Tag Archives: Mutual Funds Distributor

Who is Right?

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Dear Friends,

                            Navratri wishes to all of you!

In this titbit, I am presenting a real-life case of Life Insurance and leave it open to you for response as who is right!

Mr. Mayur, aged 32, IT professional lives in a newly purchased property along with his wife Shilpa, homemaker and 1-year old daughter Niveda. Mayur has taken a home loan of Rs. 90,00,000/- to be paid over 20 years resulting in a monthly EMI of 84,000/-. He does not have any other assets and both Mayur and Shilpa will not be beneficiaries of any inheritance.

One of Mayur’s colleagues, who knows his background, suggests that Mayur should meet a professional investment advisor and seek his help to plan his finances. In the initial meeting with the advisor (Manish), which was brief and more like an icebreaker session, Manish suggests that Mayur needs to buy a life cover as any contingency to his life will be a huge burden on his family. Based on the evaluation of Mayur’s human life value (HLV) by both Income Replacement and Expenses & Liability approach, Manish determines that Mayur would need a cover of atleast 2 Crores. Manish recommends Mayur to buy a 1 Crore term cover from 2 Life Insurers totalling 2 Crores of Sum Assured (SA). The total premium for 2 Crores sum assured would cost approx. Rs. 20,000/- per year

Mayur feels happy that this insurer is going the extra mile to service him.  The representative from Insurance company 2, meets Mayur and asks him the background of the Insurance requirement. Once he understands the requirement, he makes a different pitch to Mayur. Mayur has anyway bought a 1 Crore term insurance which will not provide him anything in return and the entire money paid to the insurer will go waste. Instead he proposes a ULIP cover with a premium or Rs. 12,000/- per annum that will provide a small SA of 1 Lakhs or the value of the investment, whichever is higher.

He convinces Mayur by showing him different scenarios of the return potential of the ULIP, with 100% equity investment. The Equity market soared that year and the ULIP bought by Mayur attained a value of 16,000/- for an initial investment of 12,000/- Mayur continues to pay for both the Term Cover and ULIP and at the end of 5 years finds the value of his ULIP to be about 1.25 Lakhs while the 10,000/- premium that he pays for the Term Cover has gone down the drain leaving him confused and thinking whether the decision of taking a Term Cover was right.

< PenguWIN TITBIT # 102 – Who is Right?>

HDFC Charity Mutual Fund for Cancer Cure

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Dear Friends,

                      HDFC Mutual Fund has come up with a unique scheme to support needy and underprivileged Cancer Patients by donating the money to Indian Cancer Society (ICS) or other eligible institutions. A total of 3168 patients from 28 states have been benefited through this scheme. A Governing Advisory Council (GAC) meets every fortnight to identify the genuine cases for financial aid

This scheme which is open for investment until 24 Mar 2017 is the 3rd in the series of funds collected by HDFC MF for Cancer Treatment, the earlier 2 being 2011 and 2014. This is closed ended fund for a period of 1136 days and premature exits will not be possible. Typically, when 1 fund house launches a product, its copied by all other fund houses. However, HDFC MF is the only fund house that runs a fund for charity purpose, since 2011. The Scheme offers 2 types of funds for the investors,

HDFC Charity Fund for Cancer Cure

Debt – Income generated through debt/money market instruments and Government Securities

Arbitrage – Income generated through arbitrage opportunities between cash and derivative markets

The minimum investment is 50,000/- and multiples of 1,000/- thereafter.

Now comes the interesting feature of the fund.

The funds collected by HDFC in both the Debt and Arbitrage schemes will be deployed to generate income. The Scheme has only dividend pay-out option and dividends are paid every 6 months, subject to availability of distributable surplus. 

The Investors have 2 options:

50% Dividend Donation Option – Under this Option, Investors can donate 50% of the dividend amount, they earn and the rest shall be paid to them.

100% Dividend Donation OptionUnder this Option, Investors can donate 100% of the dividend amount.

In addition to this, the dividends donated by the investors is eligible for Income Tax deduction as per Sec 80G.  To claim this as a part of IT filing, a certificate with PAN of the investor will be provided.

HDFC MF will not charge any fund management expenses for this scheme and also match the contribution of Investors donation through dividends

At the end of 1136 days the scheme will be closed and the principal will be returned back to the investor.

Dividends paid by debt funds are taxed at 28.4% (Dividend Distribution Tax, DDT) while Arbitrage fund enjoys equity status and hence Tax Free. So, even if is we get a lesser return through Arbitrage, the taxation will make a difference making Arbitrage fund attractive over debt

Most of our clients know that we do not recommend a product that we will not buy and preach only what we practice. So, our contribution is definitely there for this fund.  

<Blog # PenguWIN 1051 – HDFC Charity Mutual Fund for Cancer Cure>

Business Ethics of Insurers

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Hello Friends,

           Last weekend (Feb 25/26) I watched a movie called “Rainmaker” directed by Francis Ford Coppola, rated as one of the best directors and has movies like Godfather to his credit. The movie is based on a book written by John Grisham, Lawyer and acclaimed writer of legal thrillers.

Matt Damon, plays the role of an Attorney, very enthusiastic and fresh out of college. He signs up the case of a poor family with their son, about 20 years old, suffering from Leukemia, which can be treated through bone marrow transplant. But their Insurance Company rejects the claim multiple times (saying treatment is very high and chances of survival is low) and Matt files a lawsuit against the Insurance Company. The insurance company is ruthless and as a protocol rejects every claim, atleast the first time, without going into merits of the case (their operational manual say “reject” the claim). The diseased victim dies during the trial, as the time frame to start the surgery got delayed. The parents of the victim pledge the entire money to social cause, if they get the verdict in their favour, as their son is dead and don’t intend to use that money for themselves.

Finally, the Jury gives the verdict in favour of the victim and his poor family and asks the Insurance Company to pay a huge amount as punitive damages, resulting in the Insurance Company going bankrupt. 

Before you start thinking that why PenguWIN has shifted lanes from writing about “Financial Topics” to “Movie Reviews”, let me assure that this is a personal finance blog and I am not a movie buff to demonstrate my competency in Reviewing Movies!

On the 2nd March (Last Thursday), I read an article on consumer protection by Jehangir in Business Standard. When I read the article, I was really shocked. It relates to a life insurance claim of a person for a Sum Assured of 2 Lakhs, who was hospitalised in Amritsar and died. The Insurance Company repudiated the claim made by the victim’s wife on grounds that the victim was suffering from chronic liver disease for 18 months and the same was not revealed when the insurance policy was taken. I don’t want to name the Insurer, which is what is frightening more so for the claim amount (I have attached the paper cutting in the link). 

http://penguwin.com/insurance-rejection-v02/

The Insurance Company lost the case in Gurdaspur district forum but went ahead to appeal in Punjab State Commission. The Insurer relied on Medical Certificates obtained from 3 doctors that claimed the victim was an alcoholic and had suffered cirrhosis of the liver (an abnormal liver condition in which there is irreversible scarring of the liver, resulting in failure).

The state commission upheld the Insurer’s stand and set aside the district forums award. The victim’s wife approached the National Commission and contended that her husband was a school teacher, used to go for regular health check-ups and the reason for death was an accident which had nothing to do with alcoholic Cirrhosis of Liver and produced the relevant records. This is where you will see another twist..

The national commission, on reviewing the medical certificates that the insurer produced from 3 doctors, found several loopholes – 1 is not even a allopathic doctor and the handwritten certificate did not have the date and reference. Similar observations were made on the other 2 certificates and the medical record of the hospital showed that it was uncertain whether the liver problem was associated with alcoholism. The National Commission indicted the insurer for their fraudulent practices and decided the verdict in favour of the victim.

Apparently, a claim cannot be declined on assumptions or on basis of medical certificates which are vague. The name of the Insurer and the way they had conducted themselves to decline a small sum of 2 Lakhs is definitely worrisome.  

Does the lawsuit ring a bell with a similar one which caught the attention of the entire the country?

 

<Blog # PenguWIN 1050 – Business Ethics of Insurers>