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Personal Loans for Debt Consolidation: Everything You Need to Know

You can combine two or more unsecured or secured debts into a fresh personal loan through debt consolidation. This facility lets you avoid tracking and paying EMIs for all your existing loans separately. In fact, by paying a single instalment towards the new personal loan, you will be able to meet all your debt liabilities.

Keep reading to know about how you can benefit from personal loan debt consolidation.

 

 

Features and Benefits of Personal Loan for Debt Consolidation:

 

The features and benefits are as follows:

 

Collateral-free: You do not need to mortgage any property to obtain a fresh personal loan for consolidating existing debts.

 

Repayment Flexibility: You can choose the loan repayment time between 1 to 5 years, considering your repayment potential.

 

On-time Approval: The seamless online application and lenient documentation procedures let you get approval on this credit facility without much delay.

 

Instant Disbursal: The loan amount is disbursed without delay after you get approval.

 

Prepayment Option Available: Several financial institutions offer loan prepayment facilities. It helps you eliminate the debt obligation before time, saving much of your interest outgo.

 

Online Application Facility: You can easily apply for this loan online from the comfort of your home.

 

Advantages of Choosing Personal Loan for Debt Consolidation:

 

The advantages of choosing a personal loan for debt consolidation are as follows:

Lower Interest Rate: Business loans and debts obtained from credit cards come at a higher rate than a personal loan. By combining them into a personal loan, you can reduce the applicable interest and save much of your overall borrowing costs.

 

Single EMI for All Loans: You do not need to pay EMIs separately for all the loans. Instead, you can pay only a single EMI, which is easy to keep track of and manage.

 

Single Loan Repayment Tenure: Single loan repayment tenure makes it easy to plan the repayment and close all the loans together.

 

Factors to Consider Before Opting for a Personal Loan for Debt Consolidation:

 

You must consider the following factors before applying for debt consolidation:

 

Check Your Credit Score

 

Credit score leaves a prominent impact on the interest rate charged by a debt consolidating financial company. So, you need to make an effort to opt for debt consolidation when you have a healthy credit score. If your CIBIL score is below 750, you need to inform all your income sources to financial institutions. Alternatively, you can apply with a co-borrower with a CIBIL score above 750. These will help you get the debt consolidation facility easily.

 

Consider Repayment Tenure of Existing Debt

 

Before opting for debt consolidation, check the repayment tenure of the existing loans. If the tenure of a present debt is about to end and you feel that you can repay your loan on time, there is no need to go for debt consolidation.

 

Go Through Eligibility Criteria Set by Financial Institutions

 

Eligibility criteria vary considerably from one lender to another. So it is a must to check if you fulfil all the eligibility standards they have set to qualify for debt consolidation.

 

Compare Interest Rate and Additional Charges

 

Before deciding on a financial institution for debt consolidation, you need to compare interest rates offered by different financial institutions. At the same time, you must also consider the additional charges lenders levy, such as processing fees, stamp duty, etc. This will help you minimize your borrowing cost.

 

Loan repayment Tenure after Debt Consolidation

 

You also need to ensure that financial institutions offer enough time to repay your consolidating personal loan. In a shorter tenure, the instalment amount will be higher, making it stressful for you to repay. You can use a personal loan calculator to know whether the repayment period gives you a manageable EMI. Only by mentioning the interest rate, loan amount and tenure you can determine the EMIs.

 

Personal Loan for Debt consolidation v/s Balance Transfer

 

Choosing between debt consolidation and balance transfer is a tough task when it comes to making a solution for loan repayment. Both have their advantages and are effective for different scenarios. You can go for a balance transfer when you have taken a single loan at a higher interest rate.

 

On the other hand, if you have applied for multiple loans, you can go for debt consolidation, so that you can make single EMI payment. It will become easier to track repayment status. Hence, it would be best to choose the most appropriate option after ensuring that it benefits you the most.

 

Now that you have a complete idea of the benefits of a personal loan for debt consolidation, you must evaluate your situation and apply for the financial facility if needed. However, before opting for it, compare the interest rates and loan tenure offered by different financial institutions to get the best deals.

 

Source: Goodreturns

10 Tips on How to Plan for Early Retirement

Many of us might be planning to quit job or close a business or pursue hobbies (without expecting money) by taking early retirement. However, early retirement is not that easy unless you plan them well. You need to be ready with a few things. Certain things would not be in your control. In this article we would provide some tips on how you can plan for early retirement.

 

What does early retirement mean?

 

While retirement age is 58 years, many are going on early retirement of 5 years or 10 years or even 20 years. Means, people want to retire at 40 years or 45 years or 50 years of age itself.

 

10 Tips on How to Plan for Early Retirement
Here are major pointers which can help you to plan for early retirement. This list is not comprehensive, however, can provide clarity.

 

1 – Decide what you intend to do

 

One of my friends Mr. Srinivas indicated he wanted to have an early retirement at 45 years of age. While I appreciated his decision, I asked him what he is gonna do after retirement life. He said “I have not yet planned”.

 

This is not the biggest mistake one would do when they plan for early retirement. You want to retire early, but you do not know what you are going to do after retirement? One can pursue their hobbies. They can try to achieve whatever they aimed, but could not do in their life. They can try creating Vlogs, freelance service in the areas they are passionate about, wealth management tips, mentor people in the area which they are expertise etc., There are Several Ways where you can earn during your leisure time.

 

I know many people personally who planned early retirement and worked as consultants in advising corporates on how these corporates can scale-up both in terms of business and also in reducing attrition in the company.

 

2 – Take Sabbatical / Leave for a few months

 

Last year, one of my colleague was thinking of resigning as she wanted a break. Just before she put the resignation, we had to casual talk. Taking a break is good, but the approach could be different. Based on my advice, she approached HR and had 6 month sabbatical leave. Those 6 months, she had fun and frustration both. Finally, she agreed that she wanted a small break and not a long break.

 

 

One should decide what kind of break they are looking for. Planning for early retirement is good, but, one should experiment by taking couple of months leave or with sabbatical leave of 6 months to 1 year. This is like testing yourself whether you are ready for early retirement or not.

 

3 – You don’t get regular income after early retirement

 

Many individuals would estimate how much income they might get by doing adhoc / hobbies / freelancing services etc., However this is not regular income. It such income can fluctuate.

 

I still remember one of my friends who took early retirement and had insurance blog where he used to earn income through advertisement as well as selling insurance policies online. He used to earn anywhere between 1 lac to 1.5 lacs per month till couple of year back from where he used to manage expenses. However, these days he earns some peanuts. One should not expect to have regular income from such activities.

 

 

4 – Expenses would continue to rise

You might be spending a specific amount of expenses now. However post retirement, you do not have control over such expenses. Check the latest inflation rate in the US which has crossed 8%. You should understand that you do not have control on your monthly expenses. An increase of 6% to 9% of yearly expenses should be considered while you estimate your future expenses.

 

5 – Don’t expect high returns from fixed income

Till 2020, Bank FD’s offered 6% to 7.5% returns. In the last 2 years, fixed income options including bank FDs or debt funds have given 4% to 5% returns. Don’t expect high returns from fixed income options in future. Countries like Denmark, Japan, Sweden and Switzerland have negative interest rates i.e. Investors need to pay money to keep their money in banks in these countries. While it might take some time for such situation to arise in India, one should expect that FD rates would decline gradually in the coming years.

 

 

6 – Invest in equity to beat inflation

If you have accumulated some money and investing in non equity options, then be ready that your accumulated money would reduce at a higher pace compared to the inflation rate. The only way to have returns that beat inflation is to invest in equity. However, investment in equity comes with risk. If you are thinking of early retirement, consider taking risks and invest in equity.

 

7 – Don’t invest in equity and expect to withdraw regularly

This is the biggest blunder mistake investors make. They plan for early retirement, they feel they can still take risks, invest in equity and start withdrawing some money on a regular basis. Investment in equity is a long term game. Don’t play in the short term. You would lose money. Alternatively, you can try for Some of the Good Systematic Withdrawal Plans in Mutual Funds.

 

7 – Two bucket strategy works very well

We discussed about 2 bucket strategy earlier.

 

i) Based on whatever accumulated amount, one can divide this into 3 parts. Two parts can be invested in equity for over 7 years. Since equity generates 10% returns, your investment would get doubled in 7 and odd years.

 

ii) One third of the amount can be withdrawn for over a 7 year period. One can invest this in simple FD or simple short term debt fund.

 

iii) Repeat step-1 every 7 years. Means the investment amount would always double for the rest of your life.

 

This 2 bucket strategy works well as you are not touching the equity investment for 7+ years which is required to grow.

 

8 – Have you considered all your financial goals

Don’t be in a hurry and go for early retirement. Consider all your financial goals as part of your plan. It could be children education, foreign education for children, foreign vacations in the future, buying a dream home etc. All these come with a cost. Don’t go for early retirement and then start thinking about these things.

 

9 – Don’t underestimate skyrocketing medical expenses

Mr. Rajesh wanted to have an early retirement at the age of 45 years. He is physically fit when he had an early retirement plan. However, after a couple of years, he had serious health problems and his medical insurance did not support them. He had to spend lacs of rupees on medical expenses which he never planned. While it is impossible to estimate the skyrocketing medical expenses, there should be a health insurance plan + some amount allocated towards it.

 

10 – You need to take your family support too

After you have considered all these pointers, consider taking your family buy-in too. Unless they support you, early retirement is not going to be that easy. Once you explain your plans, how you would manage family expenses and what you intend to do after your early retirement, things can be clear to your family too.

 

Source: Myinvestmentideas

Why it’s time to say goodbye to ‘one-size-fits-all’ in insurance

When it comes to the insurance industry, change is the only constant, says Anup Rau, MD & CEO of Future Generali India Insurance

 

In chaos theory, the butterfly effect is the idea that small things can have a non-linear impact on a complex system. The flapping of a butterfly’s wings in the Amazonian jungle, for instance, could create tiny changes in the atmosphere that lead to a tornado in Texas. Just like the minuscule yet deadly novel coronavirus in 2019 triggered a storm of changes that swept across all sectors in the world, including the insurance industry.

 

Analysing risks and planning for a crisis is what the insurance business is about. While the pandemic has wreaked havoc on the industry, it has done better than most other. The industry has changed structurally, mostly for the better. The changes, forced into the industry in a tearing hurry, have proved to be sticky and durable. And whether intended on not, have put the customer firmly at the centre. Let’s dive in.

 

Tech-first approach

 

Consider this: India has 1.18 billion mobile connections, 700 million Internet users, 600 million smartphones, and a population that has the highest data consumption in the world—about 12 GB per person a month (National Health Authority of India, 2021). Today, being digitally versatile is central to every decision and every interaction made by both individuals and companies. The insurance industry was among the first to recognise this and made the best possible use of technology, investing early in collaborative tools like social media, WhatsApp, Zoom, Microsoft Teams, and so on—as well as digital technology assets such as mobile apps for insurance, chatbots, and tools that allow processes like faster KYC verification and onboarding, automated underwriting, virtual claims adjusting, and so on. Digital technology that is cheap, scalable, functional, and replicable is here to stay.

 

Choice is nice

 

A marked increase in awareness about health during the pandemic has resulted in an uptick in demand for health insurance. But the ‘one-size-fits-all’ approach is a thing of the past. With a plethora of choices and a greater appreciation for the gift of health, people are taking a more holistic approach to their health. This means customers today demand customised, personalised, and intuitive policies that were not covered by companies earlier. For example, policies specially designed for Covid-19, mental health issues, certain types of cancer, seasonal illnesses such as dengue, malaria, or even a cover for those with ‘adverse’ medical history who were denied cover earlier. As customer demands and expectations continue to change, insurers will have to find a way to adapt their business model to meet new demands and win trust.

 

Innovate or perish

 

During the pandemic, the changing consumer behaviour spurred companies to reimagine and build new product strategies to offer relevant products that sustain customer interest. This is a trend that will continue for the foreseeable future and companies that adopt a mix of hyper-segmentation and innovation are the ones that will emerge stronger than others.

 

For instance, an innovative cyber insurance product, especially now, due to the increased risk of vulnerability, cyberattacks, data and identity theft. Companies will target newer age groups, such as millennials and gen Z, who traditionally tend to underestimate the importance of health insurance. Innovative products in insurance are not restricted to just health either. Hourly car insurance, women-only driver’s insurance that rewards good drivers with lower premiums, pet insurance, trip delay or cancellation insurance just for honeymoons (anyone who tied the knot during the pandemic will vouch for the need for this)—innovation is the mantra for success.

 

Flexi-culture

 

During the pandemic, like the rest of the world, the insurance industry too adopted the work-from-home model. However, remote working comes with challenges, such as a fragmented workforce, the blurred lines between working and personal hours, mental fatigue, and the challenge of building a cohesive organisational culture with a distributed workforce. Hybrid work culture is the future. Make no mistake, there is no going back to a 9 AM to 6 PM, five-days-a-week workplace.

 

While the physical demands of travel to the office and other locations and cities have diminished, the demands on the employee’s time have increased and will continue to stay elevated. Or worse, in most cases, employees have to fend for themselves and take responsibility for their sanity and well-being. Distance between the organisation and employees, and between employees themselves, could lead to the serious consequence of the company distancing itself from the customers. Of all the changes, this is the most significant and impactful one. How this is dealt with will have the biggest bearing on the future and success of an organisation.

 

“The secret of change is to focus all of your energy, not on fighting the old, but on building the new,” said Socrates. How we build the new will separate the wheat from the chaff and the winners from the also-rans.The next five years promise plenty of drama and upheaval. Let’s grab the best seats in the house and enjoy the show.

 

The author is the Managing Director & CEO of Future Generali India Insurance.

Source: ForbesIndia

Does Many Smallcases = More Profit?

 

That said, over-diversification is overkill. Every asset class and related asset-allocation format (in this case, smallcase) has its own benefits and limitations, especially if you have too many. In this blog, we’ll take a balanced look at both – the pros and cons of investing in multiple smallcases

 

Can you get wealthy by investing in multiple smallcases?

 

For years, portfolio management services have eluded the retail investor. Be it the daunting ticket size (50L since SEBI revised it in 2019) or the complexity of the systems at large, investors looking for a credible asset manager had to make do with mutual funds. The truth is, tailor-made asset management services were always reserved for those with an existing high net worth; as a result, stock-market investing has traditionally been a thing of mystique for the average investor. But smallcases as a concept disrupted this market, and how

 

Smallcases provides retail investors with high-quality capital management services traditionally associated with a typical PMS. You may possibly call smallcases ‘affordable PMS’! With investment portfolios that are tailor-made to multiple investors’ investing goals and bundled risk appetite, smallcases are a viable idea worth exploring for most investors. Additionally, a ticket size as low as Rs 5000 is small enough for most people looking to invest in equities and this consideration truly breaks the entry barrier for a new investor.

 

 

That said, over-diversification is overkill. Every asset class and related asset-allocation format (in this case, smallcase) has its own benefits and limitations, especially if you have too many. In this blog, we’ll take a balanced look at both – the pros and cons of investing in multiple smallcases.

 

Why Investing In Multiple Smallcases Is A Good Thing:

 

1. Counter volatility:
One of the main reasons to have multiple Smallcases is they allow an investor to maintain a portfolio that may tide over volatility smoothly. Smallcases essentially are bundled thematic investments. Should one theme be affected by market movements, there is a possibility that your other smallcase investments buoy your overall portfolio, helping you cross over the short-term fluctuations in the market.

 

2. Fulfilling different goals:
Diversifying across multiple smallcases may allow us to meet diverse life goals. You can explore investing in smallcases across bundles that commit to delivering capital appreciation or beating inflation and/or stable income and wealth protection. By dividing your corpus into different smallcases, you can undertake and achieve different financial objectives. These risk spectrums allow us to better manage our investments for multiple goals, and monitor them according to the benchmarked goal.

 

3. Ease of implementation:
A key advantage of smallcase is their ease of implementation. You don’t necessarily need a broker or sell-side entity to make individual trades of the stocks in your smallcase portfolio – you can do it directly through smallcase too. Buying and selling smallcases is exactly like buying stock, done at the click of a button and the shares are directly credited to your demat. Moreover, smallcases like that of Deeva Ventures are regularly and personally monitored by highly qualified investment advisors who make sure your investments are secure and portfolio is rebalanced on a regular basis.

 

Now that we’ve seen the bright side, it’s also important to be wary of the pitfalls. We’ve made a list of some cracks in the wall that you should consider before accumulating too many smallcases.

 

Why Investing In Multiple Smallcases May Not Be A Good Thing:

 

1. Portfolio Overlap:
Too much of anything is not a good thing. This stands true for diversification of your portfolio through smallcases too. It is very likely that certain well-performing stocks may be repeated across multiple themes and hence a part of multiple smallcases. This could lead to concentration risk should your exposure to particular stocks become high cumulatively across smallcases. Also, with your portfolio filled with Smallcases that have diverse asset allocation patterns, it may result in you not getting the best possible performance out of your money. Your returns get averaged out.

 

 

2. Expensive cost of access:
Many investors are confused by the fact that you have to pay a minimum amount to subscribe to quality smallcases. The fee involved with any Smallcase is not much; it’s just about 2% and this may really not be an issue when you consider the advantages it may give you – professional fund management service at a fraction of the cost. However, overspending in this regard might make it more difficult for you to make an absolute profit, excess of costs.

 

 

3. Hard to monitor:
If you invest in multiple smallcases, for example, 10 smallcases and above, with every Smallcase comprising of at least 10 companies, you will essentially end up with a portfolio that has over 100 stocks. In this scenario, it will be very difficult to monitor performance and manage risk over time! You might never quite understand what’s doing well, what’s underperforming, given that the stock market is a dynamic beast that changes with every trading session. As an investor, you need to know the exact details about what’s going on with your portfolio, which is why investing only in a few selected Smallcases is better for most investors.

 

 

The Bottomline
Smallcases are an interesting investment product- a form of research-led asset allocation program that can give you better returns with managed risks. But it’s important to make the right decisions in the beginning if you want it to work for you in the long run. There are a few advantages and a few disadvantages of investing in multiple smallcases, but they’re still a very good option for investors who don’t have the patience or the time to analyze their portfolios closely. So while investing in multiple smallcases is not really a bad decision, it should be done with caution and a fair bit of understanding of the product to arrive at a number that works for you. We’ll leave you with what Oscar Wilde wrote – Everything in moderation, including moderation!

 

Source: Tejimandi

Smallcase vs Mutual Fund : Which one is better

 

Mutual funds and Smallcases are the two asset structures in contention, and we’ll compare them over the course of this article to understand the fundamental difference between Smallcase and mutual funds.

 

As investors, most of us spend a considerable amount of time window-shopping for the right investment avenues. “Should I invest in the safety of debt instruments or should I stay equity-focused? Should I pick evergreen stocks or can I benefit more from trading the seasonal ones? What about adding some cryptocurrencies to my portfolio? How long should I stay invested?” Questions, so many questions.

 

The truth is that unless you’re an exceptionally nuanced investor with well-rounded insights about multiple sectors, a diversified portfolio can hold the answer to most ‘what and why questions as far as investments are concerned. Two financial avenues facilitate this diversification optimally; the first is a household name and the second has emerged as a buzzword in the last year or two. Mutual funds and Smallcases are the two asset structures in contention, and we’ll compare them over the course of this article to understand the fundamental difference between Smallcase and mutual funds.

 

What are mutual funds?

 

A mutual fund is a pool of money collected from many investors to invest in securities like stocks, bonds and other assets. Professional fund managers, vetted and hired by mutual fund houses or Asset Management Companies (AMCs) are responsible for picking the constituents of the fund and allocating capital; they can attempt capital gains or income production based on the investment objectives of the fund as per the prospectus set out at the time of the fund launch (called NFO).

 

What is a Smallcase?

 

A Smallcase, on the other hand, represents a capital allocation structure similar to portfolio management services (PMS) that were previously reserved for wealthy individuals (Read: HNIs and UHNIs). As a product, this is an idea that has caught the fancy of many well-heeled millennials as well as on-the-brink wealthy, ever since SEBI hiked the minimum investment amount for portfolio management services (PMS) from ₹25 lakh to ₹50 lakh in November 2019. In some sense, Smallcase may be called affordable PMS – with a starting price as low as Rs199/month. Basically, a Smallcase is a basket of stocks or ETFs, decisively created by the top qualified and registered investment advisors (RIAs) in India, based upon a theme, strategy, or objective.

 

David vs Goliath: A legacy product vs a promising challenger

 

If we have to compare the sheer size of the market with respect to Assets Under Management (AUM), mutual funds represent ₹36.74 trillion as of September 30, 2021. In comparison, Smallcases are a disruptive product that has been around for approximately 6 years now. Quoting the founder and CEO Vasanth Kamath “Our users multiplied three times from 9 lakh in March 2020 to 28 lakh in March 2021.” In FY21, the firm saw Rs 8,000 crore invested through its platform. A drop in the ocean, as far as the larger financial products industry is concerned.

 

 

Smallcase vs Mutual Funds: Points of Comparison

 

1. Exercise Control
Investing in Smallcases potentially offers investors better control over securities as the shares are credited directly in the Demat account. Having the portfolio right at your fingertips allows you to time your exit and know where each investment goes, which isn’t possible with mutual funds; you can cherry-pick which mutual fund you want to invest in, but the customization ends there.

 

 

2. Risk Mitigation Mechanisms
Smallcases are thematic investments; they invest in companies and securities that follow an underlying strategy or idea. For example, there can be a Smallcase that focuses on Clean Energy companies or fast-growing tech companies that focus on enterprise software integrations. Since these ideas are highly specific, diversification is restricted. For those intent on diversification, mutual funds offer a basket of good companies that are related by larger themes such as industry type and revenue benchmarks that may be a better hedge against volatility over several business cycles.

 

 

3. Cost of Leaving
In many mutual funds, there is an in-built penalty for liquidating your assets before the minimum stipulated time (generally just about a year)- this expense is called the exit load which ranges from 1-2% of the total investment. Typically, all mutual fund houses adjust this amount against the net asset value (NAV) of the fund. Smallcases, by design, allow investors to buy individual units of securities that are directly credited in the demat account like common shares. Since there is no exit load on selling shares, there is no exit load on selling smallcases.

 

 

4. Management Fee
Any asset allocation structure is only as good as the people managing it, i.e., the fund manager- who in these cases is typically someone who holds high repute in the financial markets. Understandably, this expertise attracts a certain cost, apart from the cost of monitoring and managing the fund. In the case of mutual funds, this cost, called the expense ratio, is a percentage of the total fund value, capped at 2.5% by SEBI. Smallcases have no fixed range – the cost differs from case to case and RIA to RIA, depending on the nature and theme of the basket of investments.

 

 

5. Access to Returns
Smallcases give investors direct access to their holdings since the shares are directly credited to their demat account. Hence, all corporate actions such as dividend distribution as well as the issue of bonus shares take place directly with the investors. In the case of mutual funds, the returns are collected in real-time but distributed quarterly.

 

 

6. Volatility
Due to the nature of the theme-wide concentration of Smallcases, they are typically more volatile than the stock market in general since the risk is concentrated in a specific strategy or idea. However, as one of the fundamental principles of finance states – the higher the risk, the higher is your potential for gains. Mutual funds, on the other hand, spread the risk across companies working in different areas even if the fund is concentrated in a specific industry. Hence, the latter is more resilient during market ups and downs.

 

Where should you invest?
While choosing between mutual funds and Smallcases, you must consider the following questions:

 

• Do you have adequate knowledge of the market?
Investing in a Smallcase requires some degree of market research and ample time to sort through to find the best Smallcase to invest in. It is an excellent investment for those who have a good idea of how markets operate. However, you can invest in a mutual fund without any market knowledge.

 

 

• How much control do you want over your investment?
Smallcases allow you greater flexibility, transparency, and control over your portfolio. You can choose a Smallcase that aligns closely to your financial goals and ideas, giving you greater discretion. On the other hand, investing in mutual funds comes with comparatively low transparency, and you have minimal influence over your portfolio.

 

 

• For how long do you want to park your funds?
Smallcases come with no lock-in periods, while mutual funds require you to lock-in your money for a considerable amount of time. Moreover, the charges associated with mutual funds are higher.

 

 

• How much time are you willing to spend on tracking your investment?
Investing in Smallcases requires you to keep a tab on your investment. You will have to decide when to enter the market and when to exit it to get the most returns. You may also have to keep a check on the returns to make sure they are on track. As for mutual funds, you can simply invest and let the experts take care of your investment. You may review it once a year.

 

 

Based on how you answer these questions, you may choose between these two investment avenues.

 

Closing Thoughts
As far as investments as concerned, asset allocation structures are as effective as the investor’s understanding of their goals. Both Smallcase and mutual funds are excellent avenues for growing wealth and intelligent investors should use these tools judiciously to their benefit. Where mutual funds provide the diversification a portfolio might need, Smallcases are conveniently packaged customizable investments in simple ideas that could return well over time.

 

Source: Tejimandi

Impact Investing: An underrated investment opportunity for family offices and high-net-worth individuals

 

Family office and HNIs can be significant investors for social enterprises with their patient and flexible capital. Here’s a lowdown of reasons behind their hesitancy and what impact investing can bring to their portfolios

 

If Covid-19 has taught us anything, it is that the world can no longer afford to ignore social and environmental issues. Climate change, poverty, human rights, gender inequality are just some of the issues that are fast becoming central to mainstream business decisions. This paradigm shift towards people, planet and profit is a direct result of the growing understanding by global leaders that socio-environmental issues are agnostic in their impact on people’s lives, cutting across socio-economic levels and geographies. One of the solutions to solving these global issues is impact investing.

 

The impact investing ecosystem in India has rapidly grown over the last decade. According to the data from the Impact Investors Council (IIC), more than 600 impact enterprises in India now affect more than 500 million lives, attracting over $9 billion in capital. However, most impact capital comes from foreign donors and investors, be they development finance institutions, institutional investors, high-net-worth individuals or global foundations. While this inflow of impact-focused capital has helped build a robust ecosystem for impact investing, it continues to serve as a stark reminder that domestic private capital is still focused on conventional approaches to investment.

 

Indian family offices and high net worth individuals (HNIs) are important stakeholders in India’s investment landscape. However, investor participation in impact investing is still at a very nascent stage. According to ‘Unlocking Impact Capital: The Indian Family Office Edition’, a study brought out by Waterfield and the Indian Impact Investors Council, domestic family offices and HNIs make up only 7.5 percent of participants in impact investments in India between 2016 and 2020. The same study also shows that Indian family offices and HNIs have polarising views on impact investing. Nearly 52 percent of Indian family offices and HNIs believe that doing good can also generate market-linked financial returns and a near equal proportion believe the two must remain separate and distinct. Family Office and HNIs, with their extensive networks, can be significant investors for social enterprises with their patient and flexible capital. Coupled with the intent to align their wealth with their personal values (a trend which is developing amongst the NextGen), it makes family offices and HNIs perfectly placed to become an attractive source of capital for this ecosystem.

 

For family offices, impact investment opportunities address issues related to the masses—social enterprises that find solutions for India’s largely underserved but incredibly aspirational ‘next billion’. Some optimistic Family Office investors view impact investing through the same investment lens as they do for any other asset class. This is a definite win for the impact investing ecosystem as these investors function as evangelists, strongly advocating the ability for impact investing to provide commercial returns and impact. Equally, many family offices and HNIs continue to have reservations regarding the ecosystem. They repeatedly point out the industry’s inability to demonstrate measurable results. Moreover, a lack of common frameworks and a common language to measure the impact make greenwashing a real concern. To add to this, many families feel that impact funds and enterprises often lack skilled professionals with adequate on-the-ground experience to understand the nuanced challenges of these businesses.

 

Additionally, potential investors face product related barriers because of a lack of good quality investment opportunities across the risk-return spectrum. Domestic investors have not been sufficiently exposed to the wide variety of impact investing opportunities available in the country. They range from equity investments into funds and social enterprises to less conventional social finance models such as development impact bonds (DIBs), loan guarantees and pay for success models.

 

India is not lacking in socio-environmental issues and there is enough and more room for philanthropic, impact, and commercial capital to co-exist and complement each other in alleviating socio-economic issues. Wealth advisors to family offices and HNIs can help their clients contribute to real social change by earmarking ‘sustainable development capital’ in a client’s portfolio for the broader spectrum of grants, direct investments in social enterprises and blended finance. Exposing families to opportunities across this spectrum will help broaden the perspective and give clients multiple options to deploy capital towards social development. Equally important is to be able to create metrics for clients that enable them to measure, monitor and evaluate the “impact quotient” of their investments.

 

As India inches closer towards achieving the UN Sustainable Development Goals and climate commitments made at COP26, unlocking Family Office and HNI capital for sustainable development can be a game-changer. It will require a concerted effort amongst wealth managers to channelise domestic capital to the social sector. It will mean educating and training our relationship managers, working with partners to source investment opportunities, and being able to diligence social enterprises through both the commercial and impact lens. As investors, we applaud the unicorns that get created, but can we also applaud those social enterprises and impact funds that aspire to touch a billion lives.

 

Source: Forbes India

Is Health Insurance Premium a waste of Money?

 

A lot of people think that paying health insurance premiums is a waste of money.

 

After all, why pay the premiums for years and years, and what if nothing happens? After all, our grandparents never had any health insurance and they are in perfect health. Why pay for something which is an imaginary risk? These health insurance companies are here to just make money, fool customers with their fancy presentations and brochures, and reject claims finally.

 

Why not just save that money or enjoy life!.. Some people also give a nice example of how they can save up the premiums each year and if after 10 yrs, there is some hospitalization, they can use the money to pay the bills.

 

This is exactly how millions of investors feel and that’s one reason why insurance penetration is so low in our country. I am sure you must have met someone in your office or in your family who just reject the idea of taking the health insurance, because “Company ka cover to hai na” types of remarks

 

I see two big reasons why many people think this way!

 

Reason #1 – Transactional Benefit Mentality

 

A lot of people have a transactional benefit mentality, where they want to get some tangible benefit the moment they pay.

 

• Like you pay for a movie, and you watch it.
• You pay for apples, and you get it.
• You buy a TV on Amazon, and it gets delivered!

 

What do you get when you pay your health insurance premium? What do you get?

 

A PROMISE!!

 

That’s all, a promise that your medical bills will be taken care of in the future, only if it arises?

 

It’s very hard for these people to see benefits in terms of probabilities and future possibilities. It’s all about a short-term mindset and no ability to visualize the future.

 

This is even true for many investors who buy health insurance premiums, but eventually, they let expire the policy because they feel frustrated looking at their premiums go waste!

 

Reason #2 – Fake confidence of “Nothing will happen to me”

 

I don’t know how some people have this super confidence in themselves that “nothing will happen to me”

 

People don’t say it, but many people truly believe that there are fewer chances of anything bad happening to THEM.. It all happens to others.

 

I have lost one of my close friends and one more known person to COVID in the last 12 months, both below 40 yrs!. I was also admitted to the hospital in Nov 2020 as I was having cough and breathing issues. Both the people who died in Covid got admitted the same way with minor issues at first, and then it got worse and finally, they died.

 

I survived.

 

Remember that a person who dies in an accident or gets cancer has the same “Nothing will happen to me” kind of confidence 5 min before the event happens. We are all like that.

 

I feel it’s nothing but a lack of maturity and a bit idiotic to think that nothing will happen to me or my family because “we are careful”.

 

If you are careful, it’s just that the chances of something bad happening to you reduces a bit. That’s all, it does not get eliminated. Don’t live in the imaginary world.

 

Premiums are wasted if nothing happens?

 

It’s foolish to think that premiums get wasted if nothing happens to you.

 

• When you wear a mask, is it a waste if you didn’t catch COVID?

• Was the helmet a waste if you didn’t meet the accident?

 

What about the protection it provided you and you had that peace of mind?

 

In fact, the best thing is that your health insurance goes WASTE!.. I have tweeted the same some time back

 

3 levels of risks

 

In any area of life, you have various levels of risk.

 

You either accept the risk, reduce the risk or transfer the risk!

 

Health insurance is all about transferring the risk of very big hospital bills to insurers by choosing to pay a premium each year. If someone does not want to pay the premium, it means that they are accepting the risk that someday they may have to shell out a big sum of money for medical reasons.

 

And sometimes it can run into such a big amount that it can wipe out your years of effort. Sometimes you may get a disease that may require multiple or regular hospitalizations and it can really be crippling to your financial life.

 

So it’s up to you to decide if you want to accept these big risks or transfer them to the insurer (The cost part)

 

 

Is company cover enough?

 

I have already said this multiple times.

 

A company cover many times is not a full replacement for full-fledged health insurance which you buy yourself. At best you shall see the employer cover as a complimentary benefit because it can go away anytime. You also don’t know if it’s sufficient for you or not? And the worst, you cant depend on it after retirement, when you will need it the most!

 

Source: Jagoinvestor