Decoding Corona Kavach

I'm pleasantly surprised to find that the Corona Kavach health insurance product is an effective one and something which is the need of the hour. A quick breakdown of the key features below

Who will find this useful?

If you have a corporate or personal insurance plan with a high coverage amount 

(roughly Rs 8.00 lakhs) then you don't need this product.

Who will be covered under this policy?

New born babies to parents (and in-laws)

The main applicant – proposer has to be aged between 18 - 65 years

It can be taken as an individual policy or a family floater (covering the whole family)

How much coverage (sum insured)?

Rs 50,000/- to Rs 5.00 Lakh

How long is the coverage for (policy tenor)?

3 ½ months, 6 ½ months, 9 ½ months including waiting period of 15 days

How much will it cost?

Typical family where the ages of Husband – 40 years, Wife 35 years, Children 10 and 5 years

Availing highest coverage - Rs 5.00 lakhs and highest tenure 9 ½ months

Premium is Rs 6,787

What are the benefits?

Hospitalisation expenses (person to be admitted for a minimum period of 24 consecutive hours)

Pre-hospitalisation expenses for 15 days prior

Post-hospitalisation expenses for 30 days after

Will home care treatment expenses be covered?

Yes, if there is positive diagnosis of COVID in a government authorized diagnostic center, maximum up to 14 days per incident

Will alternate treatment like Ayurveda be covered?

Yes, medical expenses incurred for inpatient care treatment for COVID under Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homeopathy systems of medicines

Is there a medical check-up?

No medical tests are required for this policy (irrespective of sum insured / age) 

Ensure all health related questions are answered truthfully to avoid claim rejection

To summarise, this is a useful product for someone who doesn't have health insurance or wants to boost their existing health insurance. The age limit of 65 years and that the applicants  should not have any pre-existing diseases limits the reach of the product. The positives are it is easy on the pocket, available for short tenures and no requirement for medical check-up which limits your contact with others. 

If you have any queries, please reach out to me at mathewpravin@yahoo.com or +91 9900335853.

Critical Illness Insurance – what, why and when should you buy?

Let me do a quick check before you start reading this article. Have you purchased health insurance or has your employer covered you? If your answer is no, then you should close this article and instead start assessing options to purchase health insurance (see my article here https://rorywealth.blogspot.com/2020/04/at-this-time-you-are-in-one-of-these.html). This is because a regular health insurance must be availed as one of the first steps in your financial journey. For a small annual payment, you can cover yourself from financial expenses related to health issues, whether it is minor or major. 

If you already have health insurance cover then you know what I’m talking about. Now you must consider purchasing critical illness insurance. It is categorized under health insurance but it has benefits that are different from a regular health insurance policy. To understand this better, I’ve done a comparison on key points in the table below 

To summarise, treatment of a critical illness can be very expensive and a regular health insurance policy may not cover it adequately. A critical illness insurance will provide a lump-sum benefit which can be used to manage unexpectedly higher medical expenses or take care of your livelihood in such difficult times. Like health insurance, it is better to purchase it at an early age and keep it going (as people tend to develop health problems as age increases)

I hope this article helped clear any misconceptions about critical illness insurance. If you have any queries or want me to assess your existing policies, drop a message to mathewpravin@yahoo.com / +91 9900335853 and I’ll be happy to help.

What is a mutual fund? (part 1 of the series -- how to build a mutual fund portfolio)

You can view the video on YouTube here

This is the first of a series of articles on building a mutual fund portfolio. My goal here is to help you understand how a mutual fund portfolio is built. Over this series, I’m going to take you right from understanding a mutual fund and its features to selection of funds, increasing or reducing your investment and also monitoring it. However, if you are a first time investor or someone who has not completed 5 years of investment in mutual funds, please consult an IFA i.e. an independent financial advisor. So why write these articles? There is good and bad advice so these videos will help you better understand what mutual funds are and help you navigate them better. Lets get into it then.

What is a mutual fund?

A mutual fund is formed when capital collected from different investors is invested in company shares, stocks or bond. Whom is it collected from? Say Rs 5,000 from me and Rs 10,000 from you and so on. Whom do we give it to? A fund house who uses this money to buy and sell shares on our behalf. To understand this better let us look at a popular fund – Axis BlueChip fund. The fund size is approximately Rs 11, 800 crores. And what has the fund manager done with this money? He has purchased stocks of different companies with the idea of selling it when it reaches a certain target price. Here are the stocks in the portfolio of Axis Blue Chip fund

You can also look at the holdings in a different way, that is sector wise

So if you are investing Rs 10,000 your money is going into  a pool which is then used to buy company shares.  Do you own the shares? No, you own a share of the mutual fund. For example, if a fund holds Reliance Industries in its portfolio, the mutual fund investor does not directly own Apple stock.

The obvious benefit is diversification i.e. don’t put all your eggs in one basket. This is one among many advantages of mutual funds which I will cover in the next article but for now, I wanted to highlight a few more features of mutual funds.

A mutual fund has clearly defined objectives. Taking the same example of Axis Bluechip fund, it is categorised as a large cap fund which means that the fund can only purchase the top 100 companies by market capitalisation listed on the stock exchange. 

A mutual fund is professionally managed. A fund manager doesn’t work alone. He is backed by a large team which comprises of research analysts who study world markets, monetary policies, sectors, individual companies. Basis all this data, the fund managers take a call on which stocks to buy and when to sell.

Mutual funds charge fees called expense ratios which are deducted from your investment. It can be anywhere from .1% to 2.25%. Roughly translated, it means that if you are investing Rs 10,000 and the expense ratio of the fund is 1% then Rs 100 will be retained by the fund as management expenses. 

A mutual fund house, which runs the mutual funds, is a separate entity. So Axis MF is not part of Axis Bank and HDFC MF is not a part of HDFC Ltd or HDFC Bank

Well regulated by SEBI - Securities and Exchange Board of India

In the next article, I will cover different types of funds and their advantages and disadvantages and then we will go onto how mutual fund investors make profits or losses. If you liked this article, then stay tuned for the next few ones.

Don't buy health insurance out of fear!

You can view the video on YouTube here

At this time, you are in one of these two groups – you have health insurance (either corporate or self-purchased) or you don’t have health insurance. 

If you have health insurance, in all probability you would have received communication from your insurer (or your HR) stating that you are covered for hospitalization expenses against coronavirus.

If you’ve not purchased health insurance, you’re wondering if you should take one now. The answer is yes but only if you genuinely have a need for it (and not because of the fear of coronavirus). Insurance is a financial decision. It is slightly complex because one has to calculate an approximate amount they may need in the future. It involves a cost which is not low so don’t rush into it. The best part is you can do the whole thing online, without meeting anyone (even if it is through an insurance advisor). 

Once you decide on the product, the coverage amount and the premium, there is an online application form to fill. You may have to upload an identity document (PAN/ Passport etc). After this, you will have to pay the required premium, again online. Once the approval team (underwriters) goes through the application, they can either approve it or ask for some clarifications.

There could be a second process  - a medical test. This is required only if 

1. If you are above a certain age (usually 45 years)

2. If have a pre-existing condition (asthma, high BP, cholesterol, diabetes etc)

Usually, a blood test is enough and it is convenient because a person comes home, draws blood for testing. You may be asked to visit a diagnostic center for a specific test (example - pulmonary function test for asthma, treadmill test  for high cholesterol levels). The good news is some insurance companies are now doing tele / video call to see if they can waive the medical test. So if you are above 45 years but don’t have any pre-existing diseases, there is a high chance that you won’t have to go for a medical test. Again, contactless and safe (in the current context).

If you want a specific policy to cover coronavirus, check this article https://www.financialexpress.com/money/coronavirus-insurance-looking-for-a-covid-19-cover-here-are-your-options/1905821/  Remember to first check with your existing insurer for cover of  hospitalization expenses against coronavirus. As of now, the government is treating all patients so this cover may never be used. 

A quick checklist to assess health insurance policies

1. If you have a pre-existing condition, apply for a health insurance product which specifically covers that condition as there are higher chances of approval (yes, the premium will be higher)

2. Read the product brochure carefully to understand the features. Use this document to compare between products.

3. The more features a health insurance product has, the more it will cost

4. If you have a specific query, ask for the policy wording. Use the search option and read the specific terms associated with that. For example, if someone has varicose veins, they can search the policy wording to get a better understanding of how the insurance company treats this particular illness.

5. A good advisor will help you understand the terms and conditions better. They will also manage the claim related co-ordination, reducing hassles when you are already dealing with a medical condition.

6. Study the waiting periods and the exclusions so that you are not caught surprised at the time of claim.

Health insurance products are not simple and there are many features which sound important but may not be useful. Do try to analyse in detail and ask for clarifications till you are satisfied. Please feel free to contact me at mathewpravin@yahoo.com / 9900335853 with your queries and I’ll be happy to clarify.

Who is selling when you are trying to stay invested?

You can view the video here

Let’s look at some data first. Foreign Portfolio Investors (FPIs) have withdrawn Rs 24,776.36 crore from equities in March so far. These are the folks who have done the maximum selling in the past few days.

Who are FPIs?

Foreign investors (individuals, companies, governments) create a portfolio consisting of stocks, securities and other financial assets. These investments tend to be more liquid, which makes them much easier to sell (as compared to foreign direct investments). Foreign portfolio investments also tend to have a shorter time frame.

Why are they selling?

The key word is ‘foreign’ as in they have many geographic options to invest in. Right now, it is very difficult to judge which countries will be most impacted by Coronavirus. Also, the rupee has been weakening - in the year 2020 so far, the Indian rupee fell about 3.61 percent against the US dollar. Given these two factors, FPIs have likely moved their funds to safer havens.

Why should you stay invested?

Simply put, because your equity (mutual fund) investment objective is long-term wealth creation and your timeline is five years plus. Obviously different from the FPIs, right? Also, governments across the world are ready and responsive. We are seeing instances of global monetary policies being extremely supportive which will boost corporate efforts as they work harder to overcome effects of the pandemic. Most importantly, because the chart says so 😊 (yes, these are the times we bring out charts and quotes by Warren Buffet).  Despite the many ups and downs caused by various events, the Indian stock market has moved upwards and it will continue to do so.

One more thing – who is buying? 

Domestic Institutional Investors (which are largely mutual fund houses and insurance companies) have been net buyers. This is because their fund managers can purchase stocks at cheaper valuations and therefore provide greater value to their clientele (including you) when the stock market turns upwards.

And now for Warren Buffet’s quote “A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting.” So forget about all the doomsday predictions and the media tsunami waves. Please focus on staying safe and protect yourself and family from the coronavirus pandemic. After all, You are the biggest asset in your portfolio.

For more videos, check out my YouTube Channel

Choose 'increasing cover' term life insurance

You can view the video here

When you buy life insurance, it is best to go for term life insurance. Let me quickly recap what term life insurance is – it is a policy that provides only death benefit i.e. in the event of demise your family stands to receive the coverage amount (sum assured). This is pure insurance and so it comes at a low cost. But it provides high coverage. If planned properly, it will ensure that financial needs of your loved ones are taken care of (in your absence).

Within term life insurance, there are primarily two options which you can go for

Option 1 Level Sum Assured – where the coverage remains the same throughout the policy term

Option 2 Increasing Sum Assured – where the coverage increases every year

I recommend Option 2 and the reason is simple – Inflation. What is inflation? Every year there is a rise in prices of goods and services and therefore a fall in the purchasing power of each rupee. As inflation rises, every rupee will buy a lower quantity of goods. Put simply, what could be bought with Rs 51 in the year 2010 now requires Rs 100. 

If a person chooses option 1 (coverage amount stays same), the effects of inflation would erode the actual value of the cover. For example, if Rs 1.00 crore is take as cover amount and if demise happens after 10 years, the nominee would get Rs 1.00 crore but the purchasing power would be equal to today’s Rs 69 lakhs (assuming a 4% rate of inflation). 

What happens if the increasing coverage option is chosen, say with 5% increment every year? In 10 years the nominee would get a payout of Rs 1.50 crores. Even after the effects of inflation, this would be equal to Rs 1.03 crores in today’s term. Which is what the insured was aiming for in the first place, right?

Will this mean a higher premium has to be paid? Yes, it will be cost at least 15% higher to go with increasing coverage. It may be a bit of a struggle initially but your income is going to go up every year. And you still get high coverage at relatively cheaper premiums.

I’m going to give you a quick tip to further reduce the premium amount – don’t take a policy tenure up to the age of 80 years. You are going to retire between the age of 60 and 70. By then your kids would have grown up and you would have amassed enough wealth to support your family. Essentially you will lesser financial dependents at that time and so you won’t need this cover.

Life insurance comes with a lot of options today but if you choose wisely, it can become very cost effective. If you need any further help in choosing a life insurance cover, drop me a line at mathewpravin@yahoo.com and I’ll be happy to help.

For more videos, check out my YouTube channel

Teach your kids to save money

I’m sure you’ve noticed how your child’s favourite cricketer is your favourite too or she is as eager to jump into the pool as you are. Maybe they cuddle up to you with a book when you are reading too. Teaching your child to save is much the same. Conscious lessons and practical examples are certainly required but they should also learn by your example. Otherwise kids mimic what you do even if you tell them to do the opposite. Do as I say, not as I do never works. Like most of their lessons, it needs to be built-up over time and reinforced with practice. Taking my own example, Dad was a spender but Mom was the careful one, squirrelling away money for the future. I’m lucky that the example she, not he, set took to my heart and I too started saving.
 
Most people think of financial decisions as complex ones which are neither discussed with or around children. How then does one teach them about understanding and taking such decisions? You could break down the complexity and talk about it in small, understandable bytes as and when it is happening. Or you could park it for later when you have the time to talk about it and the patience to answer their questions (which will be quite a bit). I give you a few current examples (my kids are seven years old so these suited to that age group)
 

• A pack of chips costs Rs 10 while a Kinderjoy egg costs Rs 40. If your child buys a Kinderjoy, he has to spend more out of his pocket money. He forfeits buying 3 other packets of chips but he gets a different, possibly a better quality product. He also gets something more -  a toy – that he can play with for longer.

Lesson imparted – money is a finite resource and requires allocation
 

• Set a budget before going to the toy shop. Example: You could tell your daughter – you can buy as many toys as you want but the total cost cannot cross Rs 2,000. When you are at the toy shop, she could first set aside all the toys that catch her fancy. Once the initial selection is over, she can further examine her choices and shortlist them into a smaller list. You can them help her to total up the cost and decide which ones to take within the agreed budget of Rs 2000. Trust me, the less attractive ones quickly get separated and both of you will come away happy

Lesson imparted – A budget keeps a person focused on their goals, organizes spending and takes away conflict.

• You could explain how and why we pay the household help or the cook/gardener/driver. Paying for services could be an abstract concept (since there is no physical exchange of money and goods). However children do see the time and effort put in by the help and will understand how this exchange works.

Lesson imparted – time is money
 

• Whenever you buy something for the family or yourself, I assume you must be evaluating choices and making informed decisions. Sit your child down and explain your decision-making process. They may not understand everything but they will begin to understand that it’s not just about going to a shop to buy whatever you want and then paying with a credit card that somehow has endless money on it 

Lesson – money doesn’t grow on trees
 

• Your child probably gets pocket money and sometimes an indulgent relative may gift money too. Try and inculcate a habit in your child to put away some part of the money as soon as she gets it. Most people make the mistake of not saving when they start earning, not only missing out on the savings but also on the years of compound interest it brings. This is probably the best habit you could inculcate in her.

Lesson imparted - A penny saved is a penny earned
 

• Teach your child to examine products closely and to compare it with similar offerings. If something looks too good to be true, then it probably is. It’s better to research it properly or avoid it.

Lesson imparted – all that glitters is not gold
 
Teaching them the meaning behind each common proverb in bold above will not only help it stick in their minds but will also earn them some brownie points with their teacher ;)
 
When it comes to older children, they can be given access to a savings account and encouraged to operate it. Under supervision, they could even do things like booking tickets, online shopping etc. However, investing in mutual funds or any other long-term investment can cause two complications – either it can’t be sold off easily and/or the proceeds get locked till the minor attains eighteen years of age. This could be frustrating for a teenager / young adult so best avoided for their pocket money. If you really want to save money for them in that way, it would be better to make a separate portfolio within your portfolio, which you could operate on their behalf.
 
Your child could have a very different thought process from you so it is important to start early and build up the discussion to their decisions and savings slowly. Do reach out to me at mathewpravin@yahoo.com for any more inputs, suggestions or feedback.

You can view my YouTube channel here

A quick guide for submitting proofs to save tax

New Years Day is over and you've got back to office to find HR has issued dire warnings about submitting proofs of investing in tax saving instruments or facing a massive deduction in the next 3 months salary. How did this happen, you think? There seemed like so much time and now....

Before you start getting frantic, remind yourself that you've already planned out the tax saving for the year. You just need to follow the below steps and you can quickly put everything in place.

1. Call your insurance advisor or the call centre and ask for the premium paid certificate for this financial year. Don’t forget, if you’ve paid for an annual health check-up, you can claim that amount too along with health insurance premium amount

Applicable sections are 
Sec 80C for life insurance premium paid amount
Sec 80D for health insurance premium paid amount
 

2. Call your mutual fund advisor and ask for a statement of investment in ELSS fund (equity linked savings scheme) for the financial year.

Applicable section is Sec 80C
  

3. If you have done any other investment like PPF, NSC, NPS, 5 year tax saver FD etc, gather up those receipts

Applicable section is Sec 80C
 

4. Call up your home loan provider and ask them to send you the interest and principal paid certificate

Applicable sections are 
Sec 80C for principal paid against home loan
Sec 24B for interest paid
 

5. Gather up the receipts issued by the school for your children’s fees

Applicable section is Sec 80C
 

6. Call up your education loan provider and ask them for interest paid certificate

Applicable section is Sec 80E

A few things to remember

1. Creating online profiles for login and retrieving statements / tax certificate is cumbersome. Call your advisor or the call centre, they will mail it to your registered email
2. Haven’t completed your investments? Don’t rush into something unsuitable. It’s extremely important to make the right investment. You can always claim a refund of excess tax paid later.
3. Section 80C has the maximum options to invest. Chances are you already have investments going on applicable under this section but there is an upper limit of Rs 1.50 lakhs. Any investment above that will not be considered toward tax saving. Your EPF contribution (employee provident fund) will anyway cover a large chunk of it.

Submit your proofs to the HR department at the earliest. This way, they can do the calculations and raise any discrepancy or short-fall and then you have enough time to complete it. Hope this article helped you streamline the process. Reach out to me at mathewpravin@yahoo.com and I’ll be happy to clarify any further queries you have.