Tuesday, August 26, 2008

Health Insurance -- An Insight

Health insurance is a catch-all term that covers three distinct policies.

  1. Mediclaim Policy
  2. Hospitalisation Policy
  3. Critical Illness Policy
Lets understand a little bit about each one of them.

Mediclaim Policy
This health policy reimburses you the actual hospitalisation cost for treatment of any disease and is offered only by non-life insurers.

Hospitalisation Policy
In this health policy, you primarily get a daily allowance for every day spent in the hospital. Some policies also provide higher daily allowance for stay in intensive care unit (ICU).
Others have a provision for lump sum payment if you undergo any of the surgical procedures covered in the policy.

Critical Illness Health Policy
This policy is in a way a specification to any of the above two policies. The next type of health insurance covers critical illness. Given the increased stress and strain of modern life combined with unhealthy and sedentary lifestyles, most of us are prone to serious illness.

But advances in modern medicine ensure that most of us survive these. This, however, comes at a cost and makes a serious dent in our ability to pay, either from salary or business. This is where a critical illness cover can step in and pay off a lump sum benefit.

Most life insurers have for long offered these covers as riders (riders are covers for additional risks or to enhance the existing risk covers). Now, these critical illness covers are also being offered as standalone policies for specific illnesses like cancer . These policies are recommended for salary earners.

A relevant question would be whether one would need a hospitalisation policy if s/he already has a Mediclaim policy?

A Mediclaim policy only reimburses the expenditure incurred in the actual treatment of the disease/illness at a hospital. The policies offered by life insurers are actually an addition and not replacements for Mediclaim policies. It can not be replaced by any other kind of policy.

Under the umbrella of Hospitalisation and Critical Illness Policies, Life-Insurers provide excellent products. Such policies should be a necessary part of your risk cover portfolio.

Policies offered by life insurers (Hospitalisation and Critical Illness Policies) cannot be cancelled during their tenure.

Non-life policies (Mediclaim Policies) can be cancelled.


Also, policies issued by life insurers guarantee a cover during their entire tenure.

For more information, you might find these links pretty useful while deciding which one to choose:
http://www.apnainsurance.com/index.html

Friday, August 22, 2008

Trip to Manali - Details of Journey by Road

Well, to start with, after I did all my research about travel options, among air, rail and road. There were 3 airlines, Indian Airlines, Spice Jet and Jagsons Airways providing flights from Delhi to Bhuntar, airport in Kullu. Information on net told me that airport to Bhuntar is 55 kms. However, when I discovered that Bhuntar was on my way from Kullu to Manali and taxis were pretty easily available from Bhuntar to Kullu.

As far as train is concerned, I think we need to change the train somewhere in between as it is only Narrow Gauge in Kullu. So this idea did not suit me as I was going with my mom and uncle who are quite aged to change trains along with the luggage.

Next option was by road using either Volvo or private taxis. There are sevearal sites where you can book a cab from delhi to manali. However, I found them quite expensive @12000/- for a trip. I just felt that spending more on my journey part rather than on my accomodation and sight-seeing would not be a right thing.

Hence I decided to finalise with Volvo buses. I got good reviews from several people who told me that it is quite comfortable for aged people. And since I had never tried it myself, I thought to give it a chance.

There were many avenues to book Volvo buses from Delhi to Manali, some of them are:

http://www.volvo.com/bus/india/en-in/
http://www.volvobusesindia.com/ (I booked through this one as rest were going full !!)

My experience with Volvo's though was quite mixed one. Some key things which I would remember next time I use volvo to travel for long distances (meant over-nite) are:
  1. You should choose the first 4 seats which are normally numbered as 1,2,3,4. Usually there are 2 drivers in each bus so that one can drive and other can sleep for the rest of the journey. Hence one seat is normally reserved for a driver. But this is not necessary and if there are no other seats, this seat can be given to passenger, but it depends and is discretionary to the driver and staff on board.
  2. You should keep necessary stuff with you in handbags as luggage would get locked in the rear compartment just like it happens in airlines.
  3. You should carry some woollens to use in nights as you never know if temperature falls outside the bus and ACs start working more efficiently :). Some travel operators do provide blankets which are quite sufficient in normal conditions.
Bad part of our journey:
We did face quiet tough times as our bus got stuck in a landslide near chandigarh. We were not really stuck in landslide but we could not move ahead Keerat Pur Sahib, 50kms from Chandigarh as the highway was supposedly closed due to landslide farther up the road. And hence several buses were there in the queue before us and most of the tourists were just standing on the road. Since it was 6 in morning, most of them were stretching and busy getting fresh. After an hour or so, we all realised that if we do not go back to local bus stand some 3-4 kms below the point where we were stuck, we might not able to move from there at all. This was due to the fact that line of buses behind us had already started increasing and was not stopping as more and more buses were enqueing.
Hence we came back to Keerat Pur Bus Stand and then had breakfast and ladies could freshen themselves and get food for children & infants. Next we started to talk to different people trying to find out ways to get manali. I saw some Tata Sumos standing at the bus stand . I went to a guy and found out the price he would charge for taking a cab full of us to Manali from that place. He told me it would cost me around 5500/- for a cab. I was not qutie convinced as I didn't know what to do. So I just came back and waited for drivers to tell if they got any news about road getting cleared from their colleagues up on the hill. Drivers normally have few of their colleagues coming back from the other side.
After talking to them, I could make out that they were not quite optimistic of getting this route cleared soon. Btw, tata sumos would have taken another route to Manali. Basically we went through
Chandigarh --> KiratPur Sahib --> Ropar --> Nangal --> Una (we enter HP) --> Badsar --> ShahTalai (distt BilasPur) --> Barthin (distt BilasPur) --> Prinni Nagar --> Sundar Nagar --> Ner Chauk (distt Mandi) --> Mandi Proper --> Pandoh dam --> Bajoura --> Bhuntar Airport --> Shamshi Main Market --> Kullu --> Katrain --> Manali.
Basically we had circled around the Gobind Sagar Lake to avoid the main chandigarh - Manali Highway which was blocked due to landslide.

So somehow we reached Manali at around 9:45 PM. Luckily the hotel manager was quite a nice person, Mr. Lalit. He was waiting for us and the cab driver, Monty just came withing few minutes at the bus stand to pick us up.

We reached our hotel, Dreamland which was around 2kms away from the main market and bus stand.

While coming back, I asked the hotel manager to book the front seats in the volvo bus. Charges were same, 1000/- per seat. Till our return date, government had permanently closed Chandigarh-Manali highway due to landslides. So the drivers chose to go via Simla. We left at around 7 in evening and I slept for almost all the night part of my journey. We were at Ambala at around 7 in morning. We had taken a hault at Ambala to get freshen up and have some thing to eat. Then we reached Delhi at around 12 and reached home till 3.

Read next blog for my experience and learnings during my stay at Manali.

=== Your Opinion Matters ===

Friday, August 8, 2008

Gold ETF versus Buying Gold for Investment

While individual gold holdings are the highest in India, most of it is in the form of jewellery. But jewellery is an uneconomic method of holding gold as on selling jewellery you will lose up to 10 per cent of the gold value and also the making charges that you paid during the purchase.

“Those who want to buy gold for investment, prefer buying medallions and bars — this category has been growing in India over the past few years,” informs Mr Shah. Although coins and bars do not attract making charges, the sale discount is still there if the gold is not hallmarked. Hallmarked gold attracts the lowest discount and can be sold at 1-2 per cent lower than the market value.

Gold jewellery is not as good a investment as it is not as liquid as bars or gold funds, points out financial planner Gaurav Mashruwala. If you are saving to buy jewellery it makes sense to buy gold coins. These coins are accepted by jewellers in return for gold used in jewellery. If you intend to sell the coins, you may have to take a discount of up to 4 per cent, irrespective of how pure are the coins/bars.

But if you are holding a large quantity of gold, you will have to make provisions for storage and insurance as there is a security issue in keeping gold at home.

Gold ETFs are quite similar to mutual funds. The money you invest in gold ETFs is used to purchase physical gold of equivalent value. The advantage of ETFs are that the fund house that issues the gold ETF takes over the responsibility of storage and insurance of this gold. Gold ETFs are also tax efficient unlike physical gold. “While physical gold is considered a long-term investment, only if you hold the same for three years, gold ETFs acquire this status after one year,” says Mr Mashruwala.

In short, selling gold within three years of purchase will attract capital gains tax. Moreover , holding large quantities of physical gold can attract wealth tax, while gold in demat form does not. This apart, the spread between the buy and sell prices pertaining to gold ETFs is less than that of physical gold.

In other words, while your jeweller could sell you a gram of physical gold at Rs 105 and buy the same at Rs 95, you can buy a unit of gold ETF at Rs 101 and sell it at Rs 99. “Doing an SIP in gold would be the best option in the current scenario,” reckons Pritam Patnaik, AVP, Kotak Commodity Services.

The two gold ETFs that are more than a year old — Gold Benchmark ETF and UTI Gold ETF — have delivered more than 40 per cent returns in the last one year. In case of others too, the returns have been positive for most months, in contrast with equity and debt funds that have posted negative or mediocre returns. However, the two world gold funds, which invest in stocks of gold mining companies, have had to suffer a fate similar to other equity funds. “It is advisable that you invest in gold as a commodity. Gold funds basically invest in gold mining companies. If you buy a gold fund, you actually invest and take a risk on that company and not on gold," adds Mr Gopkumar.

Wednesday, July 23, 2008

Speech from Chetan Bhagat to Symbiosis MBA Fresh Batch

Good Morning everyone and thank you for giving me this chance to speak to you. This day is about you. You, who have come to this college, leaving the comfort of your homes (or in some cases discomfort), to become something in your life. I am sure you are excited. There are few days in human life when one is truly elated. The first day in college is one of them. When you were getting ready today, you felt a tingling in your stomach. What would the auditorium be like, what would the teachers be like, who are my new classmates - there is so much to be curious about. I call this excitement, the spark within you that makes you feel truly alive today. Today I am going to talk about keeping the spark shining. Or to put it another way, how to be happy most, if not all the time.

Where do these sparks start? I think we are born with them. My 3-year old twin boys have a million sparks. A little Spiderman toy can make them jump on the bed. They get thrills from creaky swings in the park. A story from daddy gets them excited. They do a daily countdown for birthday party – several months in advance – just for the day they will cut their own birthday cake.

I see students like you, and I still see some sparks. But when I see older people, the spark is difficult to find. That means as we age, the spark fades. People whose spark has faded too much are dull, dejected, aimless and bitter. Remember Kareena in the first half of Jab We Met vs the second half? That is what happens when the spark is lost. So how to save the spark?

Imagine the spark to be a lamp's flame. The first aspect is nurturing - to give your spark the fuel, continuously. The second is to guard against storms.

To nurture, always have goals. It is human nature to strive, improve and achieve full potential. In fact, that is success. It is what is possible for you. It isn't any external measure - a certain cost to company pay package, a particular car or house.

Most of us are from middle class families. To us, having material landmarks is success and rightly so. When you have grown up where money constraints force everyday choices, financial freedom is a big achievement.

But it isn't the purpose of life. If that was the case, Mr Ambani would not show up for work. Shah Rukh Khan would stay at home and not dance anymore. Steve Jobs won't be working hard to make a better iPhone, as he sold Pixar for billions of dollars already. Why do they do it? What makes them come to work everyday?

They do it because it makes them happy. They do it because it makes them feel alive. Just getting better from current levels feels good. If you study hard, you can improve your rank. If you make an effort to interact with people, you will do better in interviews. If you practice, your cricket will get better. You may also know that you cannot become Tendulkar, yet. But you can get to the next level. Striving for that next level is important.

Nature designed with a random set of genes and circumstances in which we were born. To be happy, we have to accept it and make the most of nature's design. Are you? Goals will help you do that.



I must add, don't just have career or academic goals. Set goals to give you a balanced, successful life. I use the word balanced before successful. Balanced means ensuring your health, relationships, mental peace are all in good order.

There is no point of getting a promotion on the day of your breakup. There is no fun in driving a car if your back hurts. Shopping is not enjoyable if your mind is full of tensions.

You must have read some quotes - Life is a tough race, it is a marathon or whatever. No, from what I have seen so far, life is one of those races in nursery school. Where you have to run with a marble in a spoon kept in your mouth. If the marble falls, there is no point coming first. Same with life, where health and relationships are the marble. Your striving is only worth it if there is harmony in your life. Else, you may achieve the success, but this spark, this feeling of being excited and alive, will start to die.

One last thing about nurturing the spark - don't take life seriously. One of my yoga teachers used to make students laugh during classes. One student asked him if these jokes would take away something from the yoga practice. The teacher said - don't be serious, be sincere. This quote has defined my work ever since. Whether its my writing, my job, my relationships or any of my goals. I get thousands of opinions on my writing everyday. There is heaps of praise, there is intense criticism. If I take it all seriously, how will I write? Or rather, how will I live? Life is not to be taken seriously, as we are really temporary here. We are like a pre-paid card with limited validity. If we are lucky, we may last another 50 years. And 50 years is just 2,500 weekends. Do we really need to get so worked up? It's ok, bunk a few classes, goof up a few interviews, fall in love. We are people, not programmed devices.

I've told you three things - reasonable goals, balance and not taking it too seriously that will nurture the spark. However, there are four storms in life that will threaten to completely put out the flame. These must be guarded against. These are disappointment, frustration, unfairness and loneliness of purpose.

Disappointment will come when your effort does not give you the expected return. If things don't go as planned or if you face failure. Failure is extremely difficult to handle, but those that do come out stronger. What did this failure teach me? is the question you will need to ask. You will feel miserable. You will want to quit, like I wanted to when nine publishers rejected my first book. Some IITians kill themselves over low grades – how silly is that? But that is how much failure can hurt you.

But it's life. If challenges could always be overcome, they would cease to be a challenge. And remember - if you are failing at something, that means you are at your limit or potential. And that's where you want to be.

Disappointment's cousin is frustration, the second storm. Have you ever been frustrated? It happens when things are stuck. This is especially relevant in India. From traffic jams to getting that job you deserve, sometimes things take so long that you don't know if you chose the right goal. After books, I set the goal of writing for Bollywood, as I thought they needed writers. I am called extremely lucky, but it took me five years to get close to a release.

Frustration saps excitement, and turns your initial energy into something negative, making you a bitter person. How did I deal with it? A realistic assessment of the time involved – movies take a long time to make even though they are watched quickly, seeking a certain enjoyment in the process rather than the end result – at least I was learning how to write scripts , having a side plan – I had my third book to write and even something as simple as pleasurable distractions in your life - friends, food, travel can help you overcome it. Remember, nothing is to be taken seriously. Frustration is a sign somewhere, you took it too seriously.

Unfairness - this is hardest to deal with, but unfortunately that is how our country works. People with connections, rich dads, beautiful faces, pedigree find it easier to make it – not just in Bollywood, but everywhere. And sometimes it is just plain luck. There are so few opportunities in India, so many stars need to be aligned for you to make it happen. Merit and hard work is not always linked to achievement in the short term, but the long term correlation is high, and ultimately things do work out. But realize, there will be some people luckier than you.

In fact, to have an opportunity to go to college and understand this speech in English means you are pretty darn lucky by Indian standards. Let's be grateful for what we have and get the strength to accept what we don't. I have so much love from my readers that other writers cannot even imagine it. However, I don't get literary praise. It's ok. I don't look like Aishwarya Rai, but I have two boys who I think are more beautiful than her. It's ok. Don't let unfairness kill your spark.

Finally, the last point that can kill your spark is isolation. As you grow older you will realize you are unique. When you are little, all kids want Ice cream and Spiderman. As you grow older to college, you still are a lot like your friends. But ten years later and you realize you are unique. What you want, what you believe in, what makes you feel, may be different from even the people closest to you. This can create conflict as your goals may not match with others. . And you may drop some of them. Basketball captains in college invariably stop playing basketball by the time they have their second child. They give up something that meant so much to them. They do it for their family. But in doing that, the spark dies. Never, ever make that compromise. Love yourself first, and then others.

There you go. I've told you the four thunderstorms - disappointment, frustration, unfairness and isolation. You cannot avoid them, as like the monsoon they will come into your life at regular intervals. You just need to keep the raincoat handy to not let the spark die.

I welcome you again to the most wonderful years of your life. If someone gave me the choice to go back in time, I will surely choose college. But I also hope that ten years later as well, you eyes will shine the same way as they do today. That you will Keep the Spark alive, not only through college, but through the next 2,500 weekends. And I hope not just you, but my whole country will keep that spark alive, as we really need it now more than any moment in history. And there is something cool about saying - I come from the land of a billion sparks.

Thank You.

Monday, July 7, 2008

"Insurance is a subject matter of solicitation." ???

This has something to do with the following concept behind the insurance:

(1) The Insurer (i.e. insurance company) and Insured (i.e. an individual) enter into a legal contract. The Insured pay a premium to the Insurer and in return the Insurer assures the Insured to compensate him against the losses or hazards mentioned in the contract.

(2) The Insured has an insurable interest in the subject matter (i.e. some property or life of certain individual). This means that the Insured stands to gain if the subject matter is protected against the hazards and will stand to lose if any damage is caused to the subject matter.

(3) Though the Insurer assures the Insured to compensate against certain type of losses, he do not assure to compensate 'all' the losses. In any case the Insured stand to lose 'something' in case of loss of damage to the subject matter. (For example, one can not get a property insured at a higher amount than its actual value and then stand to gain from insurance claim in case the property is damaged. This will be a breach of contract.)

(4) Even after entering into insurance contract with Insurer, the Insured will take all reasonable and appropriate steps for the safety of the subject matter. For example, if a house is insured against theft, fire, etc, the Insured party can not delibrately or negligently expose the house to such hazards.

(5) The Insurer approaches, prompts, lure (???) the Insured to enter into the insurance agreement. However, the Insured party is supposed to reveal all relevant information related to the subject matter in 'good faith'. For example, in case of life insurance the Insured is supposed to expressely reveal to the Insurer of any health complications, etc that he is aware of and that may have some impact on the insurance contract. (The insurance premium is decided keeping in view possible risk, so if some factors are concealed, it will impact the amount of premium.)

Wednesday, July 2, 2008

Technical Risk Ratios for Portfolio Planning

There are five ratios referred to while creating and maintaining efficient portfolios.
  1. Alpha,
  2. Beta,
  3. Standard deviation,
  4. R-squared, and
  5. The Sharpe ratio.
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Alpha
A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%.

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Beta

A measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole.

Beta is calculated using regression analysis, and you can think of beta as the tendency of a security's returns to respond to swings in the market. A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market. For example, if a stock's beta is 1.2, it's theoretically 20% more volatile than the market.

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Standard Deviation

Standard deviation is a statistical measurement that sheds light on historical volatility. For example, a volatile stock will have a high standard deviation while the deviation of a stable blue chip stock will be lower. A large dispersion tells us how much the return on the fund is deviating from the expected normal returns.

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R-squared

R-squared values range from 0 to 100. An R-squared of 100 means that all movements of a security are completely explained by movements in the index. A high R-squared (between 85 and 100) indicates the fund's performance patterns have been in line with the index. A fund with a low R-squared (70 or less) doesn't act much like the index.

A higher R-squared value will indicate a more useful beta figure. For example, if a fund has an R-squared value of close to 100 but has a beta below 1, it is most likely offering higher risk-adjusted returns. A low R-squared means you should ignore the beta.

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Sharpe Ratio

The Sharpe ratio tells us whether a portfolio's returns are due to smart investment decisions or a result of excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a portfolio's Sharpe ratio, the better its risk-adjusted performance has been.

A variation of the Sharpe ratio is the Sortino ratio, which removes the effects of upward price movements on standard deviation to measure only return against downward price volatility.

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