Sunday, 21 March 2021

PLANNING FOR YOUR CHILDREN’S EDUCATION EXPENSES ? HERE’S HELP

 Greetings Friends,

 

The Birth of a Child brings a lot of joy to parents.

After the initial euphoria settles down, the future expenses start staring at your face. Even if you don’t think about this, the innumerable ads on TV, in newspaper, Bill Boards will not let you forget them.

 

They start emotionally attacking you

 

“Are you a Responsible Parent”?
“Have you planned for your Child’s Higher Education”?
“Have you planned for your Child’s Marriage”?

 

So, then, you are forced to start thinking of your Childs Future.

 

 

And, what do you see?

Of course, the umpteenth Child Plans splashed across. Whether you like it or not, you will be bombarded with the "specialties" of these plans and the Companies leave no stone unturned to make you feel that they are next only to God when it comes to protecting your dear child's future.

 

They promise you that they will pay for your Child’s Higher Education, her Marriage, etc.

And, yes, these Ads spare no effort to instill fear in you 

 

“What will happen to your Child in case of your untimely death?”

 

This one line is enough for every parent to run to Insurance Agents to get a Child Plan.

 

Before diving into the sea of these Child Insurance Plans, you will do well to do some basic homework like

 

1.     1. When will your child need the money?

 

2.    2.  How much will you need for the particular goal (Marriage, Education)?

 

3. How much you will be able to save?

 

 

4.     4. How much Insurance Cover I need?

 

Besides the above, you will also have to consider various factors like whether you have any loan, you have your own house, are there any other breadwinners in the family, etc

 

 

 

UNDERSTANDING CHILD INSURANCE PLANS :


There are basically 3 types of Child Insurance Plans namely

1. Money Back :
This is by far the most POPULAR plans. Under this plan, your child will get Survival Benefits at regular intervals.

For ex :

AT your Child's 18 years of age, she would get about 20% of Sum Assured, and a further 20% at age of 20 and so on.

This Plan is useful for those who feel the need for Lumpsum requirement at regular intervals and helps you in Life Stage Planning. 

Another good benefit, is these plans offer Premium Waiver Benefit which ensures that in case of death of a Parent, then the Premiums are waived off and The policy continues with benefits.  (Please make sure, that this benefit is there in the policy before taking one).

 

The BIGGEST disadvantage with these plans is the dismal returns often failing to match even Inflation returns.

Especially, if you are planning to buy Money Back Plans for your Child's Education, then this is definitely NOT advised. Education Inflation is at around 12% and this Money Back should be giving you less than 7%........leaving you grossly underprepared at the time of Goal.

Also, the Premiums are steep and are best avoided.

 

MOST IMPORTANT

These Plans actually cover the Child and not the Parent! (How stupid). So, in case of the untimely death of your Child, you will get the Sum Assured. I wonder which Parent would like to take this?? It is your Child who needs Financial Security and not you!

If the Child survives





The term, then you will get the entire Sum Assured along with Accrued Bonus, et al.

 

 

2. ULIPS :

ULIPs are Unit Linked Plans which are non-traditional plans wherein Returns are Market Dependent.

 

Under ULIPs, the Life Insured is the Parent. If the Parent dies (or in some policies gets diagnosed with Critical Illness), then the Child would receive the Sum Assured in Lumpsum. Not only this, but the Future Premiums are also waived off (the Company pays the same) and on Maturity, the Child would get the Fund Value too!’

ULIPs plans offer a variety of funds ranging from Conservative to Balance to aggressive.

Under ULIPs, you can change from Debt to Equity and vice versa without the worry of Taxation, thus enabling you to benefit from both Timings the Market and Rebalancing your Portfolio.

 

 

Sadly, the charges are too high in ULIPs. These ULIPs levy a variety of charges on your Child Plan by way of Premium Allocation Charges, Policy Administration Charges, Mortality Charges, Fund Management Charges, etc.

This would affect the returns generated by investment in Market Related Instruments and ultimately the Corpus that your child receives.

 Another negative against ULIPs is in case of emergency and you want to surrender or do partial withdrawal, the charges are high and also attract Tax.

 

While a long Term ULIP (above 15 years) could cost less than a Mutual Fund, flexibility is a huge issue. You just cannot move from one ULIP to another ULIP as in case of Mutual Funds.

Putting money in Child ULIP plans is akin to putting all your eggs in One Basket!

If the ULIP underperforms on a consistent basis, you are stuck!

 

I always say ULIPs are expensive products with high initial charges. I am not in favor of any child plan. If one has enough term cover that will do. Child plans are long-term gambles like ULIPs. How well an insurance company manages your investment part is a gamble. These are all ways to get more money from you. At maturity, you will realize that the returns are not great. Better to keep INSURANCE & INVESTMENT separate.

 

 

ENDOWMENT POLICIES:

Endowment Policies are one where lumpsum amount is paid at the time of the Maturity along with bonuses.

This type of Policy is very useful to plan for your Child’s BIG expenses like Wedding, Higher Education, etc

And, unlike ULIPs, there is a minimum guaranteed amount of payment. Besides, you may get Bonuses too. Endowment Policies too invest in Market backed securities, but unlike ULIPs, they invest only in Debt products and the returns too are not exactly spectacular.

 

 

There are two major drawbacks with Endowments Plans

1.               The Returns are pathetic, with less than double digits, and come nowhere even near Inflation, forget about the Education Inflation which is in High Double Digits.

2.               The Insurance Cover too is almost always very little. (If you require higher cover, you will obviously pay a steeper premium).

If you do want to take up an Endowment Policy, treat it as a Debt Portion of your overall Asset Allocation.

 

Almost all Child Insurance Plans cover the Parent and thus, if in an event of an unfortunate untimely death of the Parent, the Child’s needs would still be taken care of by way of Lumpsum payment on death and also on Maturity.

 

 

 

Child Plans are just Attractive Packages with nothing inside.

Yes, on the untimely death of Parent, some policies offer Waiver of Premium and the Policy continues but this benefit comes at a high cost as the Premium increases due to this Rider. And, Mortality Rate Charges for a Child Plan are quite high too.

 

Insurance should be taken only for covering your Life and should never be taken as a part of Investment. Never.

So, if the Child Insurance Plans are not matching your needs, what is the Alternative??


The Alternative, my friend, is the COMBINATION OF TERM PLAN AND MUTUAL FUNDS:

 

Term Insurance Plans are the BEST way to cover your life as they are very affordable.

 

And Mutual Funds ensure that you get Market Returns without the painful payment of High Charges which you may have to bear in case of ULIPs.

 

So, in nutshell, my dear investor, please remember that just investing in CHILD EDUCATION PLAN does not guarantee you get the money you require for your Child’s education.

You need to invest in the Right Asset Class after taking Protection through Life Insurance Cover.

If you are still a fan of Insurance combo than, you are suggested to take a ULIP, especially if the goal is at least 15 years away.  But, do remember, that ULIPs may leave in the false hope of adequate coverage as the Premiums will be steep as the Cover goes up. They leave you Under-Insured.


Endowment and Money Back are a strict NO-NO. Investing in an Insurance Plan which gives less than 7% when the Inflation is growing at 7% is definitely not a wise thing to do.


T





he financial future of a child matters and mere emotions will not ensure a luminous career and life for the child. It has to be backed by a pragmatic and concrete financial plan so that dreams get translated into reality.

My Final Take is that there is nothing to beat the Combination of Term Insurance Plan with Diversified Mutual Funds.

 

And, yes, along with this also invest in other products like Sukanya Samruddhi, PPF, etc

So, dear friends, selecting the right plan for your child is  NO CHILD’S PLAY

Please take the advice of a Competent Financial Advisor. 

 

Best of luck,

Srikanth Matrubai

CEO,

Srikavi Wealth

Certified Volatility Coach,

Author – Don’t Retire Rich

 

 You are strongly encouraged to consult your financial planner before taking any decision regarding this investment. 

The views expressed here is the authors personal views and should not be intrepresented as a recommendation to invest/avoid.<div><br />&nbsp; 







<div dir="ltr" style="text-align: left;" trbidi="on">Srikanth Matrubai

Author of the Amazon Best Seller <b><u>DON'T RETIRE RICH</u></b></div><div dir="ltr" style="text-align: left;" trbidi="on"><b><u><br /></u></b>

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Saturday, 20 February 2021

Opportunity to claim LTC Concession

Greetings,

 

To overcome the low spending due to Covid and kickstart the economy, Finance Minister had announced several measures to boost the ailing economy.

Among them, the salaried class would be most happy with the LTC CASH VOUCHER SCHEME. Because this scheme is not restricted to the Central Govt Employees, but even the Private sector employees too are eligible to claim the leave travel allowance.

 

Employees can claim tax exemption on spending the LTC amount, by satisfying certain other conditions, without the need for actual travel.

The exemption is available to both government and non-government employees.

Instead of incurring expense on travel, the employee can now furnish proof for purchases made / services availed and avail the tax exemption.

 



The tax exemption will be restricted to the deemed LTC fare of up to maximum of Rs 36,000 per person for a round trip

The employee will be required to buy goods/avail services worth 3 times the deemed LTC concession fare and worth 1 time the value of leave encashment.

If the amount spent is short of the requirement, then the exemption would be allowed proportionately.

 

So, for example , if the deemed LTC Fare is Rs 80,000 (Rs 20,000 x 4),

then the amount to be spent under the scheme is Rs 2,40,000.

 

The scheme was introduced to make use of the unused LTC for the current block of 2018-21 that would otherwise lapse since employees could not fully utilize it due to disruptions caused by COVID-19.

 

 

What is LTC or Leave Travel Concession?


LTC or leave travel concession is an allowance available to the employees. This allowance is applicable for travelling to your declared hometown along with your eligible family members.

 

 

Some clarifications :


-The goods/services bought should be those attracting GST of 12% or more and should be bought from GST registered vendors/service providers.

-Only digital transactions are allowed and GST invoice is to be produced. -Expenditure should be incurred between 12 October 2020 to 31 March 2021 –

-Purchase of goods or services on EMI is also permissible under the scheme, provided they have been bought after 12 October and have a GST invoice.

 

-The government has also clarified that even services like interior decoration and phone bills are accepted provided GST is 12% or more.

 


Some more Clarifications :

 

1.    
I availed home LTC in 2019. What is my eligibility position for the LTC cash voucher scheme?

This scheme is for the LTC block of 2018-21. Normally, a block contains two LTC fare (home town and anywhere in India). If one has been availed and the other remaining, the same can be utilized for this purpose. Any unutilized LTC of the block of 2018-21 is eligible.

 

2.
Whether any advance will be given like LTC advance?
Yes, an amount up to 100% of leave encashment and 50% of the value of deemed fare may be paid as advance into the bank account of the employee.

 

3.
Whether a single bill of purchase of goods or services is to be submitted or multiple bills can be submitted?
Multiple Bills are accepted. The purchase should have been done from the date of issue of the OM ie 12.10.2020 till the end of the current Financial Year.

 

FOR ME THE BIGGEST POINT IS THIS....

Life insurance and Health Insurance premium eligible for reimbursement under LTC cash voucher scheme

Lets see this with an example:
Mr A is an employee with 4 eligible family members. Let us assume he is entitled to leave a travel allowance of Rs. 156,000 from the employer-based on his compensation structure.

He can avail the LTC exemption only for the lower of Rs. 144,000 (Rs. 36,000 deemed fare per person for 4 members) and Rs. 156,000 (actual entitlement).

For claiming this exemption, he will have to invest in the specified expenditure 3 times the amount of 144,000, i.e, Rs. 4,32,000. The differential of Rs. 12,000 (156,000-144,000) would be taxable. If the employee spends less, then the entitlement/benefit shall also be reduced proportionately.

 

Continuing the above example: If he incurs expenditure of only Rs. 240,000, then the exemption will be restricted to Rs. 80,000 (i.e 2,40,000/4,32,000*144,000). The balance amount of Rs. 76,000 (Rs. 156,000-80,000) would be taxable.

 

Since the movement of individuals have been severely restricted in the lockdown situations, this is a welcome initiative by the government to boost consumer the demand which would then lead to increased spending and revive the









Indian economy.

 

 Note :
Payment of premium for new insurance policies purchased between 12 October 2020 and 31 March 2021, is eligible for the benefit under the scheme. This is not applicable to existing insurance policies.

 

Do consult your Tax Advisor / Tax Expert before taking any decision.

 

Regards,

Srikanth Matrubai,

Wealth Architect,

Author : Don’t Retire Rich

 


Saturday, 2 May 2020

LEARNINGS FROM MASTER COACH.....P.GOPICHAND

“I feel I was lucky because I wasn’t good at studies” - Pullela Gopichand  Never utters a single word on court but opened up his heart in an exclusive with DSP Mutual fund.
 Pullela Gopichand is versatile in making badminton a game that can be played and also that can coached to aspirants. As a recipient of Arjuna award and Dronacharya award which explains the confluence he created in the game,


Fantastic Learning from the Master...

Here are some takeaways:

Be the best of yourself for the day. That's the only thing you can control, that's the only thing you can celebrate

Focus on the process, the process becomes the goal

Live like a hermit and train like a shaolin monk

The story is always on your side not the other side

BE GROUNDED : 
No matter how much you win always think of the glass as being half empty, that will keep you thirsty and push you to do more, once you are out of the court think of it like the glass half full, that will keep you satisfied

To remember what has to be remembered is the key to success

Let go of the regrets, be proud of the moment to enjoy it

On his leader
He made me comfortable
He made me like the environment
He only gave me shabashi
So I developed a liking for the craft

Success necessarily is not winning every time

Everyone is talented. We need to map the human with the talent. Its talent mapping over talent identification. Instead of just celebrating the champion we need to find what is he/she a champion in

LEARNING HAS TO BE A CONTINUOUS PROCESS : 

Learning has to be continuous. It is important to realise that we don't know everything and we need to be humble to acknowledge that.

Today has to better than yesterday and tomorrow has to be better than today.

Challenge the senior and respect the junior By doing that ideas will automatically start flowing in

Be calm, alert & intuitive. The source of learning is within us. If you are calm you have clarity of thought

Be a student of the craft, be enthusiastic about learning and trying new ways, even if you fail spring back with enthusiasm to try again

Every time I go to the field I want to be better at coaching and every time I'm with the students I want to be better at the game. I learn from every student

Knowing what will fail is important

As a sportsperson, when you fail..you should be ready to ADMIT that you failed.
Winning and losing is secondary. Personal Excellence is what matters.
Ignore the Failure. Let go.


Don't celebrate wrongdoings Champions will always be there and you will find them but if you spoil the culture by celebrating wrong doings you won't get champions tomorrow

Final thought...
People in power need to be fair
People who have money need to give
People with education should have clarity

Thank you very much DSP for bringing the master to us.. Truly, Invaluable learning

Regards,
Srikanth Matrubai

Srikanth Matrubai Author of the Amazon Best Seller DON'T RETIRE RICH
Do read the book and give your valuable feedback and request you to post positive comments on the Amazon. https://amzn.to/3cHUM6M/ You can purchase the book on amazon and flipkart Please subscribe to my TELEGRAM channel https://t.me/MutualFundWORLD/

PLANNING FOR YOUR CHILDREN’S EDUCATION EXPENSES ? HERE’S HELP

  Greetings Friends,   The Birth of a Child brings a lot of joy to parents. After the initial euphoria settles down, the future expens...