PASSIVE INCOME : A WAY TO GET RICH

Today we will discuss how to increase our earning without disturbing our main job or profession. From the great economist every individual can earn from the two ways:

1.       Active income i.e. earning from the work where you are engaged. The main source of your income. For example if any person is a teacher and meet his daily expenses from his teaching profession, this profession is a way of Active income.

2.       Passive income, it is a way of income which is built gradually and some time very slowly. In this way one person can give his free time to perform his desire job in between his active job i.e. without disturbing his main profession.

For example: if the teacher make some free time for himself and devote these time to write a book on a subject, he is teaching then the result will come out that after passing some years he write a complete a book. In this case he can write a note when he teaching to students on the same topics.

So, from the above discussion we notice that just give a little more time he done another job.

When in future the teacher will not be able at the old age to do his jobs at that time he could have earning more from this way besides his retirement saving. But not only in the old age, just completing book and publishing earning might be started.

The one and great drawback to generate passive income Is that “do the work consistently and keep patient until end the work”

Example of passive Income Ways:

Now a day the following ways are popular and become very well known for part time job or turn your passion in practical life as well as make earning.

1.       Blogging:

If you have a good knowledge on a particular subject then you can write on these subjects. For more information you can go to Blogspot.com which absolutely free provided by Google.com

2.       YouTube channel

3.       Make Investment:

Many people think that it is not a passive income, but it becomes after a long term of accumulation of Fund. It is just power of compounding which make money on money.

4.       Affiliated marketing

5.       Part time commission Agent:

Be a Life insurance Agent, General insurance Agent which make money beside your active work.

INVESTMENT PRINCIPLE TO GET RICH: BASIC INVESTMENT RULES.

Today we will discuss the rules or principles on which we construct our investment structure. These principles are followed by the every successful investor in the world. As a beginner or laymen in investing everyone should follow to create a wealth or maximize your wealth. Now lets discusses:

1      REASON BEHIND INVESTMENT:  Before going to start invest in anywhere, you must define the goal yourself that why “I am doing that.”  What are the objectives behind my saving as well as investing. This will help you to allocate your saving in various kinds of investing option.

2    MUST HAVE INCOME SOURCE:  Investment needs your saving money and saving will be generated only when you must have a source of income. If anyone does not have a source of income, intention of saving does not arise. Investment is depending upon how much you save not how much you earned.

      Do not make investment by borrowed fund or by way of taking loan.

3     CONSISTENT EFFORT:  Be consistent in your investment option. Investment is done only once is not enough to build a big wealth. One should make a good habit to invest at various interval basis as per their goal defined earlier.

4    KEEP PATIENT:  Growing money is not a magic stick that if anyone invest today and get double within some days. You should give time to grow your money for long term to build a bigger wealth. In this case power of compounding will reflect.

5    LIQUIDITY OF MONEY: Your goal is defined, your saving is well known to you, you are doing invest as per your condition and requirement. In this case if any Emergency

comes suddenly and to meet the same you should not withdraw your investment as far as possible because if you meet the emergency situation by withdraw money from your investment your goal will be affected and disturbed and may not be fulfilled. So, before start investment journey, one must keep some saving in hand for accidental situation.

The investment principles are not end by these above discussion. There are more investing rules or principle would keep in mind when we make our portfolio. The above principles are foundation of investment without these investments have no sense.

TERM INSURANCE PLAN : HOW TO CHOOSE A BEST TERM INSURANCE PLAN ?

TERM INURANCE PLAN:

Term insurance plan is a form of life cover, it provides coverage for defined period of time, and if the insured expires during the term of the policy then death benefit is payable to nominee. Term plans are specifically designed to secure your family needs in case of death or uncertainty.

 The premiums for Term insurance policies are the lowest among all the types of life insurance policies. The premiums are low since there is no investment component and the entire premium goes for covering the risk. So if the policy holder expires during the insured term, the death benefit is paid to the nominee. There is no survival or maturity benefit once the policy term expires.

There may be some plans that offer to return the premiums paid by the policy holder if he survives.

ELIIBILITY CRITERIA :     generally minimum age 18 years and maximum age is 65 years. But the eligibility criterion for term insurance plan varies according to the insurers.

Insurance amount or cover amount: Generally insurance company provide a cover amount which is equal to 10 or 20 times of your annual income without any prove of income.

E.g. if your annual income 2,50,000/- in a year. You can buy a term plan with cover amount ( 2.5lakh X 10) rs. 25,00,000/- (twenty five lakh).

If you need to say rs.1crore term plan, in this case you must show you income proof. That may be range 5lakh to 10lakh depending upon insurance company policy.

Now let point out some question which remove all doubts about Term paln.

1. How to choose a best term plan?

To choose best term plan you should consider important factors like:

a) How good is the insurance company (compare goodwill and market holding among varies companies)

b) How much cover do you need (like 10lakh, 50lakh,  1crore etc.)

c) Check the claim settlement ratio (ratio higher will be better)

d) The factors of inflation in paying the premium and coverage benefits

e) Compare the terms and conditions of various insurance companies

f) You can take two term insurance plans from two different insurance company, it will save you in case of rejection of claim from one of either two companies

g) Do not just look for the low term insurance plan as they might be an important factor but may have several conditions attached for the time of claim

h) You can also go for an online or offline term plan 

2. Do term insurance plan have an option to convert it to other traditional plans?

Many Insurance companies can provide the convertible option to you in term insurance plan, and you can convert it to the whole life insurance policy or the endowment plan any time during policy tenure without additional charges. 

3. If I missed a premium, is there a chance that my policy may lapse?

If you miss the premium then the first thing is to know the status of your policy through your agent or insurance company.

According to Life Insurance Corporation of India (LIC) a grace period of 30 days is allowed where the mode of payment of premium is yearly or half yearly and 15 days in case of monthly payment.

4. Can I surrender an insurance plan?

Yes, you can surrender an insurance plan that is to exit from a plan before maturity. No charges  are levied if the surrender is done after five years. 

5. What are the smokers and non-smokers criteria in the term plan?

It includes the smokers or users of any tobacco products, such as chewing tobacco etc. Some smokers who have quit smoking are also eligible for favourable premiums. However the period varies among insurers. 

6. What is difference between a participating and non-participating policy?

A participating or profit policy would enable the policyholder to share in the profits of an insurance company which depends on the investment returns of the insurance company.  In non-participating policy there is no profit sharing with the insurance company. 

7. Will I get a tax benefit on the insurance premium? 

Premiums paid for all life insurance policies are exempted from tax up to a maximum of Rs 1.5 lakh under Section 80C of the Income Tax Act, 1961. The claim amount received by the beneficiaries or bonus in the hands of the policyholder is tax free under Section 10 (10D) of the Income Tax Act.

UNIT LINKED INSURANCE PLAN (ULIP)

ULIP stands for Unit Linked Insurance Plans. ULIP is a combination of insurance and investment. Here policyholder can pay a premium monthly or quarterly or annually. A small amount of the premium goes to secure life insurance and rest of the money is invested in any number of qualified investments such as stocks, bonds or mutual funds .

Term:   Policyholder goes on investing through the term of the policy – 5,10 or 15 years upto 30 years and accumulates the units.

Investment option:  ULIP offers investors options that invest in equity and debt.

 An aggressive investor can pick equity oriented fund option whereas a conservative one can go with debt option. 

Returns: The recently launched ULIP are better than the older ULIP due to lower charges. One can pick and choose the low cost ULIP. While traditional insurance plans offer 5% to 6.5% returns, ULIP can offer you double digit returns if you are invested in equity funds and debt fund can also give 7% to 9% returns according to past data.

Lock in Period: 5 Years , even the policy holder surrender the plan after 1 year the invested amount will not be withdrawn before 5 years and the amount will be transferred (after deducting surrender charges) to DP Fund where policy holder’s invested amount will earn 4 % interest per annum.

Deth Benefit:   higher from following:

(a)  Sum assured – Withdrawal (if any)

(b)  Minimum death benefit which is defined in policy (e.g. 105%, 125% etc. of sum assured)

(c)  Fund value.

Maturity Benefit:    Fund value

Balancing option: ULIPS provide Balancing Option i.e. as per your life stage you can reduce your risk level by reducing equity allocation to increasing debt allocation. But it is fully option able to the insurer.

Taxation: No upper limit for investment, but u/s 80c of IT Act, 1969 individual can claim tax exemption up to rs. 1,50,000/-.

Maturity amount is tax free if

Sum assured > 10x annual premium

If your annual premium is more than 1 lakh TDS would be applicable 2% on

Maturity amount.

If individual surrender the plan within lock in period, his/her tax exemption will be withdrawn in the year of surrender. 

HDFC Life is a leading provider of ULIP investments. The firm’s plans offer varying provisions, terms and investment options. Other ULIP providers include Aegon Life, PNB MetLife, Kotak Life, ICICI, IndiaFirst, SBI Life, IDBI Federal and UTI.

RISK FREE INVESTMENT OPTIONS

Before going to build up a smart and strong portfolio discussion, we need to look over various types investment plans. So first of all we discuss various types of investment plans in India and make it understand.

We will discusses Investment option in two format

(a)    RISK FREE INVESTMENT OPTION

(b)   INVESTMENT OPTION SUBJECT TO RISK.

Today we discusses only          

(a)    RISK FREE INVESTMENT OPTION

1.     Recurring Deposit:   It is a type of term deposit which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the prevailing rate.

This facility provided by Banks and Post office.

Interest Rate : generally 6.5% to 7.5 %.

Term:  12 month to 10 years.

2.       Fixed Deposit:   In this scheme a fixed amount of sum is locked for a predetermined period of time and in return which earns fix interest on the locked amount during the locked period of time.

This facility provided by Banks, NBFCs, Post office.

Interest Rate : generally 7% to 8.5 %.

Term:  it varies from 90 days to as per choice how many days any person can fix his/her money.

3.       Public Provident Fund (PPF):  This is also a type of recurring deposit with various terms and regulations imposed by the Government of India.

Term:  15 years

Minimum amount to open : 500/- and maximum no limit.

Person must deposit minimum rs. 500/-  every year. One can deposit with maximum 12 installments in this PPF account.

Partial amount withdrawn from this account is permissible after completion 7.5 years. But without any exceptional cases whole amount withdrawn is not permissible before completion 15 years. It is very well known investment option to individuals.

The amount deposited in a year and interest accrued is permissible for tax deduction u/s 80c of IT Act, 1969 subject to rs. 1,50,000/-.

4.       Due to tax advantage purpose in India there are some kind of Fixed Deposit Scheme is launched with different names. They are below:

(a)    National Saving Certificate (NSC) (Available in Post Office)	in which interest accrued is exempt from tax and lock in period is 5 or 10 years. Interest Rate : 7.1%  (current rate) may be changed by the Government of India.
(b)   Senior Citizen saving Scheme : (Available in Post Office and Banks also)	in which interest accrued is exempt from tax and lock in period is 5 years. But only the person having the age of 60 years and above (55 in case of women) can make this. Interest Rate : 8.5%  (current rate) may be changed by the Government of India
(c)    Kishan Vikash Patra (KVP): (Available in Post Office)	In this scheme amount will be doubled in generally 8.5 years to 9.5 years as per prevailing interest rate. Interest Rate : 7.1%  (current rate) may be changed by the Government of India

N.B:         Now the point is a large group of people take the Life Insurance plans as an Investment option. Because it covers life as well as protect our money and back our given amount with some Bonus, loyalty, and some addition. But we see in our earlier discussion that traditional Life insurance plan is saving plan not an investment plan. The Life insurance plan must also be incorporated in our Portfolio but it will be discussed in our building of portfolio secession.

Now a day in this modern time an Insurance Plan name as Unit Link Insurance Plan (ULIP) has becoming popular which can be taken as a investment option due to its characteristic. The ULIP will be discussed to our next part.