March 29, 2020
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illustrations by Jayachandran
The low-risk road to riches
Index funds are the ultimate no-brainers of equity investing—no worrying over which stock to pick, no fretting about maverick fund managers. They are your low-risk option to grab a piece of the high-risk, high-return stock market action. Besides, being mirrors of the market, index funds save you the trouble of actively tracking your investments and let you sit back while the market does it all.

Why go for an index fund? Here are five compelling reasons to do so:

  • You get a diversified portfolio at all times. Even if some companies fail to perform, others will compensate.
  • It is made up of quality stocks that reflect the state of economic activity in the country.
  • No fund manager risk.
  • Excellent liquidity at hand.
  • You’re saved the bother of having to actively track your investments.

expertadvice: insurance
Q. Are schemes like Jeevan Shree, Children’s Money Back, Jeevan Dhara, Jeevan Mitra and Jeevan Kishore good investments? I pay about Rs 2.5 lakh as premium every year.
A. All the policies that have been mentioned are among LIC’s better schemes. Some of them even offer guaranteed returns. Once committed, it’s better to continue to pay the premium till maturity. After all, what you will get is life insurance with decent returns on investment.

How to refinance a loan
Just because you took a loan in times when interest rates were high doesn’t mean you have to be saddled with it for life. That’s because you can always refinance your loan, that is, get another financier take over your old loan. Generally, you refinance when interest rates drop, making the new loan cheaper.

The first thing to do, of course, is to shop around for suitable lenders, and calculate comparative costs, finally choosing the one that offers the most gains. To calculate the cost of refinancing, you’ll need to check the principal outstanding on your old loan. Your principal outstanding will be your new loan amount.

Next, take a look at the interest rate at which the new loan is being refinanced, the prepayment penalty, if any, on the old borrowing and the processing fees for your new loan. All three will affect the cost of your new borrowing.

Finally, when you finalise the term of your new loan, refinance for the remaining tenure of your old loan. Better, try and decrease the tenure by as much as possible. On no account should you increase the loan tenure, because by extending it, you will pay interest for a longer period. And that ultimately defeats the purpose of refinancing your borrowing!

To manage your money better, read Intelligent Investor or log on to and also get personalised information and analysis from our experts who answer queries on small savings, insurance, loans, taxation, mutual funds and shares.

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