Difference between Peril and Hazard

Risk is the chance of loss, and peril is the direct cause of the loss. If a house burns down, then fire is the peril. A hazard is anything that either causes or increases the likelihood of a loss. For instance, gas furnaces are a hazard for carbon monoxide poisoning. A physical hazard is a physical condition that increases the possibility of a loss. Thus, smoking is a physical hazard that increases the likelihood of a house fire and illness.

Moral hazards are losses that results from dishonesty. Thus, insurance companies suffer losses because of fraudulent or inflated claims. The American legal system is a moral hazard in that it motivates many people to sue simply for financial profit because of the enormous amount of money that can sometimes be won, and because there is little cost to the plaintiff, even if he loses. A good example is the current asbestos litigation, which has bankrupted many companies, even though very few plaintiffs show any real evidence of disease, and are unlikely to ever develop any disease that can be shown, by the preponderance of the evidence, to have resulted from asbestos exposure. This type of moral hazard is often referred to as legal hazard. Legal hazard can also result from laws or regulations that force insurance companies to cover risks that they would otherwise not cover, such as including coverage for alcoholism in health insurance.

Insurance can be regarded as a morale hazard because it increases the possibility of a loss that results from the insured worrying less about losses. Therefore, they take fewer precautions and may engage in riskier activities—because they have insurance. A good example of morale hazard is when the federal government bails out financial institutions who have made bad decisions. Many financial institutions have taken significant risks in the recent subprime debacle by buying toxic instruments, such as CDOs and mortgage-backed securities based on subprime mortgages that paid high yields, but were extremely risky. The financial institutions have considered themselves too big to fail—in other words, if things started going badly, then the federal government would step in to stop their collapse for fear that the whole financial system will collapse, which is exactly what the federal government did in September, 2008. Freddie Mac and Fannie Mae have both been taken over by the government, and American International Group (AIG) has been propped up by an infusion of $85 billion of taxpayers' money. AIG sold credit default swaps on mortgage-backed securities to buyers, mostly banks, thinking that they could collect the premiums, but would never have to actually to pay for defaults—but if they were wrong, then the government would save them, because otherwise the banks that had bought that credit default protection could also possibly fail. As recent events have demonstrated all too clearly, this federal government "insurance" creates a morale hazard for financial institutions—taxpayers pay the premium, but the big financial institutions, with their overpaid CEOs and managers, receive the benefits!

Distinction Between Moral Hazard And Morale Hazard

The distinction between moral and morale hazard in insurance is one of intention, but in other disciplines, such as banking, the termmoral hazard is used in a more general sense that includes morale hazard. Moral hazard is often applied to a receiver of funds, such as a borrower, and means that there is a risk that the receiver of funds will not use the money as was intended or that they may take unnecessary risks or not be vigilant in reducing risk. This definition includes not only intentional dishonesty, but also a change in behavior that results from using someone else's money, which, in insurance, would be described as morale hazard.

What is Risk?

Risk can be categorized as to what causes the risk, and to whom it affects.

Pure risk is a risk in which there is only a possibility of loss or no loss—there is no possibility of gain. Pure risk can be categorized as personal, property, or legal risk. Pure risk is insurable, because the law of large numbers can be applied to estimate future losses, which allows insurance companies to calculate what premium to charge based on expected losses.

Personal risks are risks that affect someone directly, such as illness, disability, or death.Property risk affects either personal or real property. Thus, a house fire or car theft are examples of property risk. A property loss often involves both a direct loss and consequential losses. A direct loss is the loss or damage to the property itself. Aconsequential loss (aka indirect loss) is a loss created by the direct loss. Thus, if your car is stolen, that is a direct loss; if you have to rent a car because of the theft, then you have some financial loss—a consequential loss—from renting a car.

Legal risk (aka liability risk) is a particular type of personal risk that you will be sued because of neglect, malpractice, or causing willful injury either to another person or to someone else's property. Legal risk is the possibility of financial loss if you are found liable, or the financial loss incurred just defending yourself, even if you are not found liable. Most personal, property, and legal risks are insurable.

Speculative risk differs from pure risk because there is the possibility of profit or loss, such as investing in financial markets. Most speculative risks are uninsurable, because they are undertaken willingly for the hope of profit. Also, speculative risk will generally involve a greater frequency of loss than a pure risk, since profit is the only other possibility. So although many people take precautions to protect their lives or their property, they willingly engage in speculative risks, such as investing in the stock market, to make a profit; otherwise, a person could avoid most speculative risks simply by avoiding the activity that gives rise to it.

However, unlike pure risk, where there is only possibility of a loss, society benefits from speculative risks. For instance, investments benefit society, and starting a business helps to create jobs and generate tax revenue for society, and can lead to economic growth, or even technological advancement.

Risk can also be classified as to whether it affects many people or only a single individual. Fundamental risk is a risk, such as an earthquake or terrorism, that can affect many people at once. Economic risks, such as unemployment, are also fundamental risks because they affect many people. Particular risk is a risk that affects particular individuals, such as robbery or vandalism. Insurance companies generally insure some fundamental risks, such as hurricane or wind damage, and most particular risks. In the case of fundamental risks that are insured, insurance companies help to reduce their risk of great financial loss by limiting coverage in a specific geographic area and by the use of reinsurance, which is the purchase of insurance from other companies to cover their potential losses. However, private insurers do not insure many fundamental risks, such as unemployment. These risks are generally insured by the government, because the government has some control over economic risks through specific policies, such as monetary policy, and law. Fundamental and particular risks can be pure or speculative risks.

Fundamental risks are risks that affect many members of society, but fundamental risks can also affect organizations. For instance,enterprise risk is the set of all risks that affects a business enterprise. Speculative risks that can affect an organization are usually subdivided into strategic risk, operational risk, and financial risk. Strategic risk results from goal-oriented behavior. A business may want to try to improve efficiency by buying new equipment or trying a new technique, but may result in more losses than gains. Operational risks arise from the operation of the enterprise, such as the risk of injury to employees, or the risk that customers' data can be leaked to the public because of insufficient security. Financial risk is the risk that an investment will result in losses. Because most enterprise risk is speculative risk, and because the enterprise itself can do much to lower its own risk, many companies are learning to manage their risk by creating departments and hiring people with the express purpose of reducing enterprise risks—enterprise risk management. Many larger firms may have a chief risk officer (CRO) with the primary responsibility of reducing risk throughout the enterprise.

Stop Emotional Spending , Control your Monthly Expenses

By: Ajit Panicker

Spending must be a conscious activity.  What do I mean by that?  Have you ever said the following at the end of the week or month: “Where on earth did my money go?”  I know that I’ve said that!  The idea behind conscious spending is to break the habit of spending whenever you ‘feel’ like it.  Emotions have just as much of a role in spending as knowledge does, so getting the emotional side under control will help you put your knowledge to use!
BUT…building self-discipline can be tough, especially when we’re talking about finances.  If you’re trying to control your spending or looking for ways to help you know where your cash is going, explore a few of these ideas to help you to get your budget under control.

Spending Money With a Purpose

Envelopes

You’ve heard of this route before, but may not see its usefulness.  If you’re having trouble with overspending in certain areas, try using envelopes for a trial period with certain categories.  For example, your cell phone payment may be automated…no envelope needed.  Your grocery bill may fluctuate more than you’d like it to – so set out an envelope.  The same can be done for eating out or entertainment.  You don’t need a lot of categories to be successful with envelopes, start small and you’ll see how effective it can be!

Gift Cards Only

This is similar to the envelope system, but an alternative to carrying cash.  If you want to set a limit on gas, groceries, or entertainment, you can use a gift card to control your spending.  It takes a little more involvement, but you can prepay your gas, groceries (if you buy them at a place with gift cards, like WalMart) or entertainment like a movie store.  I’d rather do cash only, but it’s an idea for people who like plastic.  Just be careful that you don’t get stuck with any unnecessary fees.

Limit Trips To The Store

Creating a shopping schedule for groceries, or personal items can help control your spending.  Plan out the days you absolutely need to shop and avoid the ‘pick it up after work’ routine.  That’s a sure-fire way to forget how much you’re spending on things.

Write Down Every Purchase

If the small things are breaking your budget, try carrying around a mini notebook and writing down each item you’re purchasing.  Coffee here, snack machine there, or whatever it may be – write it down!  It’ll feel like a hassle (good!) and hopefully slow you down to really consider what you’re spending money on.

Automate The Savings

If you don’t see it, you’re less likely to miss it.  Try paying the savings account each month like you would do with a bill.  How you do it will be up to you.   Many online banks will set up automated transfers each month.  If you cash your checks, put a portion in a jar or enveloped marked as savings.  The point is to get into the habit of living on less so that you have room to breathe in your budget.

Find A Money Buddy

Setting goals with a friend can make saving money easier, especially if you like a challenge.  If you really need accountability (and trust the other person), have a bi-weekly or monthly comparison of expenses.  If you don’t want anyone to see your actual expenses, keep it focused on the amount saved.  Challenge each other to increase your savings month after month – it’ll naturally cause you to shape up your spending.

Make a 30 Day Rule

The ultimate discipline for controlling your cash is the ability to say NO, and to let a period of time go by before you commit to the purchase.  This works best with big ticket items like a computer, TV, car, hobby items, or home décor.  The main idea is to kick that impulsive buying habit we can all fall prey to.

Should you put your money in company FDs?

Those who swear by fixed deposit (FD) have never had it so good. The rates offered by banks are high. Now, they have even better news from companies. There are around 100 companies offering FD schemes currently, and most of them offer at least 1% to 4% more than bank FDs. A three-year FD from Mahindra Finance, for example, gives 10.5%, while one from Jaiprakash Associates offers 12.50%.

Compared with this, the State Bank of India and HDFC Bank offer 9.25% and 8.5%, respectively, for a three-year FD. You don't need to be an investment wizard to figure out that the rates offered by the companies are the best you can pocket and you should park some money in their FD schemes. But, don't commit the mistake of equating a company FD with a bank FD, say experts. This is because bank deposits are covered by a guarantee from the Deposit Insurance and Credit Guarantee Corporation of India, which assures repayment of Rs 1 lakh in case of default by a bank, but there is no such guarantee for company deposits. The safety of the FD rests firmly on the financial position of the company. That is why you have to be extra careful while choosing and investing your money in a company FD. "When investing in company deposits, do not get lured by high interest rates. Check the past track record and financial position of a company before committing your money," says Anup Bhaiya, MD and CEO, Money Honey Financial Services.

Do A Thorough Check: Before putting money in a company's FD, try to get a rough idea about the company and its activities. "Go for listed companies as there is more information in the public domain about them," says Anup Bhaiya. The next thing you could do is check on the ratings for the FDs. "Go for companies which have an AAA or AA rating (for their deposit schemes)," says Trilok Mishra, a Mumbai-based financial planner. Check the promoter's background and financials of the company. If a company has a long history and is making consistent profits and paying dividends - HDFC and Mahindra Finance, for example, then your money in its schemes will be in safe hands. Both HDFC and Mahindra Finance have a sound past track record.

This, along with their strong financial performance and strong parentage, makes them a good bet in the company deposit space. If the financial performance of a company has been erratic, and the promoters are not well known, you should think twice before investing in its schemes. A case in point is Morepen Laboratories. The FD holders of the company were left high and dry without any payments. In the end, as per a scheme of arrangement and compromise with deposit holders, the company gave equity shares to fixed deposit holders. You don't want to face such a situation, espe-cially if you are a retired person living on interest income from safe investment avenues. In the current scenario, you should avoid putting money in real estate companies, as most companies in the sector have taken huge hit due to the high interest rates and slump in the economy. "Even in the recent past, some real estate companies have been delaying repayment," says Shankar S, a certified financial planner with Credo Capital.

Rates High? Check Why: Whenever you come across a company paying higher interest rates, try to find out why the rates are so high. Put simply, a company should have some reason to pay a higher interest than the prevailing market rate to depositors. Most often, you would find out that the company is paying a high rate because it is in some financial trouble and the higher rate is a way to compensate investors for taking the high risk of putting money in its scheme. If you know how to ask the question, you would get the answers from distributors and financial advisors. If you are convinced with the reply, you can put money in the FD. Otherwise, look elsewhere.

Illiquid And Taxable: If the money you have is for use in an emergency, then company FD may not be the best investment option. If you have a bank FD, then in an emergency, all you need to do is walk across to your bank with the FD receipt and you can get your money back with no difficulty. Sure, there may be some penalties for breaking the FD, but you get access to the funds to be used for the emergency. But, a company FD cannot be redeemed so easily. Typically, these FDs can't be broken before six months from the date of investment. If you break it even after six months, you would get 2% lower than the promised rate. Also, it may take aminimum of three to five days to get the money back. Also, remember that interest income from company FDs is taxable. On this front, they are similar to bank FDs. It is always better to calculate the post-tax returns from an FD. For example, if a company pays 12% on its FD, your effective return will be 8.29% if you are in the highest tax bracket. However, if you are retired or in the lower tax slab or not liable to pay tax on your income, the returns could be attractive.

Investing Finally: Experts advise against going overboard on company FDs. "You can invest up to 10% to 12% of your fixed income portfolio in company fixed deposits," says Shankar S. If your fixed income portfolio is worth Rs 50 lakh, for example, then Rs 5-6 lakh could be invested in company fixed deposits. It would be better to spread this amount across at least four to five companies. If you are retired and depend on interest income to meet your day-to-day expenses or your monthly liabilities, the money should go into only AAA or AA-rated companies. It would not be worthwhile to chase an extra 1% to 3% return at the cost of safety. Finally, opt for cumulative schemes to maximise your returns, as the interest earned would be automatically reinvested at the same coupon rates, which will generate better yield.

Q&A: Financial Planning

By Sumeet Vaid
(Founder CEO, Ffreedom, Financial Planners)

Goal Setting in Investment

Iam 40 years old, and my wife is 35. Both of us are earning. We can invest Rs 35,000-40,000 every month as we have recently closed our home loans. I am keen on investing in mutual fund SIPs as Iknow the return on such investments over a long period of time is high. I want to take advantage of the current down-trend in the equity market. Please advise me the instruments in which I can invest this amount for the next 7-8 years for higher returns.
- Amit Kumar

It is very important for you to articulate your goals and on the basis of that an investment should be made. Investing without considering your goals will just help you to build up a money tree that may or may not be sufficient to fulfill your future needs. You want to invest more in mutual funds. For that, be specific about your goals and when they are to be fulfilled and what are the current costs associated with those goals.

If the goal horizon is more than 7 Years, you can follow an aggressive asset allocation where the equity and debt ratio is 80:20. As and when the goals approach, the equity component should decrease and the debt component should increase.

Following this asset allocation will help to rebalance your investment portfolio and also will make sure that you can achieve your goals. You can begin investing in equity diversified schemes of mutual funds if the goals are to be met on a longer term basis. Some good equity diversified schemes include ICICI Focused Bluechip Fund - G, DSP BR Equity Fund - G, IDFC Premier Equity Fund, DSP BR Top 100 - G, HDFC Top 200 Fund - G, HDFC Equity Fund - G among others.

Equities for the Long Run

Iam 27 years old. I want to invest Rs 15,000 in mutual funds. Please tell me which are the best funds.
- Suman Sarkar

Equity as an asset class should be chosen for long-term goals (seven years and more). Debt should be chosen for short-term goals (two-three years away). For the interim period, a combination of both the asset classes should be selected. Based on your goal horizon, you should select your equity and debt asset allocation and accordingly start investing. Some of the best performing equity schemes have been mentioned in the above reply.

Six money facts for new income earners

Uma Shashikant

The author is Managing Director, Centre for Investment Education and Learning,

It is the season of the young taking up their first job assignment. The first pay cheque starts the journey into the world of personal finance. Here are six pointers to help you in this exciting, sometimes stressful, journey with money.

First, managing money is primarily about cash flow. The income earned comprises the inflow and the expenses incurred constitute the outflow. Both these do not match in time or amount, and worse, remain unpredictable for most part.
While a gift for your mom will fit into your first pay cheque, the car you wanted to buy may not. You may spend happily in the early days of the month, but an unexpected trip to your home town may leave you seeking hand loans at the end of the month. Making a monthly budget is an obsolete art.

A simpler option is to list out and pay off all mandatory expenses, such as the education loan, rent, phone bill, among others, as soon as the cash comes in. What remains is relatively easy to manage even if you decide to stay at home the last weekend since you exhausted the cash. Separating the routine from the unexpected is a good skill to acquire.

Second, learn to think of cash as a limited resource with multiple uses. There is always an alternative use you can put your money to. Think about it when you allocate cash. Spending comes with a happiness quotient and the independence of financial decision-making gives everyone a high.

Being too conservative makes you worry that you are not enjoying your earning; spending too much leads to guilt of not being careful with money. A simpler way to deal with this problem is to have a mental budget that is represented as a percentage of your monthly income. This gives you a good sense of how you apportion your money.

You may like to think that 10% should be used for going out with friends; 15% for your clothes and grooming; 10% for books and movies; 40% for running your home, and so on. This helps to view your spending in relation to your income, and you will know when you cross the line.

Third, money grows in value over time, if invested. The basic math to know when you deal with money is that a rupee invested today will gain in value and be worth so much more in the future. Therefore, leaving money undeployed erodes its worth. When you allocate your income, pay yourself first.

A 10-20% allocation to saving and investing means that this amount, which you leave untouched in an investment, grows in value with time and you build an asset. Building assets can help you manage your future cash needs better.

Your ability to manage any risk to your income from job changes, or your need to part-fund a higher education, or your ability to take a break to raise a family, all depend on how much you have accumulated as investment and assets.

You can derive an income from your assets, sell when in need, offer them as collateral for loans, liquidate partially or offer as guarantee.

Set Goals First, then Plan your investments

All of us know we have to save and invest if we want to achieve our financial goals. We diligently penny-pinch to save money and invest in various financial instruments like bank fixed deposits, company deposits, bonds, mutual funds, stocks and so on.
However, according to financial pundits, most of these 'invest-as-you-go' portfolios don't really deliver the goods. It is mainly because the portfolio is nothing but a host of stuff put together - mostly at the advice of some friends or colleagues or on the basis of the market performance - without a proper thought.
Worse, most people don't even bother to track their investments regularly or restructure or rebalance the portfolios accordingly.
"Such portfolios typically include too many products which are difficult to track. There is also no thought behind most of these portfolios and these may not be helpful in achieving the financial goals of investors," says Vishal Dhawan, founder, Plan Ahead Wealth Advisors.
However, this is not to suggest that if you have invested your kitty in such a portfolio you are doomed. You can always take stock of the situation and take remedial measures. Of course, it indeed comes at a cost, and most importantly the lost opportunity cost.
"Make a list of investments you have in your existing portfolio and articulate your financial goals in money terms along with time lines," says Uday Dhoot, deputy chief executive officer at International Money Matters.
The first step of taking stock of investments can be done by going through your investment records. For the purpose of quantifying the financial goals you can either use an excel sheet (if you are savvy enough to use it) or use financial calculators offered by various websites.
Once you have goals and the time to achieve them on paper, tally them with your investments to make sure that you have the right investments to meet your goals. For example, fixed deposits and relatively safe investments, such as short-term bond funds and fixed maturity plans, can be used to achieve short-term goals.
Diversified equity funds with good track record can be aligned with long-term goals. This process will ensure that you switch to goal-based investments from random investments.

Know your Rights as an Insurance Buyer

11 Apr, 2012, 04.21AM IST, Preeti Kulkarni,ET Bureau
Insurance customers mostly accept the unilateral decisions taken by the insurers, as most of them believe that fighting an insurance company is a lost cause. However, things are changing slowly.
The health insurance space has seen a spate of court cases lately, with several judgements going in favour of the insured individuals. Recently, the Insurance Regulatory and Development Authority (Irda) pulled up the state-owned New India Assurance for violating the provisions after the regulator received complaints on overcharging of premiums and delay in claim settlements. These instances simply prove that it pays to be aware of yours rights as a consumer.

Justifying the premium
Sure, the insurance company fixes the premiums, but that doesn't mean it can do that arbitrarily. The company has to adhere to the premium structure mentioned in the product details filed with Irda. But how would you know whether you are being overcharged or not? "Premium is charged by the insurance company according to an Irda-approved premium chart.
This can be easily obtained from the insurer's website or its office," says Mahavir Chopra, head, e-business with health insurance portal medimanage.com.
Typically, premiums go up on renewal with the policyholder's advancing age, claims made in the previous year and revision in the insurance company's premium chart. Now, if the insurer has stated that the rise is due to your age, you can easily verify it with the help of the premium chart.
If it is because of claims made in the previous year, again, the claims loading structure mentioned in the policy wordings will come to your aid. Then, there is the modification in the premium chart.
"The insurance company can apply for changes in premium (and the loading policy), in view of healthcare inflation, or a justifiably large claim ratio. Such premium changes need to be justified and approved by Irda. Before calculating or validating premium, you should check whether there is a new premium chart," says Chopra.

Renewal is your right
In most cases, that is. If the company has specified that the renewal will cease at a particular age of, say, 65 or 70, there is little scope for recourse. If policy wordings are silent on this issue, though, renewal cannot be denied.
Moreover, Irda has instructed companies not to deny renewals simply on account of claims being made in the previous year. A renewal request can be turned down only in case of frauds or misrepresentation of facts by the insured. This is also applicable to the cancellation of a policy before its tenure expires.

Processing within deadline
Since cashless claims are settled almost instantaneously, delays in processing are mainly associated with reimbursement claims. Usually, health insurers insist that you must submit the claim document, along with the bills, within 14-30 days, depending on their policies.
Some could also insist on being intimated about the hospitalisation within seven days, though the documents could be submitted later. If your claim sanction is delayed even after following all these steps and complying with all document-related formalities, you can take your insurer to task. Policyholders have the right to claim interest if the pay-out is delayed beyond 30 days after the acceptance of the claim.

How you can make builders complete projects or compensate for delays

By :Amit Shanbaug, ET Bureau Apr 9, 2012, 10.21AM IST

Builders always like to be in the news. When they are not selling flats, they are busy buying polo teams or sponsoring cricket tournaments. While the reason for being in the limelight may have differed over the years, today it's the same for most developers, and it's the wrong one, delayed projects.
Most builders are sitting on projects that are long overdue and many are unlikely to hand over the keys in a hurry to the house that you may have already paid for. According to industry estimates, at least a third of residential projects is facing execution delays.
The reasons vary from lack of demand and paucity of funds for the developer to delay in getting regulatory approvals. According to a recent study by property research firm PropEquity, almost 45% of the projects launched between January 2007 and June 2009 in the three biggest property markets (Delhi/ NCR, Mumbai and Bangalore) are facing significant execution delays. PropEquity surveyed 1,920 projects that were scheduled to be completed by January 2012 ( see graphic below ).
When Delhi-based retired Air Commodore DVS Trehan booked a 2,400 sq ft apartment in November 2007 in Noida, he was looking forward to moving in by early 2010, as promised by the builder. But even after four years of paying the entire sum, the developer seems in no hurry to hand over the possession of Trehan's house.
"I had sold my earlier flat and pooled in my retirement money to purchase this house. The company was to hand over the possession by January 2010, but even by late 2009, they had not begun any construction activity on the proposed site," he says.
Trehan's repeated queries and visits to the developer's office were met with empty promises. "The office staff would fob me off with stories that they have the latest technology, which would enable them to complete building the structure in just six months," he adds.
Trehan is not alone. There are countless such cases where buyers are still waiting for their homes and have not received a single rupee as compensation from the builder. The wait has been particularly tough for those whose EMI clock has begun ticking.
However, the situation is unlikely to become better any time soon as builders continue to face a funding crunch and the demand for property across most cities remains weak. With inflation continuing to be above the central bank's comfort level, any action on the home loan front is also likely to be gradual.

Even developers are beginning to realise the severity of the problem. For, after endless claims that projects get delayed because of factors beyond their control, they are now considering it as a serious issue knowing that they cannot brush it aside by shunning responsibility. So an industry body has come up with a code of conduct for its 6,000 members to 'maintain the honour and dignity of developers, promoters and builders'.
The move is being lauded in industry circles as long overdue, but its effectiveness in curbing the menace is being questioned. "What can it do? At most, it can cancel my membership of the association," says a developer, whose two projects have been delayed in the National Capital Region.
This is not to say that the code of conduct may not be of much use. Perhaps it will make an impact on the way the developers treat complaints from buyers, but that is still a long way off. The point is, as an aggrieved buyer, you should not wait for either the builder to take the code seriously or fast-track the execution of his project just because he has to follow a code. In the following pages we tell you what your options are while taking on the builders to demand what is rightfully yours, and also how individuals and groups are doing it across the country.
To know your rights as a buyer
You must understand the obligations of the seller. According to Section 55 of the Transfer of Property Act, 1882, the seller is bound to:
--> answer all the relevant questions put to him by the buyer about the property or its title.
--> provide to the buyer all the documents related to the property that are in his possession or power.
--> disclose any material defect in the property or in the title about which he is aware, but the buyer is not.
--> execute a proper conveyance of property when the buyer tenders it to him (after payment of due amount) for execution at a proper time and place.
--> to take care of the property and all relevant documents in his possession between the date of sale and delivery just as an owner would.
--> pay all public charges accrued in respect of the property up to the date of sale .

Ways To Evaluate the Performance of a Mutual Fund

While Mutual Funds are great for instant diversification, how do you determine whether or not the Mutual fund is performing well? Instead of just looking at the return over the past year, you may want to consider finding other ways to evaluate the fund's performance.

Since mutual funds have many different categories, you must know how to properly evaluate the performance of your fund. The three best ways to evaluate a mutual fund are to compare it to its track record, compare it to major indices, and compare it to similar funds. This guide will show you "How To Evaluate the Performance of a Mutual Fund".

Step 1

Compare the mutual fund's last year performance to its 5 or 10 year average. Most mutual funds (if they have been around for long enough) will publish their annualized performance over the past 5-10 years. If the fund's 5 year average is 10% and it only returned 1% last year, you know that the fund had a bad year.

However, make sure you take the economic environment into consideration. Because the market can swing wildly from year to year, it is important to broaden your view and compare your mutual fund to other investments.

Step 2

Compare the mutual fund's performance to major indices such as the BSE Sensex 30,  S&P CNX Nifty. While the performance of any mutual fund may not directly correspond to any of these indices, they can be used as benchmarks for evaluating a mutual fund's performance.

Since the S&P 500 tracks the 500 largest companies, the Russell 2000 tracks the 2,000 smallest companies, and the Wilshire 5000 tracks almost all securities, you can easily find an index comparable to the mutual fund that you are researching. If not, call the mutual fund company and ask what index they use as a benchmark for the fund.

If the Mutual fund in question holds mainly solid large-cap companies, then you may want to compare it to the S&P CNX Nifty. If the S&P CNX Nifty gained 15% last year and your large-cap fund lost 10%, it is an obvious sign that something is wrong.

Step 3

In addition to comparing your fund to a major index, another way (in fact, the best way) to evaluate the performance of a mutual fund is to compare the fund's performance to other mutual funds within the same category. For example, a real estate mutual fund will perform much differently than a small-cap mutual fund, so this fact must be taken into consideration. If the fund you are interested in lost money while all of the other funds in its category gained 30%, your mutual fund definitely has a problem. By comparing a mutual fund to others in the same category, you can see whether or not that fund beat its peers. This comparison is easy because all of the funds in one category share the same economic environment. Comparing a mutual fund to its peers will truly show whether or not the mutual fund outperformed its rivals or not.

There are many different ways to evaluate the performance of a mutual fund, but the most effective way is to find a similar fund or index for comparison. While a 5% loss in your mutual fund may seem terrible at first, you may be pleased once you discover that similar funds lost 15%. These three steps will help you to evaluate the performance of a mutual fund by seeing how it compares to itself, a relevant index, and its peers.

Is gold still a good investment option?

 By: Kavita  Sriram

For Gopal, it was the yellow metal that added glitter to the portfolio. At a time when the markets were choppy and debt instruments not so lucrative, Gopal made a neat 18 percent profits on gold. That was within a short span of a year. Gold and silver were a significant part of his portfolio. He used them as an efficient hedge against looming uncertainties.
Will this strategy work again for Gopal?
The often-heard term 'inflation' is the rate at which prices of goods and services rise. It eats away the future purchasing power of the wealth you create painstakingly through meticulous investments. If you find it difficult to meet your monthly expenditure, blame it on the inflation monster. Gold and realty were often considered a good hedge against inflation.
The inflation-adjusted returns from gold have been spectacular over the last few years. You can invest in physical gold in the form of bars, coins or jewellery. Gold exchange-traded funds are equivalent to investing in gold and easy to liquidate.
Undeniably, gold is an excellent way to diversify your portfolio and is useful in times of high inflation to protect wealth. However, while it requires no additional maintenance expense, it doesn't generate any periodic interest payouts. Unlike silver that has extensive industrial applications , gold is more often preferred in physical form. People have an emotional bonding to the metal. They usually keep it safe for the next generation and for times of financial crisis.
Will the uphill climb of gold prices continue? The fluctuations in oil price and strength of the US dollar have affected gold prices. An increased demand for gold, especially before the festival and marriage seasons , pushes its price upwards.
Gold is pegged to the US dollar and has an inverse relationship with the dollar. In the event of a financial or economic turmoil in the US, the dollar could weaken against many other currencies, sending the gold price upwards. Political turmoil across the globe could send the gold price upwards too.
Will the price of gold go up higher? Or will it stagnate at the current levels? Analysts advise the riskaverse not to invest more than 10 percent of the portfolio in gold at the current price level. While the benefits of diversification may be real, the associated risk is high too. Those with a low or medium threshold for risk should look at other safer options such as fixed deposits that are yielding lucrative double-digit returns.

Qualities one should look at before deciding to hire a financial planner for self

Authored By: Ajit Panicker
The field of financial planning is growing fast and may be in few years from now , it would be an industry in itself. The prominence and importance of financial planners has come into being due to a situation where clients have felt that all the advisors involved in the wealth management or financial planning are primarily from some kind of institutions.
 Due to which they are compulsorily biased to, if not sell , then recommend only the products which their companies are selling. The professionals involved are independent financial advisors, agents and advisors of particular product based companies like from life insurance or mutual fund companies, bank employees, tax accountants, chartered accountants, insurance employees, investment advisors from stoch market and so on.

 There is no dearth of such people who are making their livings by either selling the products or by recommending them. Hence it becomes very important to assess the qualities which you should look into your advisor before finalizing him to do your financial planning. Following qualities may be of vitaility to you, in assessing the advisors:
1.Ethical : Has the financial planner informed you of  the limitations on their ability to provide objective financial planning services. Has he declared his qualifications and experience to you in the most transparent manner.
2.Competence: Is the financial planner you are getting engaged with, is professionally qualified and is certified. Does he have requisite certifications, qualifications and minimum standard experinece required to practice financial planning.
3.Confidentiality: Does the financial planner you are engaged with, maintains all levels of confidentiality in keeping your information and takes specific consent wherever required before using the information you have given.
4.Integrity : Does his background credits his profession and has he been a part of any act which doubts his integrity.
5.Knowledge: Apart from the certifications he has, is he well equipped in handling your portfolio and has all the required product, legal, compliant knowledge required in developing your financial plan.
6.Nature of his recommendations: Is his nature biased towards any product, any particular company or any specific type of investment intrument, if it so, probably the reason is that , there are monetary interests involved.

Why you should not compare insurance with mutual funds when planning for your child?

Authored By: Ajit Panicker

Everyone likes to see their hard earned money grow quickly. But there are no quick gains. An investment has to be long term in order to be really beneficial. As you make up your mind to invest, make sure you are ready to keep patience. Besides, risk factor is always there to escort your investment. So, you should be absolutely clear in your mind, what you want. Whether it’s life insurance Policy, National Savings Certificate or Mutual funds, all the investment plans have their merits and demerits that you need to consider before you proceed. Unit Linked Insurance Plans are also gaining popularity these days for their investor-friendly profile.

When planning, the objective should be clear. If the objective is that of child's future planning, ons should consider the following things before zeroing on a particular product?

1. Is the product allowing you a regular flow of investment or is it asking for a lumpsum investment?

This can both be provided by a mutual fund and a child insurance plan. In case of mutual fund a lumpsum investment one time or on SIP mode , and in case of insurance plan it can be a single premium plan or a regular premium paying plan.

2.Is the product giving you decent returns which is beating the inflation? Mutual funds or a child insurance plan both over a period of more than 10 years would provide a return around10-12%. But in mutual funds, till this financial year only tax saving mutual funds allow tax rebate, and all other mutual funds would attract tax, but in case of all life insurance plans under section 80C the principal amount and the returns or maturity amount under sec10(10)d are tax free.

3.Is the product liquid  or it allows you to adhere to a discipline of regular investing and does not give you an easy chance to exit. If the planning is for the child's future, it is always better to get into a plan where you have less chances to exit, so that even emergencies do not force you to exit. And the child's plan continues.

4.Is the product giving a rsk cover in case of any risk happenning to the person who has bought the product for the child. This can only happen in an insurance plan.

So the point in consideration is that all products available in the market with due respect to the risk, return and liquidity involved them, should be considered by keeping the financial planning objective in mind.

All product have their own individual importance and work accordingly.

Consult your Financial Planner