Among the many queries you asked with respect to your day-to-day personal finance matters, I list below a few of the important ones for the benefit of one and all.
Q 1. It is typically recommended that life insurance policy should be bought till the retirement age of 58-60. Why this is so; why not buy it till the age of 65-70?
A 1. The purpose of insurance is to provide financial assistance to the family in case something untoward happens to the breadwinner.
If death happens when the person is working, there is a loss of future potential income. Insurance aims to covers this loss. Post-retirement the family is not financially affected. Hence, insurance during retirement is like betting on the death of the insured. Since the probability of dying is much lower than surviving, it makes more sense to have a suitable retirement corpus by the time one retires rather than depending of someone's death.
Q 2. I have taken home loan in the year Jan 13. In the agreement, the agreed handover was March 14. But right now there is delay and I am going to get the possession in the last week of Aug 14. So in this case what is to be done?
A 2. Since the tax benefit is available from the year of completion
- you cannot claim any tax benefit for the financial years 2012-13 and 2013-14
- you can start claiming tax deduction on interest and principal you pay from 2014-15 onwards
- benefit available on principal amount repaid till Mar 2014 is lost
- for the interest paid till Mar 2014, deduction can be claimed in next 5 years in equal annual instalments from the year of completion.
Q 3. Is there a list of 10 shares which are described as Bluechip shares that I can buy and forget?
A 3. I don't believe in such lists. Especially in today's dynamic world when fortunes of the businesses can change overnight, it would not be prudent to just invest and forget. For example, if you see the 30 / 50 stocks comprising the Sensex / Nifty, you will see a lot many different companies today than say 5 or 10 years back. This proves that passive investment in equity is not the right approach.
Q 4. I have read in so many place statements like "for healthy financial life your portfolio should be balanced properly". I agree about other products, but is it mandatory that I should have Gold ETF in my portfolio given all financial experts suggesting not to have more than 10% of investment in Gold and the long return from Gold is not going to be more than 10%?
A 4. All investors should be diversified across
a) Wealth Creators i.e. Equity and Property
b) Wealth Preservers i.e. Debt and Gold.
The exact allocation would depend on the person's financial profile.
And, as I have also explained this in detail in my book 'Millionaires don't eat cakes...they make them', Gold is required as an insurance during bad economic times. Its primary objective, just like insurance, is not the returns.
Q 5. With reference to 'Don't be fooled by Bonus Shares', ex Bonus price is not always half of the pre-bonus price, and quick appreciation is expected from the ex bonus price.
A 5. The price may not always fall equivalent to the bonus issue because of
a) sentiments (as I mentioned people love bonuses)
b) reduced price "appears" reasonable (people would think less when buying a Rs.500 share than a Rs.1000 share)
c) increased liquidity (no. of share increase as per the bonus ratio)
But these are all "irrational" reasons. In terms of business, nothing changes. And hence any price appreciation that may happen is usually short-lived. Besides, short-term capital gains are taxed at 15%.
Q 1. It is typically recommended that life insurance policy should be bought till the retirement age of 58-60. Why this is so; why not buy it till the age of 65-70?
A 1. The purpose of insurance is to provide financial assistance to the family in case something untoward happens to the breadwinner.
If death happens when the person is working, there is a loss of future potential income. Insurance aims to covers this loss. Post-retirement the family is not financially affected. Hence, insurance during retirement is like betting on the death of the insured. Since the probability of dying is much lower than surviving, it makes more sense to have a suitable retirement corpus by the time one retires rather than depending of someone's death.
Q 2. I have taken home loan in the year Jan 13. In the agreement, the agreed handover was March 14. But right now there is delay and I am going to get the possession in the last week of Aug 14. So in this case what is to be done?
A 2. Since the tax benefit is available from the year of completion
- you cannot claim any tax benefit for the financial years 2012-13 and 2013-14
- you can start claiming tax deduction on interest and principal you pay from 2014-15 onwards
- benefit available on principal amount repaid till Mar 2014 is lost
- for the interest paid till Mar 2014, deduction can be claimed in next 5 years in equal annual instalments from the year of completion.
Q 3. Is there a list of 10 shares which are described as Bluechip shares that I can buy and forget?
A 3. I don't believe in such lists. Especially in today's dynamic world when fortunes of the businesses can change overnight, it would not be prudent to just invest and forget. For example, if you see the 30 / 50 stocks comprising the Sensex / Nifty, you will see a lot many different companies today than say 5 or 10 years back. This proves that passive investment in equity is not the right approach.
Q 4. I have read in so many place statements like "for healthy financial life your portfolio should be balanced properly". I agree about other products, but is it mandatory that I should have Gold ETF in my portfolio given all financial experts suggesting not to have more than 10% of investment in Gold and the long return from Gold is not going to be more than 10%?
A 4. All investors should be diversified across
a) Wealth Creators i.e. Equity and Property
b) Wealth Preservers i.e. Debt and Gold.
The exact allocation would depend on the person's financial profile.
And, as I have also explained this in detail in my book 'Millionaires don't eat cakes...they make them', Gold is required as an insurance during bad economic times. Its primary objective, just like insurance, is not the returns.
Q 5. With reference to 'Don't be fooled by Bonus Shares', ex Bonus price is not always half of the pre-bonus price, and quick appreciation is expected from the ex bonus price.
A 5. The price may not always fall equivalent to the bonus issue because of
a) sentiments (as I mentioned people love bonuses)
b) reduced price "appears" reasonable (people would think less when buying a Rs.500 share than a Rs.1000 share)
c) increased liquidity (no. of share increase as per the bonus ratio)
But these are all "irrational" reasons. In terms of business, nothing changes. And hence any price appreciation that may happen is usually short-lived. Besides, short-term capital gains are taxed at 15%.
