Importance of Life Insurance

November 17, 2008 by  
Filed under Insurance, Stock Market

Comments Off on Importance of Life Insurance

Life Insurance is a type of insurance in which the policy holder receives a specified sum of amount from the Insurance Company, in the event of his death. The assured amount is payable to the insured person’s family members or whoever he nominated in the policy application. Some Insurance policies (Term Life Insurance) also offer money-back guarantee through which the policy holder is paid a certain sum of money (plus bonus), if he is surviving after the policy expiry.

The policy holder has to pay a certain amount of money as a premium to the Insurance Company. The premium amount is calculated based upon the policy period, age of the policy holder, type of policy and the sum assured. The premium amounts can be paid monthly, quarterly, half-yearly or yearly depending on the policy holder’s choice.

If you are confused in choosing a policy plan you could consult an Insurance advisor who would be in a better position to assist you. Some type of Life Insurance policies may have “Double Accident Benefit” which means the dependants of the policy holder would be paid double the amount of the assured amount in case of death by accident. Before buying any life insurance plan you must read the terms and conditions of the policy.

Advantages of Life Insurance

There are lots of advantages in buying a Life Insurance policy rather than traditional investments. In case of other investments like savings in bank account or term deposits the dependants are paid out the amount that was actually saved by the investor (incase of his death). Whereas through a life insurance policy, the policy holder’s dependant would be paid the assured amount which is more than the actual amount paid (premiums) in most of the cases. Individuals who pay premiums for life insurance plan can claim for tax-deductions. A Life Insurance policy paves way for a potential monetary support to the family members/ dependants of the bread-earner of the family. You can avail loans against your Life Insurance policy at the time of need.

Disadvantages of Life Insurance

If you missed the opportunity to buy a Life Insurance policy at a younger age, your premium amount is too expensive as the risk of death is more as you get older. Life Insurance may not be suitable for everyone. For instance a person who lives alone or has no dependants does not require a life Insurance. Although the premium amount is lower for the age group of 25 to 30 the risk of death is lower and instead of paying the premium amount they could make investments in Term Deposits, Stocks, Mutual Funds etc. where they could earn more profit. Life Insurance is more beneficial only when the policy holder dies within the policy period in case of Term Life Insurance. If the policy holder survives after the policy expiry he would be paid a sum of amount that would be less than other Investment returns like Mutual Funds, Stocks, Property Investment etc. In case if you are in a severe financial crisis and want to discontinue from the plan the surrender value would be much lower than what you actually paid (premium).

Investment in Mutual Funds

November 17, 2008 by  
Filed under Stock Market

Comments Off on Investment in Mutual Funds

Investment in Mutual Funds


Mutual Fund is an investment firm which raises money from the general public and invests in stocks, bonds, real estate or money market, and then distributes the gains to its shareholders. It employs a group of professionals (fund managers or portfolio managers) who are experts in analyzing the market trends and invest appropriately for good returns and lower the risk of losses. A mutual fund provides a Prospectus in which it states its objective as how the raised money would be utilized. The Prospectus would state the sectors where the money would be invested, past performances, fees, how to purchase and redeem the shares, fund managers’ profile etc.


Types of Mutual Funds

There are many types of Mutual funds which you may choose depending upon your profile and choice. Below is the list of some of the common types of Mutual Funds:


a)     Tax saving Funds

b)    Sector Schemes

c)     Index Funds

d)    Global Funds

e)     Income Funds

f)     Growth Funds

g)     Balanced Funds


Mutual Funds are often classified as Open-ended Funds or Close-ended Funds. In Open-ended Funds the shares can be bought or sold at any time whereas in the close-ended scheme there exists a lock-in period for investors and new buyers can buy only from the Secondary Market (once the offer period is closed). Close-ended Funds usually provide tax-benefits as the invested money is locked in for 3 to 5 years or even above. Open-ended Funds provide the opportunity of withdrawing your money if you feel the fund is performing poorly. A Mutual fund can be bought directly from the Mutual fund Company (issuer) or through Mutual-fund brokers.


Advantages of Mutual Funds

There are many advantages of investing in Mutual Funds which include Diversification of Risk, Liquidity, lower Transaction costs, Tax benefits etc.


Diversification of Risk

Unlike the stocks, your money is diversified across shares, bonds, money market or various sectors in a stock market. The fund managers have great experience and knowledge who are in a better position to handle financial risks. As your Investment is diversified the risk-level is lowered.  






Lower Transaction Cost

As the Fund management company employs a huge sum of money and invests in share market, the transaction cost gets reduced. If you as an Individual have to invest in share market your transaction cost would be higher as your investment money would be much lower compared to them.


Tax Benefits

Mutual Funds offer a great deal in saving money through Tax Benefits. As an Investor you could enjoy returns (dividends) from your Investment and on the same time reduce your tax liabilities.



The benefit of liquidity applies only to open-ended schemes. During the time of your financial crisis you can very well withdraw your money by selling the funds.


Disadvantages of Mutual Funds

The returns in Mutual Funds are not assured. Even though you buy a mutual fund based on its past performances it is not guaranteed that you would receive the same returns. There might be times when the fund managers decide to buy or sell assets that may not be favorable to you. In some funds there might be entry-fee or exit-fee which is an additional burden for you.  In case of close-ended funds although you enjoy the tax benefits you may not be able to withdraw your money at the time of crisis or when the fund is performing badly.

Share Market Trading & Investments

November 17, 2008 by  
Filed under Stock Market

Comments Off on Share Market Trading & Investments

Investing or trading in a Stock Market may offer a great amount of return and on the same time it involves a high level of risk and can ruin your hard-earned money. You may have heard of people who have made their fortune through Stock Markets and others who have lost their properties as well as money by trading or investing in Stock Markets. Before you think of entering into the world of Stock Market you should ensure that you have sufficient money available to meet your regular expenses.

If you are a person who can take high risk you can trade in Stock Market. Trading in a Stock market means buying shares and selling them within a short period of time or even the same day. If you sell the shares within few days or weeks it is typically known as “Short Term Trading” and on the other hand if you sell the shares on the same day when it was bought it is called as “Day Trading”.

Share Trading

Before you start trading in a Stock Market you should have a hands-on experience on how the stock market works, stock movements, risk involved etc. There are lots of books available on Stock market trading or some Stock Brokers also conduct classes on how to trade in Stock Markets. Apart from the general knowledge it is the Timing and Patience that would make you the real winner in Stock market trading.

There are many factors that influence the stock movement. It may be due to the overall market sentiments, specific sector news, specific company news etc. It is really difficult to predict the future stock movement. Stock movements are often predicted through Fundamental analysis or Technical analysis. Fundamental Analysis involves the process of evaluating a share based on its intrinsic value like liabilities, cash in hand etc. Technical Analysis is the process of evaluating a share based on its past performances through the usage of charts or graphs.

You can also buy a share based on both the analysis – Technical and Fundamental. But in reality it is hard to predict a stock movement with precision. A stock may have a good fundamental value but may be beaten down due to investors’ negative sentiments. History may not repeat itself. A stock could have made a particular pattern few months back but you can’t say for sure it would make the same pattern (technical analysis) in future.

Investment in Shares

Investing in Stocks may yield high returns while compared to other fixed investment plans. In contrary to the Stock Market trading, the stock investment means investing on a stock for a longer period of time (1 year and above). Your risk of loss is mitigated as you may be prepared to hold the stock for a longer time which may be a good period for that particular stock. Tax authorities in some countries offer tax exempt for Long term stock investments which means you need not pay taxes for the profit earned through your Investment. Long term investment in Stocks also has a drawback as you could have made the same profit within few weeks or months instead of waiting for years.