What Is an Endowment Policy?

All of us have been sold an endowment policy by an insurance agent at one time or another and most of these we dont know anything about. Well let me try explaining here what and endowment policy actually is.

Well an endowment policy is actually a contract like any other insurance policy between an individual and the company that on payment of premiums as specified in the contract, the company will pay a fixed amount plus accumulated profits that are declared annually on a fixed date in the future (or the nominees if the individual dies prematurely).

These are assignable, allowing the assured person to pass the benefits of the policy to a third party. The premium payed by the individual partly helps to pay for the life cover and the major part goes into the companies investments for the period of the contract. The profits thus earned from these investments are distributed among the policies. These are called bonus.

Bonus issues by each company highly depend upon the companies investments performances.

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Are You Financially Healthy?

Well here are some questions listed below to check the health of your finances. You need to answer them in all honesty to exactly know how what is your financial health.

1. How much percentage of your income do you save monthly?
a. > then 10%
b. < then 10%
c. Nothing

2. How often do you adjust and review your retirement plan?
a. Atleast once a year
b. Only once in five years
c. You dont have any

3. If you were to review your ability to meet any future financial obligations, you would feel...
a. Relaxed
b. a bit concerned
c. very concerned

4. How many times in the last few months have you paid your bills late?
a. None
b. 1 to 5
c. 6 or more

5. How often do you make your credit card payment on time and completely?
a. Always
b. Only a few payments are delayed
c. There is always some carried forward balance.

6. Do you always budget your monthly spending and always plan it?
a. Always
b. Sometimes
c. Never

7. All high Cost or major purchases are always..
a. Planned in advance and money is set aside for them
b. Planned but no money is set aside for them in advance
c. Unplanned

8. If a sudden emergency were to arise and you would have to take out cash for it then you would use..
a. Cash already available
b. Money available in credit
c. No funds unless bank/someone approves a loan

9. If you lost your job or your source of income, how long would you be able to provide for your basic expenditure
a. Between 3 to 6 months
b. For only 1 month
c. Less then 1 month

10. I have insurance cover for the property, autos, etc...
a. Enough to cover replacement cost
b. less then enough for replacement
c. Dont have any Coverage

Give 5 points for every time you answered a, 3 points every time you answered b and 1 point every time you answered c. If you scored between 40 to 50 you are in excellent financial health and If you scored between 20 to 39 you have made a good start but you need to address a few issues. If you scored below 20, YOU NEED TO START READING THIS BLOG MORE OFTEN AND BOOK MARK IT AND MAKE IT YOUR BIBLE.
And regardless of what you do examine your financial health.

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What Is a Mutual Fund ?

Well although i know most of us already know what is a mutual fund but i just thought for all those new to the investment scene who like to ask this question a lot, so maybe i can explain the basics of Mutual funds and who knows maybe all of you who have been investing in mutual funds may also learn a thing or two about them.

Mutual Fund is basically a company that brings together a group of investors(people like us), and invests their money in equity securities etc. Each person holds a share in the company which represents some part of the total corpus that has been invested.

How can we make money from Mutual Funds? Well there are three ways....

1. Dividends and interests : The dividend of the stocks held by the mutual fund or the interest that it earns from holding bonds is one way of earning money from a mutual fund.

2. Capital Gain : If the mutual fund sells of any part of the equity held by it, due to increase in price value of the equity, the money earned is divided among the investors, and is call capital gain.

3. Sell off : If you decide to sell of your share of the mutual fund after the price value of share has risen for a profit.

Why to invest in a Mutual Fund ?
Let me below list down some of the advantages of investing in a Mutual fund....

1. Your Money of managed by professionals and for a very low cost to the individual investor.

2. Your risk is more spread out, due to the fact that mutual funds will own a variety of shares instead of just you owning a single type of share, hence diversification can lower your chances of risk.

3. Lower cost of transaction to the investor due to the fact that a mutual fund may be doing bulk trading.

4. Your money is mostly liquid due to the fact that these funds allow you to exit any time and take your money.

5. Ease of buying a mutual fund, since its all about issuing a cheque and filling up a form which has been made more easier by online availibility.

Types of Mutual Funds

Although there are many types of mutual funds but some of the main genres are listed below :

1. Bond / Income Fund : The basic purpose of the income fund is to provide a steady income. These type of funds usually hold Government debt etc. Similarly Bond funds mainly depend on where they invest and carry a certain amount of risk.

2. Balanced Funds : The basic purpose of these kinds of funds is to provide safety, income and appreciation of the invested amount. They usually balance there incomes by investing some portion of there corpus in government securities and some in equity.

3. Equity Funds : The most common type of funds and invest in equity. The basic idea being to provide the investor with long time capital growth and income. There are many different types of equity funds depending on their ideology.

4. Global / International Funds : The kind of funds which invest in other countries aside from the home country.

5. Specialty Funds : These are the type of funds which don't diversify too much and only focus on a specific sector/ segment like telecoms, IT or maybe regional like say latin america, China etc...

6. Index funds : These type of funds focus on a specific index of the stock market. They basically replicate what is hapening in the particular type of index they are focusing on.

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What if Something bad happens?

What if Something were to happen? Disaster were to strike. Are you prepared for the worst...
You still have to keep yourself and your loved ones happy. And the same can only be done if your finances are in order, so here are a few suggestions for disaster management...

1. Plan for your monthly spending : We should all create a budget and stick to it. And when you plan for your budget always keep a little money in it for extra spending or impulse buying.

2. Always set up a Contingency fund equivalent to atleast three months of living expenses : What if something were to happen, you may lose your job or maybe fall sick? Prepare for it and get a fund ready to handle these kinds of expenditures. I have already written about how to do this, you can read it here...

3. Create a trust / a will : This is one of the most important things you can do to take care of your loved ones needs in case of an emergency. A will usually avoids a lot of legal hassles.

4. Nomination in your Accounts : Don't forget to fill the nomination columns of the forms used to open your term deposits, bank accounts, PF accounts and Insurance. These are very important to take care of the needs of your loved ones.

5. Open Joint accounts : Keep some of your accounts in th e joint names of your spouse, this way in case of an emergency they can atleast operate your account.

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