Direct plans offer higher NAV as they save on distribution expenses

Feb 26 2013, 08:44 IST
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SummaryInsurance is a risk-management tool. If you are the sole earning member, any unfortunate incident involving you may cause hardships to the family.

I am a 36-year-old engineer with a private construction firm. I am married, with a six-year-old son and dependent parents. I donít have any insurance. How should I go about it?

Deep Bharadwaj

Insurance is a risk-management tool. If you are the sole earning member, any unfortunate incident involving you may cause hardships to the family. You should take adequate life insurance so that your family continues to maintain the same standard of living and can meet financial goals like sonís education and marriage. You should preferably take adequate term insurance for this.You should also take an accident insurance for yourself and a health cover for all members.

I am in a middle-management job and fear that my employer may reduce/stop the health insurance cover. I am 52 years old, my wife is 46 and our daughters are 21 and 16. Should I take an individual or a floater policy?

Ajay Mathur

You should contact your current provider and negotiate for individual health policies since premiums for a family floater policy will be linked to your age and be expensive at 52 years. Further, your daughters will be out of the floater policy cover once they are no more dependent on you, but you will continue to pay the premiums. The cover will depend on the future cost of hospitalisation and medial treatment. It is advisable to take an individual cover of R5 lakh each and an additional topup of R5 lakh, which can take care of the cost of major illnesses.

What are the advantages of direct plans of mutual funds?

Robin John

Direct plans have been launched by asset management companies (AMCs) recently, where investors can directly buy MFs from them. They need not go through distributors. AMCS can save on the distribution expenses, which are passed on to the investors. As a result, investors get higher NAV. It will work to your advantage if you are well aware of the schemes.

I am 41 years old, with monthly expenses of R35,000. I am

planning to retire early at 55. How much should I save for retirement?

Satish Jacob

Assuming your longevity at 80 years, inflation at 8%, pre-retirement investment return at 12%, post-retirement investment return at 10% and your post-retirement expenses at 80% of the current expenses, you need to save R46,000 per month to create a corpus of R2 crore, which can take care of your retirement expenses. However, the amount will be lower if you have already saved some amount.

I have invested all my savings in a 3-BHK flat. I donít have enough for retirement. Can I mortgage my flat to arrange money for my expenses after retirement?

M S Vikramanan

Banks now offer reverse mortgage schemes, where you can mortgage your property to the bank and, in turn, the bank will provide you monthly amounts to meet your expenses. However, the property should be free of any encumbrances and you should meet the terms and conditions of the loan. The age criteria for availing reverse mortgage is normally above 60 years. The amount can be repaid by your legal heirs who can get the ownership of the property in future. In the event of default, the bank will arrange to auction the property and pay the balance to the legal heirs.

The author is chief financial planner with Max Secure

Send your queries at fepersonalfinance@expressindia.com

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