Do you wish to go on a cruise vacation to celebrate your 10th wedding anniversary? Do you want to present your parents with a car for themselves? Do you wish to retire at the age of 50 and spend your time travelling the world? These may be your short, mid and long term life goals but are you sure how you are going to fund them? The answer is quite simple – you need to start saving. However, you need to be smart about your saving avenues and ensure you undertake goal-based savings only. Once that is done, you will be able to achieve all your dreams and stay financially secured until the very last day of your life.
Let us begin by understanding the need to save. Saving money is nothing but building up a corpus that you can use for various purposes. From attending to an emergency such as a medical emergency to paying for a planned expense such as buying a house, your corpus can help you achieve life goals with greater ease.
There are multiple reasons for goal-based savings. Here is a list of the most common goals for which you should save:
1. For emergencies – #EmergencyCorpus
Life often throws many surprising challenges in front of you and most of the time, you may find yourself unprepared for them. From your vehicle getting involved in an accident to your mobile phone getting stolen, from your parents requiring urgent hospitalisation to your investments suffering due to slow market trends, you can never know what financial challenge lies at the next end. You, therefore, need to save some money and keep it ready for such unforeseen expenses. This is the most important reason why you should get into the habit of saving money each and every month to ensure you have enough with you when you need to address an emergency.
There are multiple factors that determine your emergency corpus amount like:
Average monthly expenses
Nature of your job, whether the government sector or private, whether temporary or permanent, etc.
Your monthly outstanding liabilities like home-loan EMI, etc.
Pro Tip: Your emergency corpus can be any amount from 3 to 18 months of your family’s average monthly expenses. A quick calculation of Emergency Corpus = Average monthly expenses X 6.
Must-have products for emergencies, other than your emergency corpus, is a credit card and a health insurance plan for your family.
2. To buy a house – #RealEstateInvestment
The day you begin working and earning for yourself, you achieve the independence you always wished. The next step is buying a house and for that, you need to save periodically from your salary. Since a home is one of the three greatest requirements of life (along with food and clothing), you need to buy a home at some point in life. Start saving money early on in your career so that you will have a corpus to pay the down payment of your house and be financially capable of getting a home loan as well. This requires a lot of focus and so you should begin working on it without any delays or distractions.
3. To pay for your child’s education – #ChildEducation
It is every parent’s responsibility to pay for their children’s education. You have to save money for this purpose. Even if you are young and single, you need to think ahead and start saving for years to come when you will be a family person with a spouse and children. Rather than burdening yourself later, start planning and saving right away so that your children get the best education and you can pay for all the expenses without the situation getting too economically burdensome for you.
Pro Tip: Education inflation is more than 10% in India and is ever-rising, especially for higher and professional education.
4. To pay for your child’s marriage –
Another massive responsibility that you have to fulfil in life is to see your children settle down in life. Apart from their education, you also need to save for their marriage. If your children are young now, begin planning and saving so that you have enough time to build up the necessary corpus. There are some very handy investment schemes such as the money-back child insurance plans, post office saving schemes such as the Sukanya Samriddhi Account, etc. that help you to save for your children’s future needs such as their marriage. Look for such investments and save in a smart manner.
5. To plan for your retirement –
You need to save sufficiently for your post-retirement years. Remember, as soon as you turn 60, your income will stop overnight. The pension you receive may hardly be good enough to support your lifestyle. Rather than having to depend on your kids, you can stay financially independent and secure only if you plan ahead. Start saving for your retirement immediately. No matter whether you are in your 20s, 30s or 40s, it is never too early to start saving for this purpose. The earlier you begin, the easier it will be for you to have more money for the twilight years of your life. You can use the money in your retirement years to pay for your daily expenses, for your medical bills or simply to achieve your life goals such as travel.
There could be various other reasons for which you might have to plan and save ahead of time. The reasons would vary from person to person and can range from sister’s wedding to a foreign trip to parent’s health issues to almost anything.
All you need to do is, identify the goal and then save systematically towards the same in a disciplined manner.
These are some of the main reasons you need to save your money. As you can see, some of these require a longer saving-period and some shorter. You need to understand your life goals and then start building the various funds accordingly.
Types of financial goals:
As mentioned above, people save for various reasons. While some of these are to achieve a dream related to their leisure, others are for practical and sustainable purposes. So while you need to save for a lavish vacation, you also have to save for your retirement years. The financial goals are nothing but targets you set yourself and the monetary arrangements you make to achieve them. Financial goals are usually divided into three groups:
A. Short-term goals –
Short-term financial goals are those goals that you need to take care of in the immediate future. Ideally, you need to have a corpus ready for these goals. But you can be disciplined with your expenses and savings and provision for these goals as and when needed. Most of the short-term financial goals are repetitive in nature and you need to address them at regular intervals. The only way to be prepared for these goals is to make a budget and strictly stick to you. You need to have control over your expenses in order to save enough money to fund the short term financial goals and also to save for the mid and long term goals. The most common short-term financial goals are:
a. Paying EMIs for the various loans you have
b. Clearing the monthly credit card bills
c. Arranging for annual family vacations
d. Getting the best health insurance cover for your entire family
e. Indulging in self-care
Tenure for short-term goals:
are usually from 0-2 years.
Top investment products for short-term goals:
can be a savings bank accounts (with 4-7% ROI), Bank Fixed Deposits, Liquid and Debt Mutual Funds, etc.
B. Mid-term goals –
Next, we have the mid-term financial goals. These are some of the most crucial goals that you need to provide for. Unfortunately, and rather dangerously, many people tend to deprioritise these goals while they focus on the short term and long term financial goals. Mid-term goals are those goals which you need to meet just a few years down the line. You don’t have to wait until your retirement nor take care of them at the end of the month. The mid-term financial goals are in fact some of the most common life goals we all encounter. You need to build up sufficient funds for these goals to ensure you do not stumble along the way. Some of the common mid-term financial goals include:
a. Getting married
b. Having a baby
c. Clearing your student loan
d. Buying a house
e. Starting a business
f. Taking care of your parents
Tenure for mid-term goals:
are usually from 2-5 years.
Top investment products for mid-term goals:
can be Bank Fixed Deposits, Debt Mutual Funds, Gold, etc.
C. Long-term goals –
A lot has been said and discussed the long-term financial goals of a person. You must have heard many people tell you that you need to save for your twilight years. While retirement is definitely one of the most crucial long-term financial goals, there are other goals that require planning and saving over a long period of time. It is a good idea to start saving early on in life for the long term goals so that you can save in small amounts and still end up with a large corpus. Some of the common long-term financial goals include:
a. Saving for your retirement
b. Sending your children to the best foreign university for higher studies
c. Buying a lavish villa at a good location
d. Owning multiple properties
e. Travelling the world
f. Buying an expensive car such as a Lamborghini
Tenure for long-term goals:
are usually more than 5 years or so.
Top investment products for long-term goals:
can be Equity Mutual Funds, Real Estate, Direct Equity, etc.
How to save towards your financial goals?
Now that you know more about financial goals and their importance, you need to start saving towards them. Here are some handy tips to help you along the way:
Step #1: Set S.M.A.R.T. goals –
S.M.A.R.T. is an acronym for Specific, Measurable, Achievable, Realistic and Timebound.
Always remember that the life goals you set for yourself will be different from those that your friend has. Life situations vary and no two families are the same. You have your own set of responsibilities. For instance, your friend may be a single person who lost his parents as well. He does not intend to get married and so he is saving extensively for a world tour. On the other hand, you are a father-of-two and have dependent parents as well. Your financial goals would then primarily revolve around the wellbeing of your family members. Thus, setting specific and relevant financial goals is the first step in the process.
So, you need to identify your goal and then make it S.M.A.R.T. For example, your financial goal could be “Child Education”.
But you need to make it Specific, Measurable, Achievable, Realistic and Timebound by making it “Child Education Expenses of INR 1 CR after 15 years”.
Step #2: Segregate your goals and pen it down:
As discussed, financial goals are classified into three groups – the short, mid and long term goals. You also need to identify your goals and sort them accordingly. You need to have a fair idea of your goals and by when you need to achieve them. This is a vital step as you need to have different savings mechanisms for each type of goal. For instance, you may depend on a fixed deposit to pay for your annual family vacation and a mutual fund to pay for your daughter’s wedding. It is thus crucial for you to know the timeline and segregate your financial goals to plan better.
Actually penning your financial goals down is one-step towards the same, as it is etched in your mind forever.
Step #3: Make a monthly budget – Expense Planning
It is extremely helpful to make a monthly budget as that is the point from where you can begin your financial contributions. After all, the savings need to come out of your monthly salary. So you need to make three divisions, one each for your income, expenses and savings. Calculate your monthly household expenses and other payments that you cannot avoid. This would include outstanding EMI’s, etc.
Once that is done, calculate the amount of money left. Then, decide the amount of money you want to leave in your savings bank account as an emergency fund and the amount you want to invest. Once you have a plan ready, it will become easier for you to save for your financial goals.
Step #4: Keep the saved money away from your wallet –
Store the money you save away from yourself, in a savings bank account or lock it up in investments. If you have money lying around, you will be very tempted to spend it. Since discipline is important, you need to keep all distractions away and save with complete diligence.
It is also important to note that you need to be responsible with your credit card usage. When you do not have the cash with you, do not simply keep using your credit card to pay for unnecessary expenses. This will defeat the purpose and you will fail to save appropriately for your financial goals.
Step #5: Invest properly – Choose the products carefully
And finally, you need to invest properly. There are several investment options available to you. While some like fixed deposits are low risk, others such as equities carry some risk. The yields from each type of investment are different. It is extremely important for you to understand the type of investment, its mechanism and return offered. You also need to correlate the investment with your savings needs and see if the returns would be of use to you. If you are not sure, speak to a financial advisor and then choose the correct investment option. Making an error here can prove to be very damaging and can hamper all your future financial targets.
Step #6: Annual Review of your Investment Portfolio, Goals and re-aligning the same
This is a super important step in your Financial Planning called Review. This needs to be in line with your asset allocation and risk profile.
Only when you Re-view your portfolio, you would be able to analyse the same and check if your portfolio is following the desired path. If not, then a re-alignment of the portfolio might be necessary.
Also, goals keep changing and evolving with time. Annual review and analysis of the investment portfolio can be a healthy check on the progress of the same so that there is no shortfall when the goal is near.
Top #3 Points to keep in mind while planning Goal-based Savings:
To be able to save properly and build up the highest corpus, you need to keep the following factors in mind when saving towards your financial goals:
1. Factor in inflation –
Inflation is a factor that you must keep in mind when you save for your future financial goals. Remember, an item that costs Rs 1000 today may cost Rs 5000 in the next decade. If your dream villa costs Rs 2 crore today, it will probably cost Rs 4 crores* in 10 years’ time and so you need to save more. Unless you factor in the inflation, you will not be able to achieve your financial goals in a manner you wish to do so.
*In average inflation in India is 7.66% in 2019.
2. Invest according to your asset allocation and risk appetite –
As stated, some investments carry a low risk and others carry a higher risk. When you invest, keep an eye out for the risk factor. If you are a conservative investor, choose investment options that are suitable for you. If you are more of a risk-taker, invest in higher-risk instruments. Be comfortable with your investments as only then can you invest properly and achieve your financial goals in time.
Asset Allocation is an allocation of your investment portfolio for portions of debt, equity and other products like real estate, gold, etc. based on an individual’s risk-taking capacity (i.e. risk appetite).
3. Be realistic when setting your goals –
And finally, you need to be very realistic about your life goals. Everyone wants the very best of things in life, but the hard reality is that not everyone can afford everything. If you are a mid-level salaried executive, you possibly cannot have the things a movie star has! So be realistic about your financial goals and set achievable targets for yourself. This will help you to save properly and fetch you the goals in a hassle-free manner.
Basically, make your financial goals S.M.A.R.T. and then work towards the same in a systematic and planned manner.
Discipline is the key here. You need to be disciplined and stay focused at all times. If you lose the eye on your goal, you will shift from the path and achieving your financial goals will become a real challenge thereafter. To avoid this, be as disciplined with your money as you possibly can. Keep your eyes on the targets you have set for yourself and achieve your financial goals with ease.
To wrap it up
Goal-based savings are essential and allow you to manage your money properly. As we saw, there are different categories of financial goals. You have the short-term goals, mid-term goals and the long-term goals. The different goals cater to different life situations and needs and must be addressed accordingly. Keep all the points mentioned above in mind and begin saving for your financial goals. Once you are disciplined and focused, you will be able to achieve all your financial goals with ease.
Financial management apps are extremely useful. From offering reminders about your upcoming EMIs to offering a comprehensive budget plan related to your expenses, these apps help you to manage all aspects of your financial well-being on a day-to-day basis. Whether you use an Android or an iOs platform, you can find many interesting money-management apps. Download any one of them and you will be able to smoothly sort out your finances. Take a look at this article to know more about the top personal finance management apps in India and how they can be of help to you.
Walnut is considered to be one of the most useful money -management apps that are available on both Android as well as iOs devices. Some of the features offered by Walnut include:
Tab on expenses – The app allows you to keep a tab on your monthly expenses. It gives you regular updates about the amount of money you have spent in the month, it intimates you about the accumulated credit card bill, etc. This helps you to keep a tab on your expenses quite effectively.
Auto payment of bills – The app pays your due bills automatically. The auto=payment feature on the app is of great help, especially to those who tend to miss the due dates and end up defaulting on their bills.
Categorizes expenses – The app categorizes all the expenses and tells you how much you spent on travel, dining, groceries, entertainment and so on. This helps you to understand your own spending patterns and make alterations if needed.
SMS scanning – The app regularly scans the SMSes received on your mobile device. It alerts you about the spends and informs you about any fraudulent transactions that may have taken place.
With these interesting features on offer, Walnut proves to be very handy for anyone who needs some digital assistance to manage their money.
The next app on the list is the highly-rated GoodBudget app. Another one of the personal finance management apps that is available both to the Android as well as the iOs users, it helps you to plan out your monthly expenses. It also helps you to save by telling you about your various overheads and pointing out spending patterns. Here are the top features of this app:
Online envelopes – The most unique feature of this app is online envelopes. You can create separate envelopes for all your expenses such as groceries, utilities, fuel, savings, etc. You can allocate funds to each envelope and stick to your monthly budget accordingly.
Option to share budget – Not only does the app help you to make and use your own budget, but it also gives you the option to share the budget with your family members. This helps you to stay on the same page with close family members such as your spouse or parents with whom you share the familial financial load.
Payment of dues – The app offers the autopay option with which you can clear your monthly dues on time without having to worry about forgotten due dates.
Debt payoff plans – The app helps you to create specific debt-payoff plans. With the help of these, you can adjust your EMIs and clear off all your dues in a comfortable manner.
These features make the GoodBudget app so popular among users not just in India, but all around the world.
The EZ Financial Calculators app is one of the well-received personal finance management apps that helps thousands of people to keep a check on their finances. Here are the top features of this money-management app:
Complete set of financial calculators – You will find a whole lot of calculators on this app. With the help of these, you can calculate everything including your tax liabilities, your home loan interest rate, your retirement fund requirements, your insurance premium rates, the returns on various investments and so on.
Easy transfer of results – Not only does this app help you to calculate the various figures and amounts, but it also makes it easy for you to share the results with anyone you wish to. You can email the results to your family or friends as and when you want to do so.
Error-free calculations – Most of the financial calculations undertaken by this app are very complex and comprise of various layers. Manual calculations can lead to several errors, but the app offers completely error-free results. This is a major advantage of using the EZ Financial Calculators app.
Expert advice – The app has provisions for its users to get expert advice. You can speak to a financial expert on the app and get specific answers to your money related queries.
With these features, the EZ Financial Calculators are among the most popular expense manager apps in use presently.
One of the handiest expense manager apps, Chillr is a very popular and widely used app in India. The features of this app include:
Mobile banking – The app allows you to transfer money, receive money and make quick recharges. These features allow you to use the app as a mobile banking app. It makes it easy for you to manage all your financial transactions from one source.
Utility bill payments – The app also allows you to make your utility bill payments such as paying your electricity bill, telephone bill, gas bill and so on. You also get attractive discounts and cashback when you pay your bills from the app.
Remind friends about payments – The app has a very novel feature through which you can send reminders to your friends who owe you money. The app will directly remind them of the amount they owe you. They can pay you the money directly on the app itself.
As you can see, the features are quite interesting and make money management quite a simple task for you.
This is a very straightforward and one of the most simple personal finance management apps, but it offers excellent solutions to anyone who tends to check their expenses. Here are some of the features:
Tracks all expenses – Whether it is something large as paying your monthly home loan EMI or something as small as paying cab fare, you can feed in all your expenses into the app and keep a tab on your spends. The app makes separate categories for your expenses and prepares charts for you to get a better understanding of the money you spend.
Synchronised data entry – The app allows you to simultaneously enter data from your mobile phone, tab or laptop. You can download the app on any device and log in using your Dropbox credentials. This makes it simple for you to enter all your financial details, as soon as you complete a transaction.
Choice of language and currency – The app provides you with a choice of your language and currency. This makes it easy for you to plan your finances even when you travel to a different country and use a different currency.
The Monefy – Money Manager app is thus one of the best money management apps available currently.
The mTrakr Money Manager app is a highly efficient personal management app that allows you to manage your expenses in an excellent manner by offering these features:
SMS Scanning – The app scans your SMS inbox and collects data about all your credit card and debit card spends. You do not have to manually feed in the data to the app regarding your expenses as the data is automatically collected by the app.
Automatic categorizing – The app is one of the few money management apps that has the automatic categorizing feature. The expenses are categorised under different columns and you can see where you have spent throughout the month. This is a very handy feature and allows you to get better results in a quicker manner.
Budget planner – The app also has a budget planning feature with the help of which you can have a customised budget plan ready each month. This helps to make money management a lot easier as you already know what to spend and when to spend.
Expert advice – The app offers expert advice related to money management. If you need any help on how to reduce your monthly expenses or on the different types of investment options, you can find helpful information on the app itself.
The features offered by the mTrakr Money Manager app are very good and helpful for anyone looking to streamline their expenses.
The final app to feature on this list is the Expense Manager app. This is another highly-rated and much in use expense manager app that helps people by offering the following benefits:
Free to use – The Expense Manager app is a completely free very easy financial management app to use. It is available to the iOs as well as the Android users across the world.
Track finances – The app has an in-built feature with the help of which it can track all your financial transactions and this can tell you about your expenses. It also keeps a check on your income and tells you how much money you have spent and what you have left in your account.
Picture entry – When you use this app, you do not need to feed in the data related to your expenses manually. You can simply click a photograph of a receipt and upload it on the app and the needful will be done. This is a truly unique feature that makes this app very popular.
Financial calculators – The app has many in-built financial calculators such as the tax calculators, interest calculators, EMI calculators and so on. With the help of these tools, you can easily understand your financial liabilities and see where you need to pay what.
These features are very efficient indeed and make the Expense Manager one of the best personal finance management apps to use in India.
The Qykly app is an extremely good and effective personal finance management app that allows you to perform various financial tasks including:
Expense tracker – The app has an expense tracker that allows you to check where you spend your money each month. The expense tracker is easy to use and is very effective in categorising your expenses in an accurate fashion.
Monthly budget maker – If you need help planning your monthly finances, you should ideally make a budget at the beginning of the month. With the help of the Qykly app, you can make a very effective monthly budget and stick to it.
Highly secured – The app uses multiple layers of security with added passwords to ensure your financial data remains safe. Sadly, online financial frauds are very prevalent and so you cannot trust every money management app that you come across. Qykly is a verified and safe app that you can use without any fear or worries whatsoever.
SMS scanner – The app has a feature through which it scans the SMS inbox of your phone. Apart from retrieving financial details through this, the app also identifies travel PNRs and helps you plan your finances when you travel.
These are the unique features that make the Qykly app a very popular wealth management app among users in India.
Smart Spends is an app that allows you to keep a comprehensive tab on all your expenses, thereby helping you to streamline your spends and save effectively. The features of this app are:
Automatic aggregation – A very unique feature of this app is that automatically aggregates all your monthly expenses and categorizes them in groups. This makes it very simple for you to check where you spent how much and understand your spending pattern more effectively.
Tracks investments – The app also scans your financial transactions and tracks all your investments. It sends you a report about the same and allows you to keep a tab on your investments as well.
Pays bills – Much like the other personal finance management apps, the Smart Spends app can be used to make monthly bill payments. You can set up the auto-pay options on the app for various dues.
With the help of these features, the Smart Spends app allows you to take charge of your expenses in a smooth and hassle-free manner.
As you can see, there are some excellent personal money management apps available in India these days. Download the personal finance management apps on to your smart devices and use them diligently to get better control over your finances. The expense manager apps are quite user-friendly and easy to use and they are also available widely.
Investing your hard-earned money is an important step towards wealth creation. However, you need to invest properly and through the correct instruments to ensure you get the returns you desire in a time that suits you well. There are many financial instruments that you can choose from, but not every one of them is suitable for you. You need to invest as per your financial capacities as well as according to your risk profile. Take a look at this article to know more about the financial instruments available for investing your hard-earned money and how you can choose the best option for yourself.
There are primarily two categories of financial instruments, namely, the fixed income instruments and the equities. While the former offers fixed returns, the latter is more risky but better suited for achieving long-term financial goals. Here is a detailed look at the various investment instruments available in India:
1. Cash instruments –
As the name suggests, a cash instrument is a type of investment that includes cash savings and instruments. The cash instruments include bank savings accounts, cash bonds, etc. These are highly liquid investments that help you to meet your short-term financial goals. It is very safe to invest in the cash instruments as practically no risk is involved here. However, the returns are also lower as compared to the other financial instruments.
2. Company and government bonds –
Many corporate funds, as well as the government enterprises, require additional funds from time to time. This is why they issue bonds that are given to the investors. As an investor, you need to buy the bonds by paying a sum of money. This money is used by the company or the government towards their operation expenses. In return, you get a fixed return at regular intervals. When the bond matures, you receive the entire amount you paid, back. A company or a government bond is also a very secure form of investment that helps you to earn steady dividends in a low-risk manner.
3. Stocks and equity investments –
Businesses raise money by selling their stocks and equities to the general public. The equities are sold at registered places such as the stock markets of the country. As an investor, you can invest your hard-earned money in stocks and equities and see your wealth grow. However, these investments are a bit risky. When the company performs well, you get to make profits on your investments as the stock prices consistently rise. However, if the company begins to perform poorly, its value drops and the stock prices begin to fall as well. At such a time, you stand to get very low and unprofitable returns from the stocks and equities. Similarly, when the economic condition of the country is poor, the stock markets crash and all the stock and equity investments begin to suffer. It is therefore wise for you to spread your investments over a number of stocks and equities and not invest all your money in a single stock. This is a factor you must remember before you invest in this financial instrument.
4. Mutual funds –
Mutual funds are a type of financial instrument where the money of various investors are pooled in together and invested. As an individual investor, your money may not be sufficient to buy the stocks, shares or bonds. This is why you invest in a mutual fund to get higher returns. The yields and profits earned on the investments are evenly distributed to all the joint investors. The risk is lower and the chances of earning profits are higher as well. You can choose between three types of funds in a mutual fund investment – the equity funds, the fixed income funds and the money market funds. As is obvious, the equity funds carry the highest levels of risk, followed by the fixed income funds and the money market funds that carry the least amount of risk. You need to choose the fund carefully, after analysing your risk appetite.
5. ETF –
An exchange traded fund, or an ETF as it is popularly known, is another financial instrument that is very well-suited for investments. Here, the benefits of mutual funds and equities are combined. You get to invest your money in diversified funds as you can do in a mutual fund. Then, as the name suggests, you can buy and sell the ETFs easily in the stock markets much like the equities. These features make the ETFs very popular and a common type of financial instrument among the investors.
6. Precious metals –
Precious metals such as silver, platinum and gold act as excellent investment instruments. Gold, for example, proves to be a good investment platform. The price of gold rises continuously and consistently. If you buy gold worth Rs 10,000 today, you can sell it at a much higher price after a few years. Investing in precious metals is therefore a very common thing to do and is definitely something you must consider doing as well.
7. Property –
Apart from precious metals, you can also consider investing a portion of your money in property. It is always a good idea to buy some property in your own name. Apart from becoming a lifelong asset, a property also offers high returns on investments. Property prices appreciate regularly and so if you ever need to sell your property, you are quite guaranteed of making a profit.
8. Investing in businesses –
Many small businesses look out for private investors who can support them with financial investments. If you have the kind of money they need nu are willing to take a risk, you can consider using a small business as an effective investment instrument. You can get the stocks of the company or you can agree to a profit-sharing arrangement. In either case, you can stand to earn huge profits against your investment, provided the business does well. You need to assess the business model and see the potential of the firm before you put in your hard-earned money into it.
These are some of the best investment instruments available to you. Choose the option that appeals to you the most and get the best returns out of your investments.
Insurance is often mistaken as a financial instrument. However, insurance is a very important product which needs to be taken but for the purpose of protection only and not as an investment.
What is your risk profile?
You may have heard the term “risk” quite often when you discuss your financial matters with others. But what exactly is risk and how does it affect your investments? Well, there is a very strong correlation between risk and investments. Most of the financial instruments used for investments carry certain degrees of risk. Simultaneously, every investor has a risk profile of his own. A risk profile is the amount of risk an individual investor is willing to take.
The risk profile of a person majorly depends on the three following factors:
1. Willingness to take a risk – Risk Tolerance. This is a psychological factor.
The first and the most important factor associated with risk-taking is the willingness to do so. You cannot possibly have a high risk-appetite if you are not willing to take a risk with your investments. Many people are conservative investors who do not like taking any kind of risk with the investments they make with their hard-earned money.
On the other hand, some investors believe in taking risks as they feel the more risks they take, the higher their chances get of making greater profits. This is a personal trait and differs from person to person. There is no fixed level or degree against which the risk-taking willingness of an investor can be measured.
2. Ability to take a risk – Risk Capacity. This is a financial factor.
The other factor that plays an important role here is the investor’s ability to take a risk when choosing the financial instruments. Not everyone is financially stable enough to risk all their money. If an investor has limited resources and banks heavily on the returns for his financial requirements, he cannot possibly afford to take a huge risk. In that case, he will have to settle for low-risk investment instruments. This is a factor that needs to be calculated before any investment is made. If in a worst-case-scenario, the investor loses his entire corpus, how would he cope with the situation? Once an answer is found to this question, the risk-taking ability can be clearly understood.
3. Need to take risk – Risk Requirement. This is also a financial factor.
You may not want to take too much of risk but in order to fulfill your financial goals, you might be required to do so. This is a pure financial planning oriented informed decision.
While the risk-taking willingness, as well as the risk-taking ability, need to be kept in mind, as an investor you have to take a few risks when investing your money. You surely do not invest for fun, do you? All your investments are done keeping your financial goals in mind. You need your wealth to grow so that you can have enough funds to meet your life-goals. So to achieve these, you need to take risks. If you invest all your money in fixed deposits, you will earn a much lower yield, as compared to the yield you can earn when you invest in stocks and equities. Of course, the risk will be lower in a fixed deposit, but will the investment be really fruitful for you? This is where the concept of risk requirement proves to be crucial and extremely important for serious investors who look to build up their wealth.
The risk profile of an investor is thus very crucial and determines the kind of returns he earns from his investments.
The key is to find a balance between the types of investment instruments. Rather than fixing all your money in a single financial instrument, spread it out and have a diverse portfolio. You should have a balance between the risky investments and the safe investments. This will help you to earn steady returns, irrespective of the market conditions.
Choosing the right financial instruments to invest based on your life stage and risk appetite:
Keeping all the points mentioned above in mind, you can understand the importance of choosing the best financial instrument to invest your hard-earned money. But how exactly does one choose the right and most suitable investment option? Here are some pointers:
Step#1: List down your financial goals
The financial goals determine your need to invest. Every individual has separate financial goals related to their life-situations. You need to first understand why you are investing. Are you investing to meet a short-term goal like clearing your outstanding student loan? Or are you investing to create a retirement fund? The choice of financial instruments will greatly depend on this as you need to find instruments that will drive in returns at a pace that suits you.
Step#2: Make a true analysis of your risk profile
You need to be completely honest when assessing your own risk-profile. As mentioned above, the risk profile consists of two components – willingness and ability. Analyse both these factors about yourself and see just how much risk you can take with your investments. This is another way in which you can find the most suitable financial instrument to invest in.
Step#3: Factor in your age and dependents and financial liability
A young person has fewer financial responsibilities and has a higher disposable income. An older person may have a family to support, loans to clear off and an upcoming retirement to save for. This is why the investment patterns of people change as they age. A young person can definitely take higher risks with his money. However, he may not have a corpus as high as an older person who has been working for decades. Age is a crucial factor and your investments will majorly depend on your age. Choose an investment option that matches your age and life situation as this will bring in the best yields for you. Then you need to factor in your dependents and your existing financial liability.
Step#4: Understand the financial instrument
Each instrument has some pros and cons. You need to know the investment objective, the time horizon and then make an informed decision.
An extremely vital tip for you is to understand the financial instrument before investing. You cannot make the proper and correct choice unless you understand how the different financial instruments work. You should never follow someone’s footsteps and invest in a particular instrument unless you know how it works. For instance, if your brother makes money by investing in mutual funds, the same model may not work for you. You cannot invest your money in a mutual fund and expect to get the same returns unless you know what the procedure to earn the best returns are.
Step#5: Take the help of an expert
If you are in any doubt regarding the various financial instruments, you should take the help of a financial expert. an expert can guide you and help you to make the correct choices. Discuss your financial goals, risk profile and financial health with the expert and he will make the best plan for your investments.
Once you take care of the above-stated pointers, you will be assured of finding the most suitable financial instrument to invest in.
In a nutshell
The financial world is vast and as an investor, you find many good options to invest your money in. However, in the financial world, there is no instrument that offers the one-size-fits-all benefit. Every investor is different and has a different risk profile and financial capability. This is why you need to understand your own profile and capacities and choose the best investment instruments for yourself. Keep all the tips and guidelines mentioned above and choose your options very carefully, always try to maintain a mix and have a diverse portfolio. Along with this, keep your eyes firmly on your financial life goals and you will surely find the best instrument to invest your hard-earned money in.
A personal finance advisor is a trained expert who guides you with your investments and financial planning. A financial advisor may simply offer you his advice or he may plan your investments for you. You need to hire a manager after assessing your requirements and understanding how the manager can be of help to you. Take a look at this article to know what a personal finance manager does and the different ways in which he can help you.
Personal finance advisors are trained and experienced professionals who offer customised financial guidance to their clients. A personal finance advisor understands your financial goals and allows you to make investments that would help you achieve those goals.
Here is a lowdown on the exact profile of a personal finance advisor:
1. Advisors are experienced in personal finance
The biggest attribute of a financial adviser is that he is experienced. With experience, one can understand how the markets work, how investments yield returns and what makes your wealth grow. A personal financial manager, with the help of his vast experience, can guide you properly and tell you exactly what you need to do with your finances. You may have some bookish knowledge yourself, but without experience, you cannot tread safely. This is why hiring a manager helps you.
2. Highly trained
The personal financial advisers are highly trained individuals who have the best degrees from the best institutes around the world. This makes a manager very skilled in his work as he understands the basics of financial management in a wholesome manner.
A personal finance adviser is a highly-helpful resource that you must consider getting when you need help with financial planning and investments.
What do personal finance managers do?
A wealth manager’s primary duty is to ensure your wealth grows, while you meet all your financial goals. A personal financial manager helps you to streamline your expenses and encourages you to save and then helps you to invest the saved money. Take a detailed look at the main responsibilities of a financial manager:
A. Analyzing your financial condition
The first and foremost job that the adviser undertakes is that of analyzing your current financial situation. It is the adviser’s job to assess the situation, understand the concerns, make a plan and then offer his advice to the client. This is why you need a personal finance adviser who can work with you on a one-on-one basis and help you sort out your monetary challenges.
B. To help you make your cash flow analysis
The next, and one of the most important duties of a personal finance adviser is to make a tailor-made cash flow analysis for you. The plan must primarily include your income, expenses and savings. The plan must be designed in such a way that you know how much to spend and how much to save. This is crucial, as only when you save can you start investing.
C. Help you choose your investments
Perhaps the most important role of your financial adviser is to help you choose your investments. Many people do not properly understand the basics and scopes of the various investment tools such as fixed deposits, mutual funds, etc. Everyone needs to invest as it is only through investments that one can accumulate greater funds, save tax, plan for the future and achieve their financial goals. A good personal finance adviser understands your finances and your risk-taking capacities and then tells you exactly where you need to invest to get the best results.
D. Plan your taxes
The very mention of the word ‘tax’ causes fear and confusion in the minds of many people! Tax is a severely challenging topic and though you may think you know all about it, you may actually just be aware of the tip of the iceberg. Tax management and payment need to be done with complete precision. You should also look for ways in which you can save tax in a legal and effective manner. But do you know how to go about it? If not, your personal finance adviser will help you out, as tax planning constitutes one of his main duties.
E. Debt management
Debt management is crucial. Most people these days have various loans such as home loans, personal loans, car loans, etc that they struggle to pay off. On top of this, the outstanding credit card bills also add further pressure. A personal finance adviser can guide you properly and help you to manage your debt in the most effective way.
F. Retirement planning
You have to plan ahead and build you a good corpus for your post-retirement years. This needs a lot of planning and precision. Your financial advise helps you to make a productive plan through which you can save more for the years to come.
G. Legacy planning
Death is the greatest eventuality of life and we all must prepare for you. You would not want your family members getting into disputes over your wealth after you are gone, so you need to ensure your legacy planning happens and everyone knows about your plans. Your financial adviser can help you make a will and distribute your wealth in a way that you find suitable.
A personal finance adviser, therefore, assists you in making the correct financial decisions. You can do it all by yourself, but you may not know the right mechanisms and tools. Your financial adviser puts you on the right path and
Who needs a personal finance manager?
Anyone who looks out for a better lifestyle within the financial resources they have needs a personal finance manager. The manager tells you how to use the money you have to make it grow while you take care of your financial responsibilities. You may need a wealth manager when:
1. Just starting out
Young executives who are just starting their careers could benefit from hiring a financial adviser. If you are at such a point in your life, you need to get a wealth manager to help you understand the financial dealings. He can also tell you all about the investment opportunities and guide you in your debt management. Implement the ideas and see an upward growth in your wealth as you progress in your career.
2. At an important juncture of life
You may also require the services of a personal finance adviser if you are at an important juncture of life such as your marriage or parenthood. At such a time, the advice of a wealth manager proves to be absolutely priceless. You may be confused about how to manage your finances. The personal finance adviser will guide you and make the best possible financial plan for you to follow.
3. Starting a new line of work
If you are starting a new career, you will need to hire a wealth manager. The manager will ensure you get the most out of your income, no matter how little or reduced it is. He will also guide you about the new tax norms, the investment options, etc.
4. About to retire
If you are about to retire, or you have already retired, you should speak to a personal finance adviser and understand how you can plan your finances from here on. There are bound to be many changes to your earning patterns and so you need a fresh and effective financial plan. The wealth manager can help you to make sound investments and also guide in other areas such as tax payments.
Remember here that a personal financial manager may charge you a few thousand rupees or several lac of rupees. You need to find someone whom you can afford. Do not go beyond your means as that will put undue financial stress upon you.
Why you should take help of personal finance managers to plan your finances?
A financial adviser offers an impartial, third-party analysis. You may have a good financial knowledge and your investments may be sound, but you would still not be able to make the best out of your financial plan unless you put in all your time into it. With your job, your familial responsibilities and your leisure time activities, you may find it difficult to devote all your time to just planning your finances. This is the main reason why you need a wealth manager.
Then, if you are not confident enough about financial planning, you most definitely should take the help of a wealth manager. Do not trust the internet to give you advice, especially on such a crucial topic. You cannot possibly risk your wealth dwindling because of improper investments that were made without proper assessment. Take the help of a personal finance adviser and manage your money in the best possible manner.
And finally, if you want to secure your future, you should take the help of a financial adviser. You may be a single person in your thirties now but in a few years, you may be a family man who is about to retire. You need to think about the future and ensure you have an economically carpeted existence at all times. You as well as your loved ones should never have to face any financial troubles, and this can only be achieved if you plan your finances well. Take the help of a personal finance adviser and the job will become a lot easier for you.
When is it time to hire a financial adviser?
You need to hire a personal finance manager when you feel a bit lost and think you need a road-map to get back into the game. A wealth manager can, at such a time, help you get back on track by showing you the correct financial route to be on.
Types of personal finance advisers in India
If you are convinced that you need a wealth manager, you should look to get someone who would be of great use to you. Did you know that there are different types of personal financial advisers in India? They include:
Distributors – Distributors, such as the mutual fund agents, can act as wonderful financial managers. They can correctly advise you on the type of mutual fund to invest in, after understanding your financial standing.
Bancassurance managers – The bancassurance relationship managers can also function as excellent personal financial advisers. They can guide you on how you can choose correct insurance cum investment tools and put you on the proper financial path.
Insurance agents – Apart from your investments such as mutual funds and equities, the life insurance plans also form an important part of your portfolio. You need to have the correct plans that offer an investment opportunity while covering your life. A good life insurance agent can guide you here and help you to select the best option.
Brokers – A wealth manager who manages your investment portfolio and earns a brokerage from the AUM (assets under management) can be a very good personal financial adviser. However, you need to select your broker very carefully as you will plan your entire investment based on what he tells you.
Paid RIA – An RIA, or a registered investment adviser, is a paid wealth manager whose primary and only job is to offer advice on investments. RIAs are very accurate financial advisers who many people hire. They work in exchange for a fee.
What is Robo-advisory?
Robo-advisory is a type of digital financial advice. It is delivered to the client via a mobile application or through a web portal. It involves very little human intervention. The advice is generally based on formula and mathematical calculations and so is considered to be precise and reliable.
The final word
A personal finance adviser is a person who guides on how to stay financially secure and make your money grow. They alert you about the dangers of incorrect investments and inform you about the correct channels through which your wealth can grow. Whether you are a youngster just starting out with investments and financial planning or you are an industry veteran with many years of experience under your belt, you can always benefit by hiring a personal finance manager. Choose your manager wisely and work with him closely to ensure you get the best value out of the partnership.
In simple words, debt means owing money from one party to another. The other party can be lender or creditor and usually, debt is the money that you need to re-pay to someone. Generally, the majority of debt consists of interest which means the borrower will have to pay more than what he borrowed from the lender. Mostly, interest is the cost which is paid by the borrower for borrowing money and interest is mostly charged as a rate on the borrowed amount.
However, borrowing is good, it helps you build a credit report which might come handy at a later point of time.
Should you borrow money?
It is an old school saying that you should avoid borrowing money. Borrowing money can put you into further financial troubles and will let you pay more than what you would have paid if you would have waited. As said earlier, a lender will charge interest on the amount he has given you as a loan. In case there is no interest payment involved, then there would be stress involved. Many times, the situation is so critical that you keep on paying the interest and are not even able to initiate the repayment of the principal amount. When there is uncontrolled access to the money borrowed, it would have a very negative impact on your life and lead to difficulties to manage debt.
However, as there are two sides to a coin; similarly, borrowing can be advantageous in cases like borrowing money and using the money for making investments. If you are availing a business loan and using that money for making investments then it is considerable. Investing by borrowing should only be exercised in those cases where the returns are higher than the loan and the risk involved is less. So, borrowing money should only be done in those cases where you expect to make more money by utilizing the borrowed money.
Good debt versus Bad debt
Good debt is those which can be considered as a productive investment in the earning power of a person in the future. The debt which is used to finance something that is going to increase its value in the future or will generate some long-term benefit is known as good debt. In simple terms, when debt increases your net worth or has some future value it is known as good debt. Also, good debts are considered as low-interest debts.
Education loans or student loans, Home loans, etc. are some of the most common examples of good debt. These loans or debts are otherwise known as good debts due to two main reasons.
Good Loans have a tax advantage
Tax Advantage on Home Loans
Terms and conditions for the deduction
INR 1.5 lakhs
The property should be in possession for a minimum of 5 years to claim this benefit.
INR 2 lakhs
The Home Loan must be availed for the purpose of buying a new home or reconstruction of an old one and the same needs to be completed within a period of 5 years.
For Home Loans of less than INR 35 lakhs such that the price of the property is less than INR 50 lakhs.
This amount can be claimed only in that FY wherein the expenses have been made.
The stamp value of the house needs to be less than INR 45 lakhs.
Tax Advantage on Education Loans
Parents are eligible to get a tax benefit on education loans for the purpose of higher education for their children. The principal repayment has no tax benefit. However, the interest portion can be considered tax free U/S 80E as Education Loan for an entire tenure of 8 years from the date the loan was availed.
In case of a home loan, student loan; you are investing in something which will increase its value in the future or will give you long-term benefits like your child’s education. A home loan gives you your own home which will increase its value in future and has long-term benefits; student loan will help you in obtaining the college degree which will become your reason for income in future.
Similarly, these loans are large amounts and you will take a long time to re-pay back the loan. By making the EMI payment or installment payment every month, you are confirming your ability to repay the loan. This shows your creditworthiness and gives you a good credit score.
Bad refers to those items which tend to provide gratification instantly and do not offer any long-term or financial return. These debts will drag down your financial health and also have high-interest rates. When you are financing discretionary expenses that will lose their value over the period of time, you are acquiring bad debts.
Personal loans, credit cards, cash advance loans, etc. are some of the common examples of bad debts which can be a reason for financial stress in your life. Credit cards can be considered to be the worst among the categories of bad debts.
A credit card is mostly never used to purchase any appreciating assets. It is mostly used for purchases such as clothes, accessories, gadgets, home furnishings, etc. These commodities do not offer any long-term benefits and their value decreases with time.
Credit cards have very high-interest rates and the more expenses you keep on putting on your credit card, the interest goes on increasing. Debts like home loans and education loans have a nominal interest rate and are comparatively easy to payback.
Moreover, the minimum payment for credit cards is very less and it will take many years till you clear off the entire outstanding dues. But you will have to pay the interest for those many years which are a pain in disguise and will hamper your financial health.
If you have a credit card, then it is inevitable that you use your card wisely and make your outstanding due payment diligently on-time. It is a very effective tool but it needs to be used carefully. Moreover, you should use your credit card for purposes like availing the benefits and redeeming the reward points.
Similarly, personal loans are also considered as bad debts under certain scenarios like opting for a personal loan to make discretionary purchases like a vacation, exotic wedding, etc. These loans have a higher rate of interest and this spendthrift habit can affect your financial health adversely and you would face difficulties to manage debts. However, sometimes personal loans can be taken for certain specific goals like improvements to be made in the home, manage debt by consolidating and paying back all previous debts in one round.
Cash advance loans can also help in solving your financial emergency instantly but they are considered to be bad debts in the long run as they have a very high-interest rate. This high-interest rate will affect your ability to make prompt monthly payments and will lower your credit score eventually. You can get trapped in a debt cycle and then it would be a difficult task to manage debts judiciously.
Why to repay your debt quickly?
One of the feasible and effective methods to manage debts is to make sincere efforts for the repayment of your debts quickly. It is necessary to repay your debts in time as it prevents you from getting into a debt trap which is a vicious circle.
No more paying interest on debts
By paying your debts quickly and on time, you are going to get rid of the interest that you have been paying along with the debt. Usually, in debt repayment, the interest forms the larger portion than that of the principal amount. So, this payment of interest will stop if you manage debts properly and repay them fast.
Reduce the adverse impact on your credit score
If you keep on delaying the repayment of debts, it can have an adverse impact on your credit score. For instance, if you are not making your credit card outstanding dues payment on time and delaying it, then it would affect your credit score.
Get rid of financial stress
Debts are a reason for financial, mental stress and can even become the cause of health issues. It is wiser to get off this stress and problem as soon as possible by making the repayments quickly.
Steps to repay your debt quickly
Let us check out some of the simple methods by which repayment of debts can be made quickly.
Step 1: Automate payments
This is an efficient method by which you can pay off your debts on time without any delay. You can set up standing instructions with your bank account and your recurring bills, debts can be paid automatically according to your selected frequency.By setting up automated payment, you are saving a lot of time. You will not have to visit various websites and check the payment due date and make the payments. The payments will be done automatically without any wastage of time.
If you are setting up an automated payment system, then they will occur on a scheduled basis and your bill payment deadline would never be missed. As a result, you will avoid paying late fees for missing payment deadlines.
When you are signing up for automated payment, you have the liberty to choose the date when the payee would withdraw money from your account. So, you can schedule the date according to your convenience such as a date after which you have received your salary and your account has sufficient money.
When you are paying your bills regularly without any delay by using the automated system, your credit score would be improved. Even if your credit score has had some negative marks due to the debts, your consistent bill payments will improve your score.
Moreover, this method of automated billing helps you in avoiding paper bills and sending bills via mails. So, this is an environmentally friendly approach to manage debts.
Step 2: Pay off the debt with the highest interest rate
Many people prefer making payment of those debts first which have low-interest rates i.e. the debt snowball method, however, it is wiser to follow the debt avalanche method and pay off those debts which have a higher interest rate. This will help in saving both time and money. When the debt payment of one credit card has been completed, you can use it to roll the payment into the next debt payment.
Step 3: Pay as much as you are able to
If you are making any savings that are of considerable amount, you can use the money for creating an emergency fund. After that, your next priority should be to pay as much as you can afford for clearing your debts. The more you are paying; the process to manage debts and get rid of debts would be faster.
Step 4: Cut off your expenses
You can downsize your lifestyle and cut down your expenses to save some money. The savings can be used to manage debts and pay off your debts quickly. You can differentiate between your necessities and wants; then prioritize your necessities. Certain wants like holidays, shopping, dining out, etc. can be avoided for a certain period until you re-pay and manage debts. You can start doing this by making a monthly budget, committing to that budget and tracking your monthly expenses.
Step 5: Pay more than the minimum amount to be paid
You might be having any type of debt; the best method to manage debts is by always paying more than the minimum amount which needs to be paid. By doing this, you would be able to pay off all your debts faster and would also not be under the stress of paying unnecessary interest on the debts.
Step 6: Earn some extra money
When you are in a difficult situation due to debts and want to manage debts, the best way out is to increase your income. Along with your profession, everyone has some skills or areas of interest and that can be used as an additional source of income. You can find out any part-time or additional work according to your interest and start doing that for obtaining some extra income. This extra income can be used to pay off your debts and manage debts.
Step 7: Stop the use of credit cards
If you really want to manage debts and pay-off all debts faster, then the best way for this is to stop the use of credit cards completely. The more you use the card, the more balance goes on adding up and the debt keeps on increasing. This is a vicious circle and a trap that can be avoided by immediately stopping the use of all credit cards. The use of credit cards might be your habit but you can motivate yourself to stop using a credit card. By this, your debts do not go on increasing and finally, you are able to clear all debts and manage debts.
Step 8: Debt Consolidation
Debt consolidation is an easy method for paying off debts faster. You can roll up multiple debts into one and make the payments by consolidating the debts. A good credit score will help the bank to give permission for debt consolidation.
Step 9: Lower interest rates on credit cards
You can even try and negotiate about the interest rate of your credit cards. You can contact the credit card provider and negotiate about the credit card interest rates. If you have been a consistent payer of your bills and debts, then you can easily negotiate with your credit card provider to lower your interest rates. By doing this, your debts are going to reduce and you will be able to manage debts.
Step 10: Use bonus to repay your bad debt
Every person comes across some “found money” like an annual increment at work, bonus at work or inheritance. You can use that extra money for paying off your debts easily. If your “found money” is a big amount you can use it to pay off your big debts easily and then smaller debts can be paid off gradually.
Step 11: Leave expensive habits
When you have huge debts and you are not able to pay off in a fast manner, it is necessary for you to change your habits. If you have some expensive habits like partying with friends frequently, drinking, smoking, etc. then these habits can be dropped off. It is not so easy to give up all your habits instantly, but the frequency can be reduced and gradually efforts can be made to leave the habits. This will save your money and would be advantageous from a health perspective as well.
Hence, there are times when debts seem like a trap and there seems to be no way out of it. However, in such a situation it is essential to face reality and make perfect plans or strategies to come out of this trap. Sincere efforts and judicious use of the money you earn can help you in paying off your debts faster and thus, coming out of this trap sooner. Remember, the faster you get rid of your debts the faster you can live the life of your choice.
Group health insurance plans are offered by employers to their employees as an employment benefit. As an employer, it is your duty to offer this coverage to all your employees. There are many advantages you get when you offer group health insurance. What exactly are these why should you offer group insurance? Read on to know more.
Understanding Group Health Insurance
Let us begin by understanding what a group health insurance coverage is. As the name suggests, a group health plan is a type of health insurance that is offered to a group, which in most cases, is a group of employees. The employer buys the cover and jointly offers the mediclaim benefits to all the employees. The employees get health insurance as an employment benefit. In most cases, the immediate family members of the employees, including their spouses, children and parents, are also covered under the plan. The employees receive the cover as soon as they begin their work contract with the employer. The coverage stays valid for as long as they remain employed. If the employment ceases due to termination, retirement or resignation, the group health insurance coverage coves to an end as well.
Group health insurance offers an indemnity cover as well as a personal accident cover. An indemnity cover offers protection against all regular medical needs such as in-patient care, OPD covers, domiciliary care, pre and post-hospital care, diagnostic checks, daycare expenses and so on. A personal accident cover offers protection when you have an accident. If there is a permanent or temporary disability due to the accident, special compensation is given. The nominees of the policyholder are also compensated if the policyholder dies in an accident.
A group plan is available to a group that is already in force. This means a new group cannot be formed just to get the benefits of a group health insurance cover. If you are a new company buying a group plan, the coverage will only act as an employment benefit, it will not be the reason your company is formed.
The group health insurance cover is not as expensive as an individual health insurance cover. This is because the risk is spread out over a large number of people. The insurance company understands and acknowledges the fact that not every member of the workforce will make large claims. While some will do so, others will make smaller claims and yet another set will hardly even make a claim. This is why the risk is balanced and the health insurance cover is offered at a lower price.
Differences between an individual health cover and a group health cover
How is a group health cover different from an individual health cover? Let us find out:
Getting the cover – In an individual health insurance policy, the proposer gets to choose and buy the plan for himself. In the case of a group cover, the company buys the plan and the policyholder, who is the employee, has to accept the cover he is offered.
Sum insured – In an individual health insurance policy, the proposer can select a sum insured that is suitable for him. There isn’t any particular limit on this. However, in the case of a group cover, the sum insured is limited.
Premium – The premium has to be paid by the policyholder in an individual cover. The premium is high and depends on the scope of the cover. In a group health insurance cover, the insured doesn’t have to pay the premium as the cover is bought and maintained by the employer.
Flexibility – The individual health plans can be customized in any way the policyholder wishes. They are very flexible in this regard. A group health insurance policy cannot be customized. The employees have to use the cover that is given to them by the employer.
Policy period – The individual health plans can be renewed for as long as the policyholder lives. The plans simply need to be renewed on time for the coverage to be continuous. A group health cover is valid for as long as a person remains employed. If he quits the job, gets fired, or retires, he will lose his group health insurance coverage.
Pre-policy screening – For most of the individual health plans, the proposer will be asked to get a pre-policy health check-up done. However, for group health covers, pre-policy health tests are not required.
What is included in a group health insurance plan?
Now that we know more about the group health plans, let us find out what such a cover includes:
In-patient care – The employee and his dependent family members will receive compensation for in-patient expenses resulting from an illness, a surgery or an accident.
Pre and post-hospitalization covers – At times, pre or post-hospitalisation care is needed for certain medical conditions. Such expenses are normally covered under a group health plan.
Domiciliary care – Most group plans cover home health care expenses, also known as domiciliary care expenses.
OPD expenses – An insured person can get his OPD bills reimbursed under the group health coverage.
Daycare expenses – More than 150 daycare procedures are included in most of the top-rated group health insurance policies.
Alternative medical care – Certain alternative treatments, such as Ayush and homoeopathy are included in selected group health plans. Do note that not every group plan covers alternative medicine, so read the policy wordings carefully before you file a claim.
Dental care – Dental expenses are also covered in some plans, but not in all plans so be aware of the inclusions when you get the cover.
What are the exclusions of a group health plan?
Here is a list of the common exclusions:
Injuries related to attempted suicide/self-harm
Any complication related to HIV AIDS
Cosmetic treatments or surgeries
Why an employer should offer group health insurance
As a business owner, it is highly advisable for you to offer a group health insurance coverage to all your employees. There are some benefits that you get when you do so. Here are some logical reasons why you should offer group insurance:
The employees, without a single doubt, form the backbone of an organisation. You cannot function unless you have the best people working for you. As a result, you always look to recruit the best candidates. But these candidates are much sought after and you need to ensure they choose to work for you. To do this, you simply need to make the workplace ambience positive and along with that, offer all the employee benefits you can. A very handy employee benefit is health coverage. If your best employees get the best benefits they won’t even consider quitting and would happily report to work every day. One of the biggest reasons for a change of job is always the perks. If an employee is offered a similar salary at another company but has more perks to get, he may consider switching jobs. So to retain talent, you need to offer important employee benefits such as the group health insurance covers.
To make the employees feel secure
A worker who receives a strong employee benefit like health insurance feels secure in his job. He realises that he is of value to his employer. This makes him more loyal to his company and also increases his productivity. A workforce that puts in its best efforts helps to increase the profits of the business in the long run and this benefits the employer directly.
For the overall wellness of the organisation
When employees fall ill regularly, they stay home and miss out on completing their work commitments. Many a time, your employees may not even seek treatment because they lack a health insurance cover and paying the medical bills out of their pocket is a huge liability. At such times, the presence of a group health insurance coverage works as a blessing. The employees seek timely medical attention and recover sooner. This enables them to get back to work at a quicker pace and that works positively for the wellness of the organisation.
To avail a tax benefit
The employees who receive a group health cover as an employment benefit do not pay the premium. As an employer, you pay the premium. This payment can be shown as a business expense and you can claim a tax benefit on it. As an employer, this is a big advantage you get when you provide a group health insurance policy.
The above-mentioned points clearly show just how beneficial the group health insurance plans are for employers. If you haven’t started offering the cover to your employees, do so without any further delay.
Handy tips related to group health insurance
Many times, a small business owner stays away from offering group health insurance because he feels the costs would be too high. However, as we saw in the points mentioned above, offering this benefit can be of great advantage to you as well. You just need to pick the right cover and stick to your budget. Here are some more tips for you to remember:
Designate someone for the job – Rather than doing everything on your own, designate someone for the job. The person you hire should be able to understand the clauses of the health cover. He or she should be able to make correct calculations and get a plan that is comprehensive as well as economical.
Offer the cover to everyone – Offer the health cover to everyone, including your part-time employees. This will create a sense of loyalty and well-being among your workforce and you will see an improvement in the performance.
Explain the clauses to the employees – A new employee should have a proper understanding of the health insurance cover he or she is entitled to. Explain the clauses of the health cover to your workers clearly. This will prevent future disputes and disagreements from taking place.
Keep these tips in mind you will find it easier to manage the group health insurance policy.
Benefits received by the employees
A group health plan offers many benefits to the employer, but it offers some handy benefits to the employees as well:
Affordable health insurance – An individual health plan is not affordable for everyone. This is especially true for those who work in low-wage jobs. The availability of health insurance as an employment benefit thus proves to be extremely beneficial.
Coverage for the entire family – Not just the employees, their dependent family members also get a health insurance cover. This is another benefit as many people struggle to get health insurance for their loved ones.
Coverage from day 1 – In practically every single individual health insurance plan, waiting periods are associated with certain health conditions. For example, if you have diabetes, you have to wait for about three years before you can make any claim for an ailment related to diabetes. Waiting periods are also associated with other health areas including maternity and childbirth. But when you get covered under a group mediclaim cover, you do not have to worry about the waiting period, as there is no such clause here.
This is quite a comprehensive set of advantages that the employees get out of their group health cover.
Pros and Cons of a Group Health Plan
Let us quickly glance over the pros and cons of a group cover:
No waiting period
Maternity and newborn covers available
Affordable health insurance
Health insurance for dependents as well
The cover cannot be customized
The coverage is lost as soon as the employment ends
The premium can go up if there are too many claims and this can become a liability for the employer
The group health policy can be cancelled altogether if there are too many claims in a year
Keep the list of pros and cons in mind when you offer group health insurance to your workers.
Risks involved in group health insurance
While a group health insurance policy is beneficial for both the employee and the employer, there are some risks involved:
Fraudulent usage by employees – It is often seen that employees unfairly use their health insurance coverage to pay for the medical expenses of people not related to them. This is unfortunate and can cause many issues for the employer.
Gets too expensive for small businesses – A small business may not find it affordable to offer this benefit to its employees. It is, therefore, advisable for you to compare various options and then settle for the plan that is the most economical option for you.
Coverage may be insufficient – In most cases, the coverage offered to all employees is uniform. An employee cannot modify the group health cover to suit his needs, He may feel the cover is insufficient and may become unhappy with it. Make sure you negotiate with the insurance provider when buying the plan and include as many health covers as possible, albeit within your budget.
These are some of the unfortunate risks you may come across when you offer group health insurance to your employees. Be mindful of these and try to work your way around them.
The final word
Keep all the points mentioned above in mind and you will not regret your decision of offering a group health insurance coverage to your employees. Health insurance is a big requirement and when your employees get it from you, they become happier in their jobs and that works out well for your business.