These days, for many families, the best solution is term assurance. Apart from protecting against liabilities and securing the future, there is this desire to provide the best for one's family. "I want my family to enjoy the same standard of living that we are currently enjoying in case something unfortunate happens to me,'' says S. Ganesan, 42, a financial consultant. Mindful of that, Ganesan took a term policy of Rs 75 lakh for 20 years. What's more, he has plans to further extend cover up to the age 70. "Nowadays, there are insurers who have upped the maximum age limit and I am going to make the best use of it,'' he says. Besides, Ganesan has carefully avoided other insurance plans such as endowment and premium back term policies.

Coming to Terms

Unlike many other policies, term insurance is a pure-play risk cover at dirt cheap premiums. These don't offer any money back at the end of the term on survival and also don't promise any frills. As a result, the insurers charge the lowest premiums among all life products. Most insurance companies don't seem to promote these products extensively, and insurance agents prefer to sell ULIP (unit linked insurance plans) and other endowment products because of better commissions. But families are feeling the need for a good cover and hence term policies are finding many takers.

Starting with a minimum premium of Rs 1,500 per annum per lakh, term plans are really affordable when it comes to getting the best cover for life. Besides, the coverage can go up to Rs 10 crore. The policy lapses if there is a failure to remit premium during the tenure and there is no surrender value. Tax benefits do accrue-assuming you haven't taken a single-premium term assurance policy. Bajaj Allianz, HDFC and Tata aig offer an entry with premium as low as Rs 1,500 per year. A few like LIC and Max New York Life have stipulated upper limits of cover to Rs 3 crore and Rs 5 crore, while others have not.

"One must definitely opt for a term policy when you have long-term loan liabilities" Vinay Taluja Vice President (Insurance Operations)/Bajaj Capital Insurance Broking

Longer tenures provide a better handle over one's working life time. On one hand, uncertainties could happen at any time even beyond the age of 60 (which is often the maximum expiry age of most covers). So, check for covers that go beyond the age of retirement. Likewise, with good hospital care available, life spans have increased and so have earning capacities. If required, go for additional cover at a later date. There are term covers even for one and two years (LIC and Tata AIG, respectively), should you need it.

"Take a cover that is 10-20 times estimated retirement income" Sandip Raichura Assistant VP (Research and Business Development)/dbs Cholamandalam Distribution

Maximum Cover

The next question is how much coverage should you opt for? Insurance should not only provide capital for today's needs, but also safeguard against future need for income-more importantly, the insurance corpus should stretch till one's retirement years and beyond. You should also consider inflation, which eats up the purchasing power of money in the long run. There are ways of calculating the quantum of assurance required, some companies offer calculators on their websites, which take into account your current spending, size of family and other parameters. However, Sandip Raichura, Assistant VP (Research and Business Development), DBS Cholamandalam Distribution Ltd, suggests another simple way. "Take a cover that is 10-20 times estimated retirement income, but assess your current affordability. However, this is not a static figure and hence one should keep revisiting the quantum of cover regularly and add depending on further requirements."

Should one opt for riders- which allow the topping up with other benefits to maximise the term plan? Usually, the popular riders among insurers are accident and dismemberment benefits, critical illness and premium waiver in case of total disablement. The riders come at a cost, so choose carefully. An accident benefit rider is best taken from a general insurance player as it is cheaper. A critical illness rider (any rider lapses on the first use) may help if one has early indications of a disease, or has taken a term assurance policy up to age 60 and beyond. As you grow older, this is a handy rider to have. HDFC Standard Life offers a policy with accelerated sum benefit for those who wish to take the sum assured within their lifetime because of ailment, but the policy (and not just the rider) lapses soon after. Check out the list of critical illnesses on offer before taking a call. Max New York includes 10 diseases, but not all insurers offer such a range.

Jayalakshmi, 37 (L) & S. Ganesan, 42/ Term Cover: Rs 75 lakh Premium: Rs 45,000 Ganesan (with specs) wanted to secure his family's future

On the other hand, joint life covers (on a first claimant basis) make sense if both husband and wife are working and require separate term assurance covers. A single policy works out cheaper than two separate policies as it reduces the paper work for the insurance company. HDFC offers this. For example, if a husband (35) and wife (32) take separate term assurance policies for 30 years for a Rs 10 lakh cover, the total annual premium outgo is around Rs 8,000. If you take a joint term plan on a first claimant basis, the premium charges drop down to Rs 7,110.

Certain other policies like the premium back term plan or an endowment plan may not be necessary. There are products that offer 125 per cent of the premium back. This product is for those who want a return on their premiums, but for people looking for security, this is best avoided. Besides, the premiums here are sometimes twice as high as a pure term premium.

Akhila, 30 (extreme right), & S. Kumaran, 36/ Term Cover: Rs 20 lakh & 30 lakh, respectively Premium: Rs 6,788 & Rs 12,148, respectively Akhila wanted a low-premium, high-cover policy

To give an example, ICICI Prudential offers a base policy to a 35-year-old with a sum assured of Rs 10 lakh, and a term of 30 years for Rs 4,142. But on a premium back policy for the same candidate, it charges Rs 11,174. Remember, your additional payment of Rs 7,032 (Rs 11,174 minus Rs 4,142) every year for 30 years will translate into the Rs 3,35,220 premium that will be returned to you. That's a compounded rate of return of just a shade over 3 per cent per annum. Ganesan is not too keen on going for premium back term plans or endowment plans because the returns are low. "At the end of 30 years, money value would become much lesser than what it is today-even if I get my premium refunded,'' he says.

It's best to distinguish between insurance and investments. Return of premium policies, in other words, is much like an investment product. For individuals scouting for maximum cover, it's best to separate the two. "Invest separately in mutual funds as they are these days giving better returns," says Raichura. Likewise, a traditional endowment policy is too expensive and the returns (viewed as investments) not as commensurate for the duration specified. "A term policy costs one-fifth or one-sixth of an endowment policy,'' says Raichura. So, nothing comes close when you want maximum cover for the minimum payment. And like Ganesan, who has worked it out, make the best use of it.

Rumble In The Rupee Stocks

Beware, this segment is rife with speculation.

By Krishna Gopalan

Between December 1, 2006 and January 23, 2007, out of 506 rupee stocks that were traded on the bourses, 451 gained while the balance 55 ended up on the losing side. In other words, nine out of 10 rupee stocks saw an increase in their values. But on the other side is an alarming story: 228 companies out of the total number of 506 companies made losses in the quarter (latest declared quarter). Not a very safe place to be in for the small investor, especially as this segment is prone to manipulation.

In fact, figures like average daily traded quantity on rupee stocks have increased from 70,014 shares on December 1 to 1,09,626 shares on January 23-an increase of a whopping 57 per cent. The daily transactions too (number of trades) was up significantly and investors are getting into large levels of speculative activity on these stocks.

Investing or Punting?

But why are so many investors getting into rupee stocks? Typically, investors end up getting into rupee stocks because the downsides seem low and the upside, if any, seems high. "These are not static stocks and they keep moving around. From an investor's point of view, the logic is the amount being lost is low and hence they decide to gamble on them," points out V.K. Sharma, Director and Head (Research), Anagram Stock Broking. He is clear that these stocks can almost never be an option to invest.

There is little to suggest that any investor could have an outlook while investing in rupee stocks. Even if there's a turnaround in the company, it's unlikely that there's any investment activity in these stocks. "If there is an indication that the company could go in for something significant like a debt restructuring, a change of management or clinching a big order, the investor could possibly take a look at it," says Sharma. But investors must know that they are, nevertheless, speculating. "It makes sense to stay away unless there are some events happening around the stock. Even then, the investor is still taking a punt," warns Sharma.

One more reason for the interest of most investors is because they can buy larger quantities of the stock, which acts as a bait. At Rs 2 a stock, an outlay of Rs 50,000 can fetch 25,000 shares. And it's also easier for an investor to think that this rupee stock is more likely to rise to Rs 4 than for a larger and better company to gain in similar terms. According to Shankar Sharma, Director, First Global, investing in rupee stocks is the result of temptation. "A rupee stock which is quoting at Rs 2 could hit the Rs 10 mark. This may not happen in a stock like Infosys," he explains, adding, "and that's what investors seem to be attracted towards."

Stay Away

But there's a risk of investing in rupee stocks. "Rupee stocks are illiquid and are of low value. Besides, they are prone to manipulation and the investor is the last one to know of this," says First Global's Sharma. If one has large quantities of these shares, it can get difficult to move out once the speculative activity is over leaving small investors saddled with unsold shares. In most cases, investors would be the last ones left standing in the stock. An investor may end up losing all the money invested in these stocks.

So, what do investors see in these stocks apart from a low price point and minimal levels of damage to their bottom line? Sharma attributes the interest in rupee stocks to a pretty typical Indian mindset which revolves around looking for something that is value-based, particularly with small new investors who have just entered the market.

But like most speculative stories, there's hardly any fundamental reason for these shares to move up. "It is not easy to look for a reason. If the reason was convincing, why would (one) be quoting in that price range," rationalises V.K. Sharma. Besides, it's also not the case that rupee stocks can give fabulous returns. If a stock is quoting at a very low price point, say Re 1, then even a large movement-10 per cent-will be an upside of just 10 paisa which may not really justify being in the stock. Like any other pick from the stock market, a clear rationale is mandatory. "The question to ask is whether there's an edge in a rupee stock," maintains Sharma.

"If there is an indication that the company could go in for something significant like a debt restructuring, a change of management or clinching a big order, the investor could possibly take a look at it," adds Sharma. At the end of it, the lesson to the investor is simple and is yet sometimes hard to understand-be cautious and sensible. If there's no such story, as Sharma says, "retail investors have no business investing in rupee stocks."

New Funds, Old Bottle

Structured funds are all set to make a splash. But they may not be good for you.

By Clifford Alvares

"There's more noise around a new fund, therefore, an investor gets attracted to it" Dhirendra Kumar Valueresear chonline.com	"The mutual fund market is going to become a lot more competitive " Amar Pandit CFP

While there's no doubt that innovation in mutual fund is good for the industry and investors, more structured funds will also mean more confusion for the mutual fund investor. Says Amar Pandit, a Chartered Financial Planner: "The mutual fund market is going to become a lot more competitive with more than five-to-six fund launches every month. Some of these funds will be new fund houses, but most will be just old funds in a new bottle." Agrees Dhirendra Kumar of Valueresearchonline.com: "There's more noise around a new fund, therefore, an investor gets attracted to it. But if there are funds with identical objectives, it makes an investor's life more confusing." Many mutual fund houses launched closed-end funds with a twist to their fund investment strategy. Last year, 12 closed-end funds mobilised more than Rs 8,400 crore in a trend that began in December 2005. Before that, there were hardly any closed-end funds.

More Choices

One reason why the new fund offer (NFO) market has changed is because of the new rules governing them. Last year, the Securities & Exchange Board of India (SEBI) mandated that trustees should certify that the product the fund house is offering is a new product and not a minor modification of an existing product by the fund house. As most fund houses have their core funds in place, it prods many of them to come out with structured products that offer a combination of two or three segments of the market such as mixing derivatives with an equity portfolio or debt portfolio or mixing equity with a debt plan such as a capital protection plan.

Besides, rules of amortisation of initial issue expenses have changed. Open-end funds have to charge the issue expenses immediately, which is restricted to about 6 per cent of the fund. Closed-end funds, however, can amortise these expenses over the tenure of the fund. For example, if it's a five-year fund, the expenses can be amortised over the next five years, and similarly for a three-year fund, over three years. Little wonder then, most new fund launches in the last one year have been closed-end funds.

Additionally, there are more than a dozen new fund houses waiting in the wings to launch their fund operations, which is why apart from the slew of structured products, some more of the basic funds are on the anvil. Hence, for the fund investor, it's important to discern which new funds are attractive enough to warrant an investment.

But Choose Carefully

Finding the products that work for you will get trickier due to the plethora of minor and technical innovation. Says Pandit: "The fund scenario will be more complex and overwhelming as more different funds will get launched." So when it comes to choosing a product such as a new closed-end fund, investors must first ask the question whether they are ready to lock-in a fund for the duration of the fund. In a five-year fund, for instance, if you intend to withdraw prematurely, the proportionate initial issue expenses will be recovered from you. If you have invested in a capital protection plan with, say, more than 80 per cent of its corpus in debt, you might barely make 2-4 per cent, after amortisation of issue expenses. That's because the debt portion of the fund will have barely grown by 6 per cent, whereas the equity portion even if it grows by 15 per cent, the overall return for the year is only around 9.4 per cent. After reducing 6 per cent of the initial issue expenses, the returns merely work out to 3.4 per cent.

Structured funds also try to ease the pressure on the fund manager. Funds usually try to work on a fixed strategy like, say, buying Sensex call options every month with a small part of the corpus, irrespective of the call of the fund manager. This way, fund houses can manage multiple funds and reduce operating costs. In closed-end funds, particularly, choose a fund only if it makes an addition to your portfolio or only if you don't have that exposure. If it's a structure that you have already been adopting, then you don't need to invest in these funds. Says Kumar: "If you can implement that structure in your normal fund strategy, then you don't need to go for the structured product."

More funds these days overlap in their objectives. For the investor, having multiple funds of the same type will expose him only to a particular segment of the market. In short, if you have already invested in a similar product, stay away. Therefore, the key question to ask is: Why am I buying the fund? It will force you to look at whether you really need another fund. If you don't have a similar fund, go ahead and invest.

Bargains In The Air
Plenty of cheap tickets are up for grabs, if you get the strategy right. Here's how to get the deals flying your way.

By Krishna Gopalan

Overall, both the combination of accessibility and low fares has worked well for the air traveller. Fares on the busy Mumbai-Delhi route have fallen from around Rs 8,000-9,000 over two years ago to less than Rs 4,000 today and on the popular tourist route of Mumbai-Goa, the fares have fallen from Rs 4,000 to less than Rs 2,000. On average, the fares are down by 50 per cent. And you can make the best use of it, that is, if you book your tickets well in advance.

When and Where

In the midst of the aviation boom, the concept of flying itself has changed considerably with the advent of low-cost carriers (lccs). They typically offer low fares since they are "no-frill" airlines, which means that food and beverages are either served for a price or in some cases not served at all. It is on account of this that a substantial cost component is knocked off making it that much easier for airline to cut costs. Simply speaking, if you are a traveller who is absolutely cost-conscious, an lcc may be a good starting point.

Besides, there are enough seats and airlines to choose from, a far cry from the time when there was barely one airline. Fifteen million seats were bought in 2004, a figure that rose to 21 million in 2005. The trend is very similar to the us and other countries in Europe where the preference for air travel is slowly getting firmer.

Worldwide, the rule has been to book early to ensure that you get the best fares. While this may not be necessarily true if a flight on a particular route is running low on capacity, it is by and large true. "The cheapest fares are available depending on how early you can book your tickets. It does get expensive if you book your tickets closer to the date of departure," says Jeh Wadia, Managing Director, GoAir. While he points out there could be a few aberrations-when fares drop closer to the date of departure-it generally works well if tickets are booked in advance.

But if you want to snag a few cheap tickets across airlines, have a flexible approach. "To get the best fares, it is important to be flexible on date and time," adds Wadia. It calls for plenty of groundwork before booking your ticket. You can start, of course, by scouring on the websites of various airlines.

Don't be fixated on a particular time like a weekend or a Monday morning. Chances are, travellers could pay a lot more on such days, since there tend to be more people flying. Besides, a better time to travel on weekdays is the afternoon. "Prices vary from day-to-day. Generally speaking, flights in the afternoon are a little cheaper," says Deep Kalra, Founder & ceo of online portal MakeMyTrip.com. Morning time air travel often has flights with high occupancy levels due to a sizeable proportion of business travellers. That means you pay higher fares. Afternoon flights are largely for leisure travellers who are more flexible on time and quality of service besides being cost-conscious. There's lesser occupancy and therefore it results, very often, in lower fares.

Taking off in the middle of the week is cheaper as well, since the business traveller usually travels in the beginning of the week for a good two-to-three days. "Anytime between Tuesday and Thursday are good days to travel as far as low fares are concerned. But, Tuesday is generally the best day," says SpiceJet Chairman Siddhanth Sharma. Avoid the morning and evening flights. "Business travellers like these days," points out Sharma.

He also points out that travel portals are a good place to start off to get some promotional deals. Besides, there are other options to compare ticket prices such as sms and kiosks. So, if you are looking for a deal, make sure that you check all the options. Ideally, take some time out to compare the prices before shortlisting the airline and the time. A word of caution from Sharma, though: "While comparing fares, it is important to travel by a reliable airline." True, travellers do have to look at service and reliability. "It is important to strike the right balance between fare and service," thinks Vinay Gupta, ceo of online portal flightraja.com.

To attract more flyers, airliners often have promotional offers going. So, keep an eye out for these. And for those who are apprehensive about fares dropping closer to the date of departure, there's not much of a reason to worry. "No airline drops fares closer to the departure date," says Sharma. If at all, the rates go higher. So, go ahead and plan that trip of yours, well in advance.

NEWS ROUND-UP

Back In The Reckoning
The old and trusted bank fixed deposit is turning attractive again.

By Nitya Varadarajan

"Banks have to tone up their balance sheets" T.S. Narayanasami CMD/IOB	"We will know in April if the interest rates would come down" Mukund Hari Jachak Head (Sales)/BoB

Banks have been vying with each other in luring your money by offering good interest rates, particularly in the last six months. While this could initially be attributed to tightening monetary policies around the world coupled with surging global oil prices, the Reserve Bank of India (RBI) also had to follow suit in hiking short term rates. In July 2006, for example, the Central Bank hiked the key interest rates at which banks park their short-term funds with RBI, reverse repo and repo by 25 basis points to 6 per cent. Lately, the RBI hiked the fixed repo rate by 25 basis points to 7.5 per cent.

With RBI controlling money supply to lower inflation and banks feeling the pressure of maintaining the credit growth, interest rates have gone up, says Mukund Hari Jachak, Head (Sales), Bank of Baroda, Urban Retail Factory: "Banks attracted bulk depositors earlier by offering high interest rates. Now, they want to canvas public deposits that would naturally be at lower rates and also minimise withdrawal risks.'' Over the last few years, credit growth has been phenomenal. Last year alone, there has been 30 per cent growth. "Banks have to tone up their balance sheets by showing aggressive credit growth. Funds are being garnered from the public for this at very attractive, perhaps abnormal interest rates," says T.S. Narayanasami, Chairman and Managing Director of Indian Overseas Bank. More and more banks are joining the fray.

The State Bank of India has launched a scheme with a limited offer period where a customer can deposit money with the bank for a lock-in period of three years for 9 per cent. Other banks followed suit and are offering rates in the range of 8-9 per cent. Will this last? Definitely, till March, feel most market observers. So, should the depositor wait another month to park his deposits in the hope that there could be a further hike in interest rates? Market observers feel that it is unlikely that interest rates would rise much further than what is prevailing today. "We will know in April if the interest rates would come down,'' says Jachak.

If you want to take advantage of the rates, make your move now. Invest in a way that your deposits mature at regular intervals rather than all at one go. For instance, you can do a one-year deposit and a one-and-a-half month deposit. This will mitigate your risks. Don't invest too far into the long-term. Unless, of course, you want to invest in the five-year deposits to take advantage of tax benefits. For most others, floating rate funds may be a better way to capture the rising interest rate, and they also offer better liquidity.

Entrust your Assets
Wealth managers make succession planning easier.

DSP's Dokania: Extending an estate planning hand

IL&FS Trust Services also has its trust management services. Essentially, trust services ensure that the property is passed on to successors without the necessity of a will. For wealth management companies, offering trust services is a natural extension of their business.

Trustees are responsible for administering the wealth of clients during and after their lifetime, according to the financial goals of the client. Trustees also have to ensure that trust assets are preserved and protected, well-managed and finally distributed to the beneficiaries according to the terms determined by the settler.

Trust services are essentially another form of estate management, where private players take charge of your assets, manage the same, and settle it as per your wishes. It helps in continued long-term succession planning of the estate holder and the biggest advantage is to structure and preserve the wealth for the benefit of future generations. Trust services are still in the nascent stage in India, but as the wealth situation improves, it's expected to gain ground. However, the closer the trust is integrated to your financial plan, the better it is for your successors.

-Clifford Alvares

VALUE PICK
Mining The Profits
AIA Engineering en route to good growth.

As the cement and mining industry booms, mill internal and mining products manufacturer AIA Engineering is sure to reap a good growth. The company provides critical grinding material to the cement industry, and mining products to the mining segment as well as grinding products to the utilities segment. All these core end-user industries are seeing a good growth in their businesses, which should translate into strong revenue growth for AIA Engineering.

The cement industry, AIA's biggest customers in the domestic market, is undergoing an expansion phase. Overall, cement contributes about 73 per cent of its revenues, while the rest come from utilities (19 per cent) and mining (8 per cent).

To cater to the booming demand, this company is in the midst of a capacity expansion plan that will boost its production more than four-fold over the next two years. It is expanding capacity from 65,000 mt to 2,69,000 mt by March 2008 that will enable it to cater to the booming mining market overseas. About 45 per cent of its total revenues currently are coming from the export segment. The company has introduced higher value-added products and along with the benefits of economies of scale, the company should enjoy an expansion in operating profits.

Last quarter was phenomenal for the company, with consolidated net profits growing by 84 per cent to Rs 24.9 crore, over the corresponding period last year. Over the next two years, the company is expected to see profit growth in excess of 40 per cent which could take its EPS in FY 2008 to over Rs 70. Both Kotak and SSKI have an outperformer rating on the stock. From the current price, the stock has good scope for appreciation over the medium-to-long term.

-Clifford Alvares