UNCLAIMED MONEY WITH LIFE INSURERS

 UNCLAIMED MONEY WITH LIFE 

INSURERS

Suspect a loved one had bought a policy? Search insurers’ websites

Unclaimed amounts with life insurers declined by Rs 1018 crore but still stood at a staggering Rs 20,062 crore at the end of 2023-24, according to the Insurance Regulatory and Development Authority of India’s (Irdai) annual report. If a breadwinner passes away without informing their family about existing life insurance policies, it can have dire consequences, including loss of home if a mortgage remains unpaid.

Why money remains unclaimed

Unclaimed amounts often result from outdated customer details, making it difficult for insurers to trace policyholders or their nominees. Many customers shift addresses, even move abroad, without updating their new address with the insurance company. Outdated phone numbers and email addresses add to the problem.

Sometimes, families of policyholders are in the dark. Family members are unaware that a policy was purchased and hence are unable to make the claim.

People at times even forget about policies. In many policies, premiums are payable for 10 years, with the policy maturing after another 10 years. People often forget about such policies once they stop paying the premium. Lapsed policies with surrender or paid-up value also tend to be overlooked.

How to prevent this?

Update your bank account, address, email, and mobile number whenever they change. If you close a salary account (shared with the insurer) on changing jobs, or move house, update the insurance company.

Inform close family members and nominees about the policies you hold. If you buy a policy on another person’s life, the latter must be informed. Keep all policy documents at the same place where you keep share certificates, bank statements, and other financial documents.

Opening an e-insurance account can help. When the relatives or nominees open the CDSL or NSDL statements of their loved one, they will get information about the insurance policy.

Currently, e-insurance is mandatory only for new policies. It should also apply to existing policies.

If you suspect there’s a policy

If you suspect a loved one bought a policy but lack the details, search online. Every life insurer is mandated to disclose any unclaimed amount of Rs 1000 and above on their website. A nominee or beneficiary can search for the policy by providing a few details, such as the policyholder’s date of birth, along with their Aadhaar number or registered mobile number.

Currently, nominees must search each insurer’s website. The regulator should create a universal searchable database that will make searching easy. Checking the policyholder’s bank account statements for premium payments can offer clues.

Making the claim

To claim a deceased relative’s policy that is found, nominees must submit a claim form, policy document, death certificate, and bank details. For accidental deaths, a police report may be required. For death due to illness, hospital records might be needed. Claimants must also prove their entitlement to the money.

OPEN AN E-INSURANCE ACCOUNT

• E-insurance, an electronic insurance account, is a digital repository that allows policyholders to store and manage all their insurance policies (life, health, motor etc.) in a secure electronic format (akin to a demat account for securities) via a single account
• E-insurance account can be opened with one of the approved insurance repositories: NSDL, CDSL, Karvy or CAMS
• All policies are stored in one place, making it easier for policyholders and their nominees to locate them
• Family members or nominees can access policy details through the e-insurance account in case of the policyholder’s demise, provided they have the required credentials or identifiers

 

 

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New rules for EPFO pensioners now in effect

New rules for EPFO pensioners now in effect

Starting January 1, 2025, pensioners under the Employees’ Pension Scheme, 1995, have the flexibility to access their pensions from any bank branch in India, under the Centralised Pension Payment System. Here are the new Employees PF Organization rules:

ATM withdrawal facility  

The EPFO will soon issue ATM cards to members, allowing 24x7 access to their provident fund savings for quicker withdrawals, especially during emergencies.

Higher pension deadline

EPFO announced a final deadline of January 31, 2025, for employers to submit wage details and January 15, to respond to clarifications.

New rule for EPF death claim

The new rule allows temporary acceptance of EPF death claims without Aadhaar seeding, subject to verification.

Change in contribution limit

EPFO is considering the removal of contribution cap, allowing employees to contribute based on their actual salary and helping build a larger retirement corpus.

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NPS FUND RETURNS

 NPS FUND RETURNS

Equity-debt allocation: Let risk appetite, not past-yr returns, 

decide

Funds under the National Pension System (NPS) have delivered strong returns over the past year across all assets classes, exceeding their longer-term average. Equity (E) schemes generated average returns of 18 per cent; corporate bond (C) schemes offered 9.4 per cent, while government bond (G) schemes provided 10.4 per cent.

Past year returns have been exceptional where all the asset classes outperformed their 3-, 5-, and 10-year returns by a wide margin. 

The equity market showed remarkable strength, with the Sensex delivering 8.7 per cent over the past year, while the midcap and smallcap indices returned 26.7 per cent and 30.6 per cent, respectively. This robust equity performance boosted NPS equity funds. On the debt side, declining interest rates played a critical role. “Returns have been better than usual over the past year due to declining interest rates, both internationally and in India, as inflation started coming under control.

Experts caution against expecting a repeat. Returns of all asset classes tend to revert to mean sooner or later.

Equity allocation

The active choice option allows investors to change their asset allocation, but decisions should not be based solely on recent performance. The decision on equity allocation should be based on the investor’s risk appetite and ability to handle volatility, while equities have delivered strong gains, they may underperform during certain periods. Younger investors can afford higher equity exposure early in their investment journey but should gradually reduce this allocation as they near retirement reviewing equity allocation every 5-10 years.

 If recent gains have caused equity allocation to rise disproportionately, rebalancing may be necessary.

Debt allocation

Debt allocation requires understanding the nuances of different schemes. C schemes are more stable because they hold shorter-duration bonds.

However, they carry slightly higher credit risk as they are not issued by the government. On the other hand, G schemes have minimal credit risk but are more sensitive to interest rate volatility due to the longer duration of the bonds in the portfolio.

Choice between C and G schemes on the investor’s time horizon. Investors with longer horizons may allocate more to G.

What should new investors do?

New investors entering NPS should be aware of its benefits and limitations. Its low-cost structure and tax-free rebalancing feature. Taxes only apply when you exit NPS. NPS as part of a broader portfolio, and using it strategically to rebalance, thereby minimising tax liabilities.

Before joining NPS, however, investors must understand the restrictions on withdrawal.

Only three partial withdrawals can be made, for up to 25 per cent of the investor’s own contributions, for specified purposes.

Over the long term, portfolios with higher equity exposure tend to outperform, but this comes with volatility. Investors who are comfortable with volatility may benefit from allocating more to equity in their portfolios. For those who find managing volatility challenging, opting for the auto choice option may be a better alternative.

Past returns don’t guarantee future outperformance. Select NPS funds with lower expense ratios and decent AUM sizes.

 

 

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ALGO TRADING : Understand risks, have realistic expectations

 ALGO TRADING

Understand risks, have realistic expectations

The Securities and Exchange Board of India (SEBI) has proposed a framework to enable retail investors to participate in algorithmic (algo) trading. The draft circular, titled Participation of retail investors in algorithmic trading, outlines the process for approval and registration of algos.

Platforms which offer algos or readymade strategies will need to get them approved through the broker. The broker will, in turn, have to register all algos and strategies with the exchanges. The circular is expected to provide retail investors access to registered and approved algos, ensuring their interests are protected. 

How it works

Algo trading automates decision-making in the trading process. The key difference from traditional trading is that all decisions-what, when, and how much to buy or sell – are made by a computer system through an algorithm. Algorithms operate based on preset parameters, removing emotional biases of traders.

Brokers facilitate automation through an Application Programming Interface (API), which connects the trader’s algo to the broker’s platform. Popular platforms like Zerodha and Upstox Pro offer APIs to retail investors. Algorithms can handle huge volumes of trade at incredible speeds.  More than 50 per cent of the trade volume in the market comes from algos.

 

Disciplined trading

Algo trading offers several advantages. Algo trading eliminates biases by adhering to a predefined risk model. It ensures structured and disciplined trades. Delays in manual execution can result in slippage. But algos execute trades almost instantaneously, minimizing this issue.

Algos allow reads to occur 24 X 7 without requiring constant monitoring. Algos can also analyses tones of data in real-time and make decisions faster than any human.

Back-tested results may not be replicated

Algo trading comes with its share of risks. Algos can falter when systemic failures, API errors, and market anomalies occur. Algo trading is hands-free but not risk-free. Investors need to monitor it and intervene when necessary.

Rare and unpredictable market shocks can disrupt the performance of algos, especially amid high volatility. When the market plummets, algos may act only at the stop-loss limit, potentially after significant losses. A human, knowing the market may go down, can respond preemptively. Investors should not treat the results of back-testing as being predictive. Back-testing as being predictive. Back-testing provides insights, but past performance is not always indicative of future results.

Understand before you invest

Many enter this arena without a detailed understanding of how their algo works. Diligently review information on the strategy, risk profile, potential losses, and expected gains before investing. Unrealistic expectations are also common. Investors hear stories of quant funds like Renaissance Technologies delivering astronomical returns and assume similar returns are guaranteed.

Should you go for it?

Algo trading suits investors who prefer a data-driven, objective approach and are comfortable with technology.

A basic understanding of markets and risk management is essential. Risk-averse investors may go for traditional trading or algos with lower risks. They could go for algos with maximum drawdown of 10 per cent.

 

TRADING FRAMEWORK DECODED

Brokers can offer algo trading facilities to retail investors only after obtaining the stock exchange’s approval for each algo

Orders above a specific threshold (of orders per second) will be categorized as algo orders

Algo orders will have a unique identifier

Modifications to an algo must be approved by the exchange

Retail investors, who develop their own algos, must register them through brokers and can extend usage to immediate family members

Exchanges will have a kill switch for malfunctioning algos

 

Govt. staff can get reimbursement for emergency care at non-CGHS hospitals

The Delhi High Court has ruled that government employees are entitled to medical reimbursement in an emergency, even if the hospital is not empaneled under the Central Government Health Scheme (CGHS).

How will this case benefit government employees?

This judgment will ensure that the employees are not subject to any undue hardship or distress during emergencies.

 

How to find CGHS empaneled hospitals?

You can find a comprehensive list of empaneled hospitals and diagnostic centres at cghs.nic.in.

On the website, there is an option to search for hospitals by city. You can select your city from a dropdown list to view the hospitals available in that area. The site provides detailed information about each empaneled hospital, including their addresses, contact numbers, and the services they offer. This can help you determine which hospital meets your medical needs. Once you identify potential hospitals, it is advisable to contact them directly to confirm empanelment status and inquire about specific services covered under CGHS.

 

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SECTOR-THEMATIC NFOs

SECTOR-THEMATIC NFOs

Beware lack of track record, cyclicality, concentration risk

To capitalise on the bull market, mutual fund houses launched 202 new fund offers (NFOs) in 2024, a record high, according to the data from Morningstar. This was the first time NFOs crossed the 200-mark in a calendar year. Investors, however, should carefully scrutinise these offerings rather than succumb to hard-selling tactics.

Why the upsurge in NFOs?

The Indian markets have witnessed a prolonged bull run.

A large number of new investors joined the equity markets during this period. NFOs are one means through which assets managers try to capture market share.

Several new funds houses have been launched. They came out with NFOs to complete their product suite.

           Most equity NFOs belonged to the sector-thematic or the passive fund category. The Securities and Exchange Board of India’s (Sabi’) rules restrict fund houses from having more than one fund per diversified equity category. The established fund houses already have funds in these categories. It is only in the sector-thematic and the passive space that they can launch multiple products as long as the sector-theme or the index is unique.

The passive segment offers unlimited scope for launching new funds, as index provides can always create new indices. With growing awareness, demand for passive funds has also risen, prompting funds houses to launch more products.

Risks of sector-thematic NFOs

All NFOs lack a performance track record, and investors often have no clarity on the style of fund management. Investors also run the risk that the investment thesis may not play out as projected by the fund house.

Sector-thematic NFOs come with additional risks. Many of the thematic funds that have been launched recently have been very narrow, limited to just one or two sectors.

Such funds carry high concentration risk, with a small number o stocks accounting for the bulk of the portfolio. Investors often chase sectors and themes that have done well recently. That may be precisely the wrong time to enter these funds because the cycle could be set to turn for them.

Their cyclical nature demands precise timing of entry and exit, and that in turn requires careful monitoring. Many retail investors may not have the expertise to do so.

What should investors do?

Avoid most NFOs if established funds with proven track records from the same category are available. Most sector-thematic NFOs should also be avoided because of the timing risk in them. Investing in a sector-thematic NFO only when the investor is keen to invest in a specific theme or sector for which no fund already exists.

Investors must have deep knowledge of the sector or theme they wish to invest in and confidence in its ability to perform in the current market. Finally, warns too many funds to the portfolio by investing in a large number of new launches. Also cautions against Investing in NFOs for quick gains solely due to the marketing that accompanies these launches.

 

PASSIVE FUND NFOs : RISKS AND STRATEGIES

RISKS –

No performance track record available, tracking error and difference are also not available

Fund’s risk profile may not match investor’s appetite, alpha and momentum funds, for instance, should be avoided by conservative investors

Factor-based funds may not outperform their parent market-cap based indices

High historical returns of index may not continue post-launch due to factors like liquidity issues in stock that have to be picked and inflows-outflows from fund

WHAT SHOULD YOU DO?

Invest in a factor-based passive fund only after it demonstrates sound performance over a full market cycle

Restrict investment to a small portion of your satellite portfolio

 

 

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AGGRESSIVE HYBRID FUNDS

 

AGGRESSIVE HYBRID FUNDS

Cope with volatility, benefit from rate cuts

Volatility in the capital markets continues to pose a challenge to equity investors. At the same time, the possibility of interest rate cuts following a prolonged wait, is growing. In such an environment, taking a balanced approach to investment through aggressive hybrid schemes of mutual funds may offer a prudent path forward. 

Aggerssive hybrid funds are well-suited for the current market environment as equity markets are volatile due to global economic uncertainties, inflationary pressures, and shifting interest rate expectations. Their balanced asset allocation allows these funds to navigate such challenges more effectively.

Hybrid funds are all-season funds. They are best for new investors in equity markets as they help build confidence in the asset class.

Cushion against volatility

Aggressive hybrid funds are designed to allocate 65-80 per cent of their  assets to equities, with the remainder invested in bonds. Most of these funds employ a large-cap-heavy strategy for their equity portfolios. This helps to reduce volatility compared to portfolios with significant exposure to mid and smallcap stocks. If interest rats decline, the bond component of these portfolios could generate capital gains. Conversely, rising interest rates may cause short-term losses.

At present, the category has over 70 per cent of equity allocation to largecap stocks, which offer stability and are less susceptible to market fluctuations compared to midcaps and smallcaps. With only 5-7 per cent exposure to smallcaps and the remainder in midcaps, these funds’s equity portfolios reduce the risks associated with midcaps and smallcaps, which are trading at premium valuations. The debt component provides further stability.

Largecap stocks are also better positioned to withstand economic slowdowns and subdued corporate earnings compared to their mid and smallcap counterparts.

Hybrid funds tend to underperform pure equity funds in a trending market like that FY24. However, over longer periods, they tend to deliver better risk-adjusted returns as markets generally move in cycles. The year 2025 could be a volatile year after the past two years of spectacular retunes for equity markets. Hybrid funds generally outperform during these times. Also we expect the Reserve Bank of India (RBI) to cut rates this year, helping debt funds to generate higher returns as bond prices could rally.

Who should invest?

Aggressive hybrid schemes may appeal to investors seeking equity exposure with relatively lower volatility.

These funds are ideal for moderate risk-takers who seek exposure to equities with reduced volatility due to the debt component. They are also suitable for new investors looking for a safer entry into equities, and those with medium-term financial goals.

Points to consider

Investors should assess the underlying portfolio and choose a scheme aligned with their risk tolerance. They should also evaluate the fund’s historical performance. While these schemes offer a smoother ride, occasional bouts of volatility are inevitable. Investors should enter with a minimum investment horizon of five years.

A Systematic Investment Plan (SIP) is widely regarded as the most effective method of investing in these funds. An ideal holding period for aggressive hybrid funds is three to five years, allowing them to navigate market cycle and deliver balanced returns.

These funds can constitute 15-25 per cent of the portfolios of moderate risk-takers, while conservative investors may limit exposure to 10-15 per cent.

High penalties for cash transactions: know I-T dept’s key restrictions

The Income Tax Department recently released a brochure emphasising the importance of limiting cash transactions in daily transactions. There is a limit to daily cash transactions and its breach invites penalties.

Key provisions associated penalties:

SECTION 269SS: Restrictions on cash loans and deposits

MANDATE: Prohibits acceptance of loans, deposits, or specified sums in cash exceeding Rs. 20,000.

PENALTY: Violations result in a penalty equal to the amount accepted in cash, imosed on the recipient.

SECTION 269ST: Limit on cash receijpts.

MANDATE: Bars receipt of Rs 2 lakh or more in cash from a person in a day, or in respect of single transaction or related transactions.

PENALTY: Non-compliance leads to a penalty equivalent to the amount received in cash.

SECTION 269T: Restrictions on cash repayments

MANDATE: Prohibits repayment of loans or deposits in cash if the amount, including interest, is Rs 20,000 or more.

PENALTY: Breaches attract penalty equal to amount repaid in cash. 

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YEAR-END REVIEW OF INSURANCE PORTFOLIO

 

YEAR-END REVIEW OF INSURANCE 

PORTFOLIO

Boost term cover with rising income and liabilities

Increase health cover tackles rising medical costs; consider super top-up and critical illness plan

A robust insurance portfolio provides the foundation upon which a strong investment strategy is built. 

Reviewing term coverage

If you have started working and have dependants who rely on your income, you must buy term insurance at the earliest. Premiums are lower when you are younger. Premium in a term policy remains unchanged throughout the policy tenure so a lower price is beneficial. He adds one ages, the onset of health conditions can cause insurers to charge higher Premiums.

A good rule of thumb is to purchase term cover amounting to 7-10 annual income, plus outstanding liabilities.

While choosing the cover, select an appropriate tenure. The term cover should last until your liabilities are paid off and your children have stared earning.                        

When to enhance cover: If there has been a significant change in your income over the past year, review the sum insured. Your family gets accustomed to a higher standard of living, which means you need a higher cover to help them maintain that lifestyle. New liabilities, such as a vehicle, home, or education loan, should also be factored into your insurance needs. Lifestyle changes, such as marriage, the birth of a child, and other significant milestones, are also important triggers for reassessing coverage.

When to reduce coverage: one may reduce coverage after repaying a significant liability, such as a home loan.

Before reducing the cover, consider whether you wish to use the term plan to transfer wealth to your children. Maintaining coverage can be beneficial as a tax-efficient way to leave a legacy for the next generation.

Should you switch?  Stay with your insurer unless there are serious issues, such as consistently poor claim settlement ratio or delays in claim processing compared to industry standards. Discontinuing your existing policy resets the three-year protection provided under Section 45 of the Insurance Act, which mandates claim settlement after three years.  If new policies with better features or more attractive pricing become available, buy a supplementary policy instead of replacing the current one.

Reviewing health cover

Is sum insured enough?  Healthcare inflation in India is around 14 per cent. If you purchased a policy a few years ago, the sum insured might no longer be sufficient to cover rising medical costs. If you are under 30, plan your health insurance cover with an eye on your 50s and beyond, when hospitalisation risks typically peak. He emphasises upgrading your coverage early, as enhancing it later may not be possible if health issues arise.

Major life events also necessitate adjustments to coverage.

Life events like marriage or childbirth can increase healthcare needs, warranting an adjustment in coverage.

Why consider a super top-up?  For those seeking more comprehensive coverage, a super top-up policy can be useful.

A super top-up is often a more cost-effective option as it provides additional coverage beyond the specified deductible amount at a lower premium compared to increasing the base policy’s sum insured.

 Purchasing the super top-up from the same insurer to streamline claim processing and minimise the risk of conflicts or delays.

The case for a critical illness cover: Individuals with a family history of serious illnesses, those in high-risk professions and those with lifestyle issues (like smoking) should evaluate the need for a critical illness policy. These plans provide a lump-sum payment upon the diagnosis, which can be used to meet expenses other than those covered by the base policy.

Reduce coverage?  Reducing the sum insured is generally not advisable due to rising healthcare costs. However, in rare cases, it may be necessary. If the rising premium of your base policy makes it unaffordable, consider reducing the sum insured on your base policy while adding an affordable super top-up policy to maintain overall protection against large medical bills.

Identify gaps in coverage:  Understand what your policy covers and excludes. Ensure it includes hospitalisation, day-care treatments, and pre-and post-hospitalisation expenses. Check for sub-limits on room rent and specific treatments, as these can reduce the claim amount.

Also, verify the insurer’s hospital network so that you can avail of cashless treatment. Review the waiting periods for pre-existing conditions as well.

Should you consider porting?  Porting health insurance policy may be useful if you are unhappy with claim settlement, service quality, or significant premium hikes. It is also advisable if the insurer has a limited hospital network in the new city you have moved to.

 

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