So, if an investment was held for 10 years, an investor never made a loss and the minimum return made was 6.38% and the maximum was 22.08%. In reality, the investor’s actual return would be somewhere in between.

Table 2: Volatility range

So, to grow wealth by investing in equity mutual funds, you should think long term as the volatility tapers and only the minimal market risk remains.

3. Invest Regularly and Diligently

While investing in equity mutual funds, do it via systematic investment plans (SIPs) as you are reducing the risk factor further by investing a fixed amount at regular intervals, irrespective of prevalent market conditions. This is because when markets are down, you get more units and when markets are up you buy fewer units.

For example, if you are investing INR 10,000 monthly in a SIP and assuming that the Sensex drops by 5% every month for the next 6 months and then it rises 5% every month for the remaining six months, at the end of the year, the amount you receive is INR 1,45,971 on an investment of INR 1.20 lakh even though you saw a rise of 30% and then a drop of 30% in the markets.

If you observe, you started with an NAV of INR 10 and at the end it was again back to around INR 10 after a year (refer table 3 below).

The Sensex is just a reference point to show market movements.

Table 3: Rupee Cost Averaging benefit illustration:

So, SIP investing in an equity mutual fund, irrespective of market movements, is an extremely helpful tool in the hands of the investor.

4. Be Patient and Disciplined

The road to wealth generation requires patience and discipline, just as Rome was not built in a day. Over a short term period, the market is very volatile and the returns generated are in a broader range. But over the longer time period, market volatility subsides and the returns are within a narrow range.

For example, look at the performance chart given below of a large cap fund vis a vis the S&P BSE Sensex over 15 years. You can see that despite the sharp falls in the years 2008-2009 (Lehmann crisis), 2015-2016 (post-election) and March 2020 (COVID crisis) in the graph 3, the fund has done well and outperformed the S&P BSE Sensex.

If an investor had invested INR 10,000 in HDFC Top 100 Fund in Jan 2006, when the Sensex was up in December 2007, the value reached INR 19,451. Later when there was a market fall between 2008 and 2009, the value crashed back to 10,602 (March 2009). However, if the investor continued to stay invested, the value was at INR 55,202 in Jan 2018.

Now if the investor had been patient, for a span of 12 years, the value increased nearly 5x, but in March 2020, the value dropped to INR 39,495 consequent to the Covid scare. However, if the investor continued to hold on, the value as on date would be INR 77,516.

This shows that when you invest in equity, being patient helps you grow wealth.

Graph 3: Long-term growth despite short term volatility

Values taken to the base of INR 10,000

When you invest in equity mutual funds you don’t have to worry about the stock selection process. Instead, you should focus on your goal and continue investing systematically, without giving in to market turbulence related panic.

There are roughly 250 trading days a year, making it 2500 days for a decade. A large portion of a stock’s return in a decade happens in 50 to 60 trading days. This means that what happens in 2% of the days, decides your decadal returns.

Even market guru Warren Buffet, advocates that, “Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things take time: You can’t produce a baby in one month by getting nine women pregnant.”

Therefore, when you invest in equity mutual funds, be patient, show perseverance, diligence and let your funds grow, without timing the market. Time in the market is of essence.

Bottom Line

We earn monthly and we spend monthly; so why shouldn’t we cultivate the habit of investing on a monthly basis? Treat an investment journey as a marathon not a sprint. So think long term, and equity mutual funds are an ideal product to create long term wealth if you follow two mantras for investment: the best time to invest is now and the best way to invest is regularly, in other words every month.

Source: Forbes

February 13, 2022

Common myths about SIP investments

A systematic investment plan or an SIP is a disciplined way of investing, in which an investor can make equal payments at regular intervals over a period to accumulate wealth over the long run. An SIP is considered among the most effective ways of investing for retail investors. It does inculcate the discipline of saving and building wealth in the long run. In India, mutual funds continue to be one of the most significant investment choices amongst investors.
As we become aware of the advantages of SIPs, there are a number of myths that have been around the same. Some wonder if SIPs are safe, if they are tax-free and if SIP pays an interest. To become more financially aware, it is crucial for investors to clear their doubt about the myths surrounding SIPs and decide their investment journey.
Here are seven common myths about investing via SIPs in mutual funds.

Myth 1: SIP is Only For Small Investors

Even though SIPs provide an option to invest in smaller amounts, it should never be assumed that only large amounts are needed to invest via SIPs. With the SIP method of investments, investors can invest as much as they prefer. It is true that many high net worth individuals (HNIs) and wealthy investors invest in the markets via the SIP route. All it requires is one to get the KYC done and they can invest through SIPs.

SIPs enable an investor to invest in the market on a regular basis. Every individual is eligible for this method in order to save for their long-term financial goals. Therefore, it is wrong to consider that SIPs are only valid for small investors.

Myth 2: SIP Can Be Done Only For Equity Funds

A common myth amongst investors is that they can invest only in equity funds via the SIP mode of investing. This is not true at all. While investing in mutual funds via SIP, investors can choose from a plethora of available options ranging from debt funds, hybrid funds, funds of funds, index funds, thematic funds, among others.

Myth 3: SIP is a Product

SIP investment is a facility that allows investors to invest periodically at regular intervals. Investors can choose from a portfolio of available mutual fund schemes and the investment amount gets deducted and invested in the scheme. The individual can choose from varying schemes as per their financial objectives and risk appetite.

In the case of SIPs, say an investor wants to invest INR 24,000 spread across a period of 12 months, investors get the flexibility to purchase mutual fund units by investing INR 2,000 every month. SIP is not a product but a type of investment option.

Myth 4: SIP Can’t Be Modified Once Selected

Many investors are wary of the fact that once an SIP is initiated, it cannot be altered – this is not true. SIPs are considered among the best ways of investing in the capital markets that provide flexibility in the mode of investing.

It is important to understand that once an investor finalizes their SIPs, the amount, period and even the mutual fund scheme can be altered. Investors have the freedom to change the investment amount and the tenure as per their requirements. Investors can change the amount of the SIP if their income increases or decreases and if they plan to save or invest more.

Myth 5: SIP in Low NAV Funds Will Offer Higher Returns

Many investors believe that mutual funds with lower net asset value (NAV) are cheaper and hence would yield higher returns. Even though the NAV plays an important role while investing, it does not signify the return that the mutual fund scheme can offer.

The NAV of a fund is the value at which an investor purchases or sells mutual funds units. The NAV of a fund changes regularly. The cost of mutual funds (NAV) does not determine the returns.

For example: If someone wants to invest INR 10,000 and has two options: One fund has NAV of INR 100 and the other fund has NAV of INR 1,000. With a lower NAV fund, a person can buy 100 units and with higher one, a person can buy 10 units, but in either case, the sum invested is INR 10,000, the value of investment being identical. Hence, investors should focus more on the actual performance of the fund rather than just the NAV.

Myth 6: SIP is Subject to Guaranteed Returns

SIPs grants the investors the ability to invest in the mutual funds periodically. Investing through SIPs in the mutual funds is safer compared to the equity markets yet mutual funds are subject to market risks depending on market volatility.

In the short run, it is difficult to attain guaranteed returns for an investor while being invested in mutual funds for the long term helps yield capital appreciation. Thus, investors should be clear that investing in the market carries some degree of risk and thus one needs to be prepared before investing. Investing in mutual funds through SIPs gives the investor the benefit of rupee cost averaging (RCA).

Myth 7: Don’t Invest Through SIP in a Bullish Market

Investors need to see-through the level of discipline, patience and research required while investing in mutual funds. Most SIPs yield results over the longer term. It is not practically possible to time the markets in real-time. Buying at dips and selling at highs is theoretically possible but is not feasible when it comes to practical decisions.

In the longer time frame, SIP investments usually deliver higher yields. It is crucial to understand that bullish and bearish phases require consideration in case you are investing through the lump sum method.

As investors invest through SIPs, the rupee cost averaging eradicates the impact on portfolio with the passage of time. SIPs negate the impact of market volatility on your portfolio. Thus, investing in mutual funds through SIPs doesn’t require investors to wait for the right time. It is important for people to understand the importance of early investing and reap the benefits of compounding.

Bottom Line

If you are looking to start your investment journey via SIP, make sure you look for a long-term perspective. Considering SIP investing is all about discipline, a sound approach coupled with patience can lead to wealth creation over a period of time.

Additionally, investors should also keep in mind the historical data of mutual fund performance. There is no right time to start your investment in mutual funds. The sooner you start your investment journey, the better returns you can expect to yield in the future.

Source: Forbes

February 9, 2022

Want money after retirement? Here’s how National Pension Scheme will help

Have you considered investing your money in National Pension Scheme (NPS)? If you have, was it to fulfil your retirement needs or was it to save additional tax on ₹50,000 every year? If your reason to invest in NPS is tax benefit, then your investment approach is incorrect. The dangling carrot of tax benefit should not be looked at in isolation. Here is what you should know about NPS and how you should use it to build your retirement kitty effectively.

UNDERSTANDING NPS

Before you put your money in any investment instrument, it is important to understand it. Firstly, know that NPS is a defined contribution pension plan. Your money will be pooled in a pension fund. You can make an annual contribution till you turn 60 years of age and the minimum age requirement to invest is 18 years. If you invest in NPS, you can avail a deduction of ₹1.5 lakh under section 80C and also an additional deduction benefit of ₹50,000 under section 80 CCD. If you are in the highest tax bracket, it means a savings of ₹15,600 a year. Managed by Pension Fund Regulatory and Development Authority (PFRDA), NPS is not like a public provident fund (PPF) account where everyone just has one option—you invest and get a predetermined interest rate. In case of NPS, you have to make a choice. There are two accounts—tier 1 account, the pension account, which gives tax benefit and is mandatory to open for NPS, and tier 2 account, an optional account with withdrawal flexibility. Once you open an NPS account, you have to contribute a minimum of ₹1,000 in tier 1 account.

NPS gives you options in the form of fund manager and the type of investment choice. There are eight pension fund managers to choose from such as HDFC Pension Management Co. Ltd, Reliance Capital Pension Fund Ltd and UTI Retirement Solutions Ltd.

In terms of investment choice, you can opt for either active choice or auto choice. In active choice, you can create your portfolio with equity, corporate bonds and government securities. If you opt for auto choice, the fund manager will create a portfolio with the same option, but the percentage of investment in each asset class will be pre-decided.

At any point, the maximum investment shouldn’t be more than 75%. “For equity, till two years ago, PFRDA had limited the choice as there was a condition that you could invest only in Nifty stocks. Then they amended the guidelines and included broad-based stocks. As there is a Nifty hangover, in most portfolios, there is a Nifty bias,” said Sandip Shrikhande, chief executive officer, Kotak Pension Fund.

HOW TO USE NPS IN YOUR PORTFOLIO?

Firstly, don’t look at NPS in isolation only for tax benefit. “People who put only ₹50,000 to save tax, if you continue investing for 20 years, the corpus is not going to grow significantly to meet your entire retirement needs,” said Shrikhande. You should instead link the NPS investment to your retirement plan.

“Using NPS is a means to build a retirement fund. However, if you are in your 30s, simply using NPS will not work because the asset allocation changes. Someone in 30s will be fairly aggressive. Now, if you have a cap on how much you can invest in a particular asset class to restrict yourself, you can’t be flexible. So it would be better to have a basket of mutual funds to choose from. For someone who is younger, it is restrictive. Look at it as an add-on product for tax saving,” said Priya Sunder, director and co-founder, Peakalpha Investments.

Consider using NPS as one of the retirement investment tools, but don’t depend on it entirely.

Source: Livemint

Author: DV-Mint

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Is it a good time to invest in equity?

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Want money after retirement? Here’s how National Pension Scheme will help

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