Volume 2

IMS Proschool - Financial Planning Weekly – Volume 2


Are we going to see the end of Insurance Selling?

Mutual Funds have started offering Life Insurance Cover as additional gesture for the investors who adopt the route of SIP investments. This move by the Mutual Funds houses will put the ULIP players under stiff competition due to higher initial charges and mortality charges. In fact Reliance Mutual Fund and Birla Mutual Fund have already come out with their products in the market.

- Will this mean the end of Insurance Marketing ?

On 27th June inflation has moved to 11.4%, the highest in last 13 years due to crude oil prices crossing over to $142 per barrel from $100 in just 115 days.
- What does it mean to the common man / investor?

 The prices of petrol / diesel will have to be increased further making transportation costs ( be it driving your own car or traveling by air) more costly,

· Due to increase in freight charges all the consumables / vegetables / day to day items / all industrial raw materials etc. are likely to be dearer.

· Due to overall hike in prices the overall effect on economy shall result in retarding the economic growth

So Should we blame only Oil Prices for the current inflation ?

Statistics indicate that the Consumption pattern in India has undergone dramatic changes particularly in the last two years. Today, we do not hesitate to pay Rs 200/= for a movie ticket viz a viz Rs 50 a few years back. The mall culture has today penetrated even Tier IIII cities making people consume goods which they may not even need. The spending habits of people has undergone a change in the past few years.


Should the base year for calculating Inflation be changed to 2007 ?

On 24th June 2007, RBI declared a hike in CRR to 8.5%, then on 05 July 2007 it was hiked to 8.75% on 19th July 2007. RBI also increased the REPO rates(Rate at which banks borrows from RBI) to 8.5% in order to control the liquidity in the system as one of the measures to contain the inflation.
So what was the impact of this?

The loan rates were increased by all the financial institutions by 50 bps (0.5%) making home loans and personal loans costlier and out of the reach of the common man. Floating rate on home loans declared by the largest Public Sector Bank of the country i.e. State Bank of India is between 10.5% to 11.00% and the PLR (Public Lending Rate) is hiked to 12.75%. In other words home loans to go up by Rs. 35 per lakh.

The common investor has to invest his funds into proper classes of assets (say equity, debt, Gold etc.) which shall fetch him the returns to overcome the decrease in purchasing power of money due to such inflation.

Post your comments here