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Surprised to see Nifty Metals topping the chart?

Arent we supposed to see FMCG, Pharma and other defensive sectors toping the charts considering we are in a pandemic?

Nifty Metal has been rallying and is up by 161%.

From the beginning of FY 20-21 it is up 51.2% compared to Nifty which is up by just 3.7%

What has led to this steep rally?

Covid disrupted the supply chain for steel manufacturing in 2020 as the countries that produced a lot of steel could not ship it to other countries.

Let’s not forget, major demand for steel comes from China (more than 50%)
Supplying steel was an issue. However, the demand for steel remained intact.

Economics tells us that high demand and low supply lead to high prices and this is why steel manufacturing companies could sell at pretty high prices.

And when you sell at a high price, you earn a higher profit and have a lot of cash at your disposal.

Steel companies are capital intensive and have to take huge loans to run their business. Earning high profits will enable them to repay debt. In technical terms, this is called deleveraging.

This is what is leading to a massive rise in the prices of steel stocks like Tata Steel, SAIL, JSW steel etc

Higher profit margins, stable demand, lower debt all are positives for this sector. But will the rise in share prices last for a longer time?

You need to understand, the steel sector is a cyclical business. Currently, steel is in an upcycle. As an investor, It really depends if you are able to jump on before the cycle takes off.

Entering before a cycle takes off can really land you in trouble!
BlockChain Simplified

In the past year or so, there have been a lot of talks making rounds about Bitcoin, Etherum and all the cryptos. And thanks to Tesla’s CEO Elon Musk, this space has got everyone’s attention.

But what is BlockChain exactly? What do they run on?

A Myth

Before we move ahead, you need to understand that:

Blockchain is not Bitcoin

This is the biggest misconception most people have. Remember that BlockChain is a technology and bitcoin is a cryptocurrency that runs on BlockChain and uses this technology to do something of value.

So, what is BlockChain then?

We know it is not bitcoin so what is it?

Blockchain is basically a database.

What is a database?
It is a place where you store a large amount of data. Every dynamic website on the internet uses some kind of a database. For instance, all of Microsoft’s data, for example, the MS Office profiles, must be stored somewhere in a database, in a special form. You store data on Cloud for IOS. You even use MS Access to store data.

But what is so great about BlockChain?

Blockchain is a revolutionary database. Traditionally, databases would structure data into tables (SQL) or documents (MongoDB), and fetch them later whenever needed from those very files.

Blockchain scrapped those methods and decided to store the data in form of ‘blocks’. Each so called block would store a chunk of related information, and a way to reach the previous and the next block. That’s actually what the word breaks down into: Blockchain is a chain of blocks. Initially, in every blockchain, the first block, or the genesis block is generated, and then every time new data needs to be recorded, it is stored in a new block, and the block is added to the chain.

That’s what blockchain is about. It is just a different form of doing something we already used to do.

Well, then how has storing data differently changed the world?

There are certain features that make BlockChain different. Let’s read a bit about them.

Transparency

Blockchains are fully transparent as everything happening on it is visible to all. Everyone can have access to files without restrictions. In other databases, it wasn’t possible until you actually gave access to people.
But, what is exactly visible?
For example: Imagining having full transparency in your country’s taxation system. You know where your money is going and the government has no chance to manipulate the data. An honest world with no corruption.

Immutability

Data once stored on the blockchain, cannot be changed or removed

The reason behind this is quite simple, every block is related to its previous and next blocks in the chain. So if you are changing a particular block, you need to change its previous and next blocks as well and then of course their previous and next also, and so on. This would then cover the whole blockchain. So if you need to change even 1 block in the existing chain, you need to change all of them. That, of course, is not feasible. To get an idea about how difficult that could be, you could imagine changing the Ethereum blockchain, which currently occupies around 240GB with all its data.


Efficiency

Most public blockchains run on multiple nodes which reduces the chance of the blockchain failing
Let’s understand this with an example. Remember Facebook servers crashed a few months ago? We weren’t able to use Whatsapp, Instagram, or Facebook for almost an hour. That was because the servers for Facebook are centralized. Once the server failed, there was no way Facebook could respond to our requests, which could be sending a message, or commenting on a post.

If something like this happens in a blockchain, however, you would still be able to do all of that. That is because all those nodes are running the blockchain independently. So even if one of them fails to work at some point, the others can cover up for it, and essentially the users don’t see a difference.
Efficient isn’t it?

Security
This again is related to the multiple nodes running the blockchain. Let’s imagine 2 scenarios: first, a hacker trying to hack Google and second, the same hacker trying to hack a blockchain.
Let me tell you why. The hacker, though very smart, successfully hacking a blockchain node, did not realize that hacking into 1 node will not gain him anything. As the blockchain is running on so many different nodes independently, hacking one of the nodes did not make a difference to anything. He would have to hack at least 51% of all nodes at once, and only then would he be able to do some damage. That, of course would not be feasible for someone like him. Hence, he decides to let it go and eventually gets arrested.
This is exactly what the blockchain is helpful for in this regard. It is practically impossible to actually hack a complete blockchain, and hence the security.

To conclude

With blockchain, no one will have the power to manipulate anything. Big corporations and governments won't be able to take advantage. Power will shift to the common people like us.

Blockchain ultimately eliminates any middlemen. An artist can get fan donations directly, without having to have a controlling authority taking 20% share in between. A cab driver could get the complete fees for his ride, without having to give a chunk of it to someone, while still ensuring safety. Brokers will get eliminated.

Post Inspiration: Agrim Chopra
UPI's share in merchant payments in India increased from 16% in FY20 to 30% in FY21

Credit/debit cards and wallets are all losing market share to UPI

Most transactions in India are below the 1 Lakh category and UPI is apt for it.

NPCI needs to keep working on making the platform more safer and easy to use.
GDP growth of major global economies during the covid 19 pandemic.
You invest in a lot of shares, don’t you?

But have you ever thought of lending them to earn money?

No Kidding.

Did you know that investors with idle stocks in their account managed to earn Rs 325 crore in FY19-20?

They did this by lending their stocks through the SLBM – the Stock Lending & Borrowing Mechanism.

So if you are an investor with stocks sitting idle for months or years in your dmat account? Would you like to earn another stream of income from it?

So, what is Securities Lending and Borrowing? (SLB)

Imagine if you have a vacant 2 BHK flat and want to generate cash flow every month. What would you do?

Sell the property or rent it?

Naturally, you would give it out for rent.

Securities lending and borrowing mechanism is a similar way for an investor to earn rent by lending the ideal shares in their Dmat account.

Currently, only stocks traded in futures and options are allowed for securities lending and borrowing scheme.

*What are the benefits for the lender?*

SLBM provides you with an additional return on your portfolio, without really doing much.

Let’s say if you are holding 1000 shares of Tata Steel for the long term and you do not intend to sell it anytime in the near future. However, you can still lend it out in the short term and gain rental fees.

SLBM comes with a low transaction cost and more importantly, the settlement is guaranteed by NSCCL, so there is no counterparty risk.
Any type of dividends, stock splits, bonus shares etc are settled to the lender of the securities when the stock is returned back by the borrower.

Remember, even if you rent out your 2 BHK flat, you still are the owner and tend to receive all benefits. Similarly, you are still the owner of the stocks and all benefits will be credited to you.

The lenders in SLBM are usually Insurance companies, banks, Mutual funds and HNI


*But why do other traders borrow stocks?*

Whenever you have a negative view of any stock, you can borrow shares via SLBM, sell them and later buy it back. The difference between the selling and buying price after deducting the interest cost and other transaction costs is the traders profit.

Some other situations where shares are borrowed via SLBM:

1) Arbitrage in stock price between two exchanges: If a stock in the Spot market is trading at Rs 100 and in the futures market, if the stock is trading at Rs 102 here there is an arbitrage opportunity to buy the stock in the spot market and sell the stock in the futures market. Instead of buying the stock the Investor can borrow the security and deliver the same.

2) Arbitrage opportunities when futures are at a discount to stock.

3) To avoid settlement failure, mis-pricing in options, and other F&O arbitrage or hedging strategies that requires you to have stocks and this could be borrowed from a lender for a fee using SLBM

4) Cover unintended short sales: Borrowed stocks could be used to cover unintended short positions created in the books

Borrowers are usually the cash and derivatives arbitrageurs, short sellers – especially the long term shorts, market makers and retail traders.

*Do note: The maximum tenure a security can be lend and borrowed cannot be more than a period of 12 months*

*Are there any tax implications?*

As per a CBDT secular, SLBM does not technically lead to any sale/transfer of shares. Hence there is no capital gains taxes applicable. However do understand that the lending fees you earn is declared under ‘income from other sources’

Stock Lending and Borrowing (SLBM) opens up a new avenue for investors to generate income by using different strategies or can be used as a form of insurance by hedging the risks. This product is still at a very nascent stage in In
Always wanted to get better returns than a Fixed Deposit?
Wint Wealth is an organization that aims to deliver products that give better returns than FDs but are less risky than stocks.

The company is backed by the founders of Zerodha, CRED and Groww.

Wint Wealth brings you investment avenues that were earlier only available to high net-worth individuals

But how is that possible?What do they really do?

Before getting started, you need to understand one thing, where there is high risk there are high returns. There is nothing such as low risk, high returns. The unique part of WintWealth is that they offer higher returns but with very controlled risk.

Wint Wealth does all this through an investment product called – ‘Covered Bonds’

Firstly, what are Bonds even?

To understand this concept, let me take you back to a simple secured corporate bond. What happens when you buy a bond? The answer is you give money to the company, and in return, the company gives you a bond. They pay you a fixed rate of interest every year similar to your Fixed deposit. Now this bond is secured by some collateral.

Wait, what do you mean?

The company has borrowed money from you for a specific purpose (Maybe for expansion or to build a product). But what if they fail in their purpose and are not able to pay you your invested amount as well as the interest?

For this reason, the company keeps aside some amount or asset as collateral so that they can pay you incase they fail.

Does that mean secured bonds are always ‘risk-free’?

Although secured bonds offer collateral to guarantee your investment, the entire process of recovering your capital is very long. The process goes through the bankruptcy laws and when matters go to court, we know how long they can take.
This is precisely where covered bonds come into the picture. Like a simple secured bond, a covered bond offers you a pool of assets to be held as collateral. However, there is one key difference.
In covered bonds, the bond issuer transfers the pool of loans to a ‘special purpose vehicle’ (SPV).
This SPV (also called a Trustee Company) is responsible for ensuring that the investors in bonds get their capital back without going through the long-drawn bankruptcy process in the case of financial trouble for the company. This means that the trustee company gets paid for taking on the default risk.

At this point, you might wonder: ‘What is the difference between covered bonds and simple secured bonds?’

The primary difference is that covered bonds offer a pool of assets hived off by an SPV. In bankruptcy, the investors of covered bonds need not go through the bankruptcy process to recover their investments. Whereas, in the case of simple secured bonds, going through the bankruptcy route is inevitable.

It can be said that covered bonds are ‘bankruptcy protected,’ whereas normal secured bonds are ‘not bankruptcy protected. No investor in her right mind would like to be a part of the long-drawn bankruptcy process. Would you?

What is the Need for Covered Bonds in India?

At this point, you must be wondering if this is such a fantastic instrument, why is it not popular in India? The answer to this question is that this is a relatively new area of financing in India.
Let’s talk a bit about the need for the product in the Indian context.
India is a developing market. Just like every other developing economy, our residents need access to capital for various purposes. Some of the examples are – buying a house, a car, taking personal loans, etc.
The primary responsibility for financing these needs lies with various banks. However, there are areas where banks cannot establish their presence. In this case, non-banking finance companies (NBFCs) have an important role in ensuring access to capital for the nation’s progress.

The business of an NBFC seems very simple from the outside. Ask any industry outsider, and she would say it is so easy! It is about borrowing funds from various institutions/ banks and lending these funds to their different clients.
The company earns its spread in the middle, which is called ‘net interest margin.’
However, the reality is that running an NBFC is a challenging business. One of the main problems that NBFCs face is the ability to raise capital during difficult times.

As the economy goes into a downturn, raising capital becomes difficult. This difficulty is more prominent if the primary source of funding for an NBFC is institutional capital.
This is so because institutional funding is strongly correlated with the overall liquidity in the economy. To overcome this problem, many NBFCs have a strategy of raising funds from retail investors. Retail funding is a more stable source of funding.

The concept of covered bonds and the business model of Wint focuses on this crucial aspect of helping NBFCs raise the much-needed stable capital. Investing in covered bonds is a win-win situation for both NBFCs and investors.

Points to Consider Before Investing:

Date of Maturity: Look at the date of Maturity before investing. Covered Bonds are good for those investors who want to hold till maturity and not exit before that.

Interest Repayment Frequency: This is another variable that differs from one offering to another. In some cases, interest is directly paid back to the investors on maturity. Whereas, in many cases, interest is paid back to investors at a regular frequency like monthly.

Collateral: As mentioned earlier, the investments made are secured by collateral. It is important to know what the underlying asset and the total collateral value are. The underlying asset could be gold, property, vehicles etc

What are the Risks Involved?

Risk of default by the borrower: This risk is present in almost all debt investments. What is important to note here is that Wint Wealth follows a stringent process before selecting the NBFC.
Regular audits are being conducted to ensure the NBFC meets the guidelines. Wint wealth also provides that the issue being floated to their investors is rated appropriately by a credit rating agency.

Liquidity Risk: Early redemption of your investments is possible. This is done from a liquidity redemption reserve that Wint maintains. The interest payable is calculated on a pro-rate basis without charging any extra amount for early redemption.

However, the point to be noted is that in case of excessive redemption pressure, the company may not refund all investors immediately. In this case, investors may have to wait until the maturity of the bonds.

Disclaimer: Investments are subject to market risk. “Finomenal” is not a registered investment advisor and is not associated with the company in any form. This post is only for educational purposes
This is great to see as more Indians have been understanding the value of Health and Life Insurance.

Covid has made people realize and done a lot of free marketing for Insurance companies as their demand has been increasing.

Some very interesting numbers for Mutual funds and stocks as well.

But wait, Cryptos?🧐
Various types of Investment returns

Today we will decode the various types of investment returns and learn about each one of them in detail.

Firstly, returns are the percentage gains or decline in the investment's valuation over the time frame.

Here are some of the returns we will be discussing

👉🏻 Absolute Returns
👉🏻 Simple Annualized Returns
👉🏻 Average Annual Return
👉🏻 Compound Annual Growth Rate (CAGR)
👉🏻 XIRR
👉🏻 Rolling Returns
👉🏻 Relative Returns
👉🏻 YTD Returns
👉🏻 Calendar Returns

Absolute returns :

Absolute return is the actual percentage of return you get from an investment irrespective of how long you invested the money. This is helpful to check exactly how much returns you are getting from investing your money. The gain or loss is expressed as a percentage of the total investment. While calculating absolute returns, the tenure of the investment is the least important. Only actual investment and the current value of the investment are considered while estimating the absolute return.

Absolute return = (Current value/initial value)/initial value * 100

Let’s take an example of an investor Mr. Arun who invested INR 50,000, 5 years back, and the current value of his investment is INR 75,000. The return of Mr. Arjun’s investment is

Return = (75000/50000)-1
Return = 50%

However, remember that absolute returns are not very useful when you want to compare two different investment vehicles, especially if the time durations are different.

Remember that Absolute Return matters only if the investment is less than a year. It could be a lump sum or a SIP, but as long as the investment is less than a year, use absolute return.

Simple Annualized Return

Simple Annualised return is the increase in the value of an investment, expressed as a percentage per year.

It is expressed as:
Simple Annualized Return= Absolute Returns/Time period

Taking the above example, suppose investment of Rs 50,000 becomes Rs 75,000 in 5 years, the absolute return turns out to be 50%.
The Simple annualized return will be = 50/5 = 10%


Average annual return

Average annual return (AAR) is the arithmetic mean of a series of rates of return. The formula for AAR is:

AAR = (Return in Period 1 + Return in Period 2 + Return in Period 3 + …Return in Period N) / Number of Periods or N

Let’s look at an example. Assume that an investment XYZ records the following annual returns:

Year Annual Return
2005 20%
2006 25%
2007 22%
2008 -10%

AAR for the period from 2005 to 2008: = (20% + 25% + 22% -10%) / 4
= 57%/4
= 14.25%

AAR is somewhat useful for determining trends. However, because returns compound, AAR is typically not regarded as a correct form of return measurement and thus it is not a common formula for analysis. A few particularly high or low data points (“outliers”) can skew the average and provide misleading results.
Thus, most analysts prefer to use the compound annual growth rate (CAGR) when evaluating changing returns.


Compound Annual Growth Rate (CAGR)

CAGR or the Compounded Annual Growth Rate measures the ‘rate at which the investment is growing with the effect of compounding taken into account.

The formula of CAGR = (Ending balance/beginning balance)1/n – 1

Let’s say you invest 10,000, which has grown to 15,000, which means a profit of 5,000. The return should be about 50%, i.e, 5K profit on 10K investment. This is the absolute return we are calculating here.

The question here is that did you get this 50% return in the first, 2nd, or 3rd year? Was it that you got the entire return in the 1st year and since then the investment has stayed flat? Or was the return generated in the 3rd year with the first two years netting zero return?

Of course, one can get into the depths of this and figure the details. But otherwise, we simply ignore the specifics and want to know the average growth on a year-on-year basis. That is what CAGR tells you.

So, assuming it is a 3 year investment, the CAGR is 14.4%

CAGR works best when calculated for lumpsum investments over a period of 1 year
XIRR (Extended Internal Rate of Return)

XIRR stands for Extended Internal Rate of Return. XIRR comes in handy when you make regular investments over an extended period. Hence for SIPs, you need to use XIRR to measure the growth rate.

XIRR is nothing but a sort of modified CAGR. It is used to calculate return over the holding period where there are multiple cash inflows and outflows.

The XIRR formula is quite complex to calculate. We can do the same in Microsoft Excel. MS Excel has an XIRR function that you can use. The function itself is quite straightforward to use:

The excel function to calculate XIRR requires two inputs:
• The series of cash outflows and the current value of the investment
• The respective dates of cash flow and the date of the current value


Both XIRR and CAGR serve the same purpose, i.e. to measure the rate of return over a multi-year period.
It’s just that XIRR comes in handy when we have a SIP kind of investment situation.
For Lumpsum investments, both XIRR and CAGR give the same return made for investments over one year.


Rolling returns

The 1-year/3-year/5-year return (which you normally see) isn’t useful to understand a fund’s performance. These returns show the change in NAV on a single day in one year compared to a single day in another. It does not tell you what happened between those two dates. Markets and/or the fund could be up or down in between those dates.

These returns are influenced by what happened on the start date or end date. If markets were down at the start date, returns would look strong on the end date and vice versa.

Rolling returns are when you calculate the point-to-point returns at a specific frequency over a period of time. They help you look at returns over a period of time and are better able to capture trends in performance and average out the swings in returns.
Rolling returns have 3 aspects to it: The return period (such as 1 month, 1 year, 3 years etc), the frequency at which you are calculating this return (every day, every week, every month etc), and the length of time for which you want to see the return (such as for 3 years, 10 years etc)

Take an example. Return period - 1 year. Frequency - daily. Length of time - 3 years. Here’s what this means: You are looking at the 1-year returns every day for a period of 3 years. In other words, you’re rolling the 1-year return every day for 3 years.

Take the same example above with dates, to make it clearer. Say you’re carrying out this exercise on 25.4.2021. The current 1-year return would be that as on 25.4.2021 – so you are seeing the return from 25.4.2020 to 25.4.2021. Then you roll it by one day. So, you see the return from 24.4.2020 to 24.4.2021. You roll again by one day – from 23.4.2020 to 23.4.2021. You do this until you cover 3 years of rolled returns. This makes the final date for which you have the 1-year return 25.4.2018. This way, you have the 1-year return every day from 25.4.2018 to 25.4.2021 (1 year return rolled every day for 3 years).

Source for rolling returns: primeinvestor



Some other types of returns:

1) Relative returns

Relative returns help us to know the true return earned by the fund over and above the benchmark. It determines how the return of a given stock or fund compares to that of a benchmark. This can be useful in making investment decisions. For example, if the stock you are holding achieves a return of 20%, while the benchmark index says Nifty managed 15.58%, then the stock has achieved a relative return of a +4.42%. A stock that falls less than the benchmark in a falling market is considered to have done well, as it manages to contain losses for the investor.

2) Year to Date (YTD) returns
YTD return refers to the amount of profit made by an investment since the first day of the current year. Investors and analysts use YTD return information to assess the performance of investments and portfolios.
To calculate a YTD return on investment, subtract its value on the first day of the current year from its current value. Then, divide the difference by the value on the first day, and multiply the product by 100 to convert it to a percentage. For example, if a portfolio was worth $100,000 on Jan 1, and it is worth $150,000 today, its YTD return is 50%.

3) Calendar Returns
Calendar Returns are absolute returns of each calendar year i.e from 1 Jan to 31st Dec
Here’s your Checklist for Health Insurance Policy

The rising medical costs in our country have made buying health insurance all the more important. Covid has made people more aware of the importance of having a health insurance policy. However, in order for the policy you buy to live up to your expectations, it must be the result of thorough thought and research.

In this article we come up with a checklist to consider before you buy your health insurance policy.

Let’s get started.

1) Identify the need for having a health insurance policy

The first thing that you need to analyze is your biggest need for getting a policy. There are a lot of health insurance policies available with different features and specifications. Some policies for children, young families, senior citizens, people with heart diseases or diabetes etc

Some individuals also buy health insurance to cover themselves for a serious pre-existing illness like cancer.

The need for having health insurance may differ from person to person. Understand your personal requirement and once you are clear about this you can decide about the coverage that you need.

2) How much coverage?

A good practice is to have a health insurance cover of atleast six times your monthly salary. So, if your salary is Rs 50,000, then your health cover should be of a minimum Rs 3 lakh.

Also, remember that a Rs 1 lakh hospital bill amount won’t amount to the same after 10 years. So don’t make the mistake of not accounting for inflation on the policy amount

3) Individual plan or family floater?

People often get confused if they should opt for an individual plan or a family floater. If you are single then you may consider buying an individual health insurance plan. On the other hand, if you have a family (spouse and children) you may opt for a Family floater plan. In a family floater policy, one sum assured can protect each and every member of the family. For example, if you have a family floater policy of 7 lakh sum assured then any of your family members can get hospitalization and treatment benefit up to an amount of 7 lakh.
If you have dependent parents, opt for a separate senior citizen policy. Do not include them in your family floater policy as it would increase your premium. A separate plan would also give you additional tax benefits.

4) Check for the Cashless Hospitalization network

Avoid health insurance plans that do not offer a cashless service. Cashless service is one wherein the amount of your medical treatment is directly settled by the insurance company with the hospital. So there is no money going out of your pocket.

Check the policy document for all hospitals which are part of the insurers cashless network. Make sure that hospitals in your vicinity are listed.

5) Be aware of room rent capping

Some insurance policies come with a room rent limit. So, let’s say you buy a policy with a sum assured of Rs 5 Lakh, and room rent of 1%. This ideally means your room rent is locked in at Rs 5000 and any amount above it will go out from your pocket.

The catch here is that all other expenses such as the surgeon’s fee, medical tests etc are linked to the room rent cap. You will be compensated for these expenses only if the room rent is below Rs 5,000. If it goes above Rs 5,000, your total claim would get reduced in the same proportion at which you exceeded the room rent limit

So opt for a policy that doesn’t have restrictions on room rent capping.

6) Avoid policies with Co-payment clause

When a policy comes with a co-payment clause it essentially means the insurance company won’t pay up for all your expenses. A 10-20% of it needs to come out from your pocket. Hence it is called Co-payment. Insurance companies sell you this policy by offering a discount on premiums. Getting a discount on premium may sound attractive but it doesn’t make sense to save a few thousand rupees if you land up paying lakhs in hospitalization expenses.
Co-payment clause makes sense only for senior citizens wherein you can actually save a lot of money.
7) Opt for policies with low waiting periods

The waiting period is basically a period that occurs during the initial years of the policy where the insurance company makes no payment to you on certain pre existing or critical illnesses. Waiting periods can be as high as 4 years to 2 years as well.
Now, this is a very common clause and the only thing you could possibly do is to choose a policy with the lowest waiting period.
Some of the illnesses that have a waiting period are Diabetes, Hypertension, Thyroid, Cataract, Osteoporosis, Psychiatric illness etc


8) Check for disease wise sub-limit

Disease wise sublimit is perhaps one of the worst clauses to have in any health insurance policy. It basically means that the maximum amount you can reclaim is limited by the type of diseases or treatment you undergo and not the overall cover that the patient is led to believe. For example, cheaper insurance may have a limit of Rs 2 lakhs on a heart disease even though the total insurance is Rs 10 lakhs.

Don’t fall prey to these practices. Make sure you always know there are no disease wise sublimits. Because you don’t know what will hit you. It’s always prudent to pick a policy that has no such stipulations.

9) Restoration benefit

Restoration benefits restore your original medical cover if it gets fully exhausted. While some policies offer unlimited restoration for any illness, others have some restrictions.

Let’s say If you have a health plan of Rs 5 lakhs and you spend the entire 5 lakhs in hospitalization. Now you suddenly got admitted after 3 months and the bill comes upto 3 lakhs. Your health plan will not pay for this.

However, if you have Restoration Benefit the insurance company will automatically refill the coverage of Rs 5 Lakh for you to claim again in the same policy year.

Some policies will tell you that you can’t claim the restoration benefit if you have the same illness once again. Hence you need to read the fine print carefully.


10) No Claim Bonus

How happy would you be if the insurance company told you that they will increase your cover if you don’t make any claims?

No claim bonus is an insurer’s way of rewarding you for not making any claim. Policies with No claim bonus provides an additional cover of 5% of the sum assured in case there is no claim in the current year. This increase in sum assured of 5% every year is restricted to a maximum of 50% of the initial sum assured. If there is a claim in the policy then this additional cover is decreased by 10% on the next renewal.

11) Check the coverage benefits

Other benefits that go beyond hospitalization coverage should also be covered. For example Pre and post-hospitalization, maternity coverage, daycare treatments etc


Additional points to check

👉🏻 Check the claim settlement ratio and claim incurred claim ratio of the company

👉🏻 Don’t just buy a policy that provides you insurance cover at the lowest premium. Understand what is covered and what is not covered.

👉🏻 Finally, never depend on just the health insurance provided by your company
What’s happening with the Chinese ED Tech sector?

China’s highest governing body has mandated online tutoring companies to go non-profit. This effectively restricts these tutoring companies including EdTech firms from earning profits, raising capital or going public.
All this will eventually destroy the country’s $100 billion ed-tech industry.

But why on earth would they do that?
To understand this, we need to travel back in time to the year 1979

Most of us know that China for a very long time had imposed a ‘One child policy’. Under this policy, married couples could only have a single child. If you were found guilty of having more than one kid, you would be behind bars and pay hefty fines.

However, after more than 4 decades, China revoked the policy in 2015 and allowed everyone to have upto 2 children per couple.

But do you think the Chinese citizens responded well to this?

Well, there were almost 2 generations of Chinese kids being bought up with no siblings and aged parents to take care of. Adding to that the rising cost of living in China meant that not many were interested in getting married and raising a family.

The major problem in China is that the population that is aged is increasing rapidly compared to the population that is young. This means that the country has to support a lot more of old aged who do not work and generate taxes compared to the active workforce of youngsters.

The birth rate in the country is also dropping below the levels of 2.4 new born per person who dies.

If China doesn't find a way to encourage its population to reproduce more, it will face a bleak future like Japan - whose economy rose rapidly during the 1970s only to hit a peak in 2000s as the country's population shrunk in size.

What’s the solution now? Simple..

Make the costs of raising children way less.
Here’s how it works; China needs to gradually increase its young population. How do you increase population? By incentivizing your citizens to reproduce more. How do you incentivize your citizens to reproduce more? By making sure the cost of raising children is minimized as much as possible.

The action taken against EdTech companies is a step towards that direction. Cost of Education in China is one of the highest especially for private schools and tutors.

Government wants to ensure that same level of education is available to all its citizens at affordable and subsidized rates.

Do you think this would incentivize people in China to reproduce more?
In the next few days, we will clear some basic concepts with respect to Mutual funds ratios and overall financial markets.

We will start off with an important parameter called ‘Beta’

Beta is the co-relation between the fund and the benchmark return. Beta basically compares the volatility of your Mutual funds with that of a benchmark (Like Nifty or Sensex)

In mutual funds, the beta of the benchmark is always considered as 1.00 and the beta of the mutual fund varies in accordance with the benchmark.

For example: Let us consider that the beta of the benchmark is 1.00 and the beta of your mutual fund is 1.2, this indicates that the fund is 20% more volatile than the Benchmark. So If the benchmark gives a return of 10% then the mutual fund will give a return of 12%.

Points to note :

a) Funds having a beta of less than 1.00 are considered to be conservative than the benchmark or overall market.

b) Funds having a beta of equal to 1.00 are considered Equal to the benchmark or market. (Usually, Index funds have a beta of 1)

c) Funds having beta of more than 1.00 are considered to be Aggressive than the benchmark or market

Give us a real life example you may say?

Currently, Axis Bluechip fund has a beta value of 0.78, which means it is relatively less risky than the benchmark. Whereas the IDFC sterling value has a beta value of 1.3, which shows that it is relatively riskier than the benchmark.

Never buy a Mutual Fund solely on the basis of one parameter, you need to keep other things in mind such as your risk taking capacity, investing goals etc

We hope we have cleared the term ‘Beta’ for all of you.

Tomorrow we will try to simplify a new term called ‘Alpha’

Until Next time 👋
Hey there! 👋

Today we will speak about a very important term with respect to investing in Mutual funds. The term is none other than ‘Alpha’.

The goal of a fund manager is to beat the markets and earn a higher return. In order to judge the ability of a fund manager to do so, we use ‘Alpha’

Alpha is the excess return earned by the fund over and above the benchmark on a risk adjusted basis. However, there is a common misconception among many investors that Alpha is just the excess return over benchmark i.e.,

Fund return – Index return, which is wrong. That is called active returns.

Alpha means excess returns over ‘minimum expected returns’ from the fund

But, wait, what is the minimum expected return from a fund?

That Depends on the risk the fund is taking

👉🏻 If the fund is taking risk same as the index, minimum expected return from the fund is same as the Index

👉 If the fund is taking risk higher than the index, Minimum expected return is higher than the index

👉🏻 If the fund is taking risk lower than the Index, Minimum expected return is lower than the index.

You should not look at only beating the index; you should look at beating the minimum expected return based on the risk the fund takes, which is Alpha.


What is the risk we are talking about?

Risk here is defined as Beta. Like we discussed in the last article, it’s a relationship of the funds risk to the risk of the benchmark. Benchmarks risk is generally considered as 1.

How is the minimum expected return calculated?

Let’s say the risk free rate is 5% (risk free rate means an investment product like fixed deposit where there is barely any risk), so when anyone is investing anywhere they will have a minimum expectation of 5%, right?

But will the expectation be 5% or more if the investment is happening in the stock markets?

It will be more because the person is going to take more risk. So, let’s say the expectation is 5% + 7%, 5% for risk free and 7% for taking the risk.

So, if you invest in markets, the expectation is 12% (5 + 7). Now, the more the risk you take the more will be the expectation will be.

If the funds beta is same as index 1, the return expectation is same as index 12%.

If the fund is taking higher risk than the Index, say 2, the return expectation is twice. Here we can’t expect twice of risk free & hence we only expect twice of the risk related return 7%*2

And if the fund is taking lower risk than the Index, say 0.5, the return expectation is half. Hence, we can’t expect half of risk free and hence we only expect half of risk related return 7% * 0.5

(Calculation is in Image 1 attached below)

Now, Alpha is the difference between a fund's minimum expected returns and its actual returns. Fund B in spite of generating same returns as the benchmark, is not a good fund as it delivered less than expected return of 19%.

(Calculation is in Image 2 attached below)

In Fund C, in spite of not beating the index, the funds Alpha is positive because of lower beta/risk the funds expected returns were lower and we still call it a good fund

So, it is advisable to look at the Alpha of the fund, which will tell you how much more or less returns the fund has generated v/s the minimum expected returns where the minimum expected returns are not the Index return.

Now you know the true meaning of ‘Alpha’

Alpha is the excess return earned by the fund over and above the benchmark on a risk adjusted basis. The words ‘risk adjusted basis’ is the key.

The entire credits of this post goes to Kirtan Shah, who has done a wonderful job in explaining the concept
We will be back soon with our next post with a new term


Until Next time! 👋
Image 1
Image 2