Follow disciplined long-term fin plan

Jiju Vidyadharan 


Sameer and Ashwin (names changed) started their career together.Both are of the same age and earn similar salaries.The only difference is that Sameer works for a leading private sector corporate house while Ashwin has a government (public sector) job.Both understand that to secure their future and meet their investment objectives,they need to plan and stay ahead by beating inflation and changing their investment strategies according to market forces.
While preparing a financial plan for Sameer and Ashwin,there are some basic differences that need to be looked at,mainly due to their differential employment status.Ashwin,being employed in the public sector,has two important perks which Sameer's employer does not offer: 1) housing and 2) postretirement pension.Further,the former's job is relatively more secure than the latter's.The external environment has undergone a dramatic change after the global financial crisis of 2008 and 2009,and consequently led to many private sector employers cutting jobs across levels.A similar situation in the future may have a financial impact on Sameer for which he needs to have a strong contingency fund.
Though Ashwin is entitled to post-retirement pension,the same may not suffice looking at the current costs for health care and other services (see table).Similarly,he may be staying in an accommodation provided by his employer but he still needs to plan for a house after retirement.The financial plan for Ashwin would include a housing loan much earlier in his career rather than waiting till he nears retirement.He may also avail of any low-cost housing loans (if any) that his employer has to offer else he can tap the regular mortgage channel.
While these key differences must not be overlooked,both must chalk out a financial plan which looks at the following five steps - i) risk profiling,ii) need/ goal analysis,iii) asset allocation,iv) product recommendation and v) wealth tracking.This would also include term and medical insurance for self and family to secure for any exigencies that could come in the future.The following table shows a comparison between common practices and best practices that should be looked at by the salaried class.

Summing up: 

Besides starting early,following a disciplined long-term investment pattern and diversifying across asset classes,salaried individuals must regularly talk to experts and periodically check their investment portfolio as well as cash flows.In case of a transferable job,one can look at online investment advisors.

Steady Income A Blessing To Create Wealth

But salaried people squander opportunity by either saving to just lower tax burden or by investing in debt

Partha Sinha | TNN


In India,a large population among savers and investors is of the salaried people,who are relatively better off than the businessmen and self-employed people,mainly because they enjoy a higher degree of certainty with their income,something that the other two class of people lack.The regularity of income,which is seen as a blessing,along with other superannuation benefits that most salaried people enjoy,at times also make this class complacent about their post-retirement financial needs.And when they realize that their retirement corpus is inadequate to meet their financial needs,they are forced either to cut down on their spending or dig into their savings,rather than using the returns from their savings.
Financial advisors and planners say that like other people,salaried individuals also need to save regularly and invest smartly in assets that can generate higher returns,beat inflation and are also tax efficient to create wealth."They must understand that in the long run,only equities can help them achieve their financial goals and for a person who does not have time and expertise to invest in direct equities,mutual funds are the best alternatives,"said Ashish Padiyar,Bellwether Wealth Advisory."I believe mutual funds are one of the most cost effective and professionally managed products available to them,"he said.
Salaried people in general and government employees in particular have a notion that they require little or no planning for their life because everything is ensured by their employer or the government and their family and future is fully secured."But this is wrong because planning is dependent on every individual's needs and his or her family's requirements,resources,social background,family status,etc,"said Sreedhara Shenoy K,an IFA from Erode."These inputs are not taken into account by most of the salaried people and such people may end up in misery at the fag end of their service which can be very well be avoided by proper planning at the initial stage,"Shenoy added.
Among the salaried people,especially those with the government have certain special characteristics with regard to financial planning due to the nature of their job."On the positive side are that the income flow is fairly certain and regular,there are likely to be many employer-provided benefits like medical,transportation,vacations and insurance,predictable salary increments,likelihood of a good retirement package which can result in a decent lifelong pension,and a comparative stability of the job,"said Sanjeev Govila,CEO,Hum Fauji Initiatives,a financial planning firm catering primarily to the salaried and defence forces."On the negative side,large payouts other than yearly bonus and performance-linked commissions would be a rarity and there is less likelihood of large improvements in standard of living.These characteristics create special needs for the salaried people compared to the business class and self-employed professionals,"Govila said.
Some of the typical traits of salaried people are their main approach towards financial planning is aimed at tax savings,they often do not have an emergency fund and outside of tax savings they prefer debt over equities,even if such preferences are hugely skewed during their early years in the job.
"A study reveals that government employees prefer additional contribution to EPF to earn tax-free returns.Such returns are very poor compared to market returns,"said Siddharth R Shah,who is associated with Shalibhadra,an investment broker in Ahmedabad."Government employees are poor risk takers when it comes to investing in equity-related products and hence their total dependency is on fixed income only,which has low capacity to beat inflation,and hence it also deprives them from wealth creation" Shah said.
Salaried people,mainly because of their regularity in income,also are not very careful about having in place an emergency fund that can take care of their financial requirement in case of any exigency."This should not be lost sight of since any such emergency can wipe out a large part of your planned savings,affecting other goals of life,and may even result in loans at high interest rates,"said Govila of Hum Fauji Initiatives."A buffer for about four months of living expenses for emergencies can be taken as a general thumb rule,"Govila,a retired colonel,said.
Padiyar of Bellwether Wealth also pointed out that for most salaried individuals in India,financial planning starts and ends with tax savings instruments."Saving taxes are a must,but there are other ways too through which a salaried individual can enjoy an absolutely successful and stress-free financial life,"he said.

Are your SIPs on track ?

Opting out of mutual fund SIPs due to market volatility could derail your long-term goals

SANKET DHANORKAR


Five years is a fairly long time.During this period,you could climb a few rungs of the corporate ladder,upgrade from a hatchback to a luxury sedan or move into a bigger apartment.You could even generate substantial wealth by investing intelligently.However,as the past five years have shown,your investments could also earn absolutely nothing.Had you invested in a large-cap equity mutual fund at the beginning of 2008,your money would be worth roughly the same,or even less,today.Meanwhile,inflation has galloped at 8-10 % per annum.
Some of those who had entered in early 2008,when the market had peaked,hung on to their investments,waiting patiently for their funds NAV to recover.They got their chance when the market touched an all-time high in November 2010,only to slide down in 2011.
When the market recovered in 2012,many mutual fund investors redeemed their investments.Now that the indices are again at higher levels,many more small investors will be anxious to head for the exit.According to Computer Age Management Services (CAMS),nearly 11.5 lakh SIPs in equity funds have been terminated in the past year and another 4.93 lakh were not renewed.Although the SIP cancellations continued throughout the year,they gathered steam after the Sensex broke out decisively above the 17,000 level in August 2012.Today,the Sensex is hovering close to the 20,000 mark,which means that many small investors have lost out on an opportunity to create wealth.

Why stick to your SIP

As mentioned earlier,the investors who entered the equity market at the peak in early 2008 have hardly made any money.Many of those who invested lump sums are either sitting on losses or have barely recovered their principal.The SIP investors,however,have a different story to tell.Their investments have earned handsome returns.The Quantum Long Term Equity fund has been the best performing large- and mid-cap equity fund in the past five years.If you had invested 3 lakh in it at one go on 1 January 2008,your investment would have grown to 4.35 lakh,a return of 7.72%.However,if you had invested through monthly SIPs of 5,000,the value of your investment would be higher at 4.76 lakh,a return of 17.16%.
Stopping your SIP when the market is doing badly is perhaps the worst investing decision you can make.If you invest when the market is subdued,your SIP will buy more units because the prices are low.By terminating your SIP,you forfeit the opportunity to buy low.Over time,the purchase cost per unit is averaged out,which reduces the risk of investing a large amount at the wrong time and at a high price.However,SIPs are not a panacea for all stock-related risks.They only inculcate investing discipline and take away emotions from investing.SIPs may not always work in your favour.In some market conditions,lumpsum investments score over a staggered strategy.Even so,investors must remember that lump-sum investment is not an option that everyone has.For the small investor,who earns an income in monthly intervals,a lump-sum payment is not possible.

Managing your SIP




Initiation:

Starting an SIP in a mutual fund is not complicated.It is even simpler if you are an existing investor.All you have to do is fill up the SIP form and give an ECS mandate to your bank to start the monthly payment.An SIP mandate takes time to start and you will have to pay the first instalment by cheque.If you are a new investor,you will have to fulfill the KYC formalities as well.Be sure to mention the desired tenure of the SIP investment in the application form.


Termination:

If you want to discontinue your SIP,you will have to intimate your decision to both the fund company as well as your bank.You need to fill up a form,mentioning your folio number,bank account details,scheme name,SIP amount a n d the date from which the plan has to be stopped,and submit it to the fund house.If you want to stop the SIP temporarily,you can give a stop payment instruction to the bank for that period.However,keep in mind that if the SIP is stopped for more than two months,the fund house will terminate the SIP.


Renewal:

If your SIP is nearing the end of its tenure,you have the option of extending it for a specified period of time.You will simply need to give details of the bank account from which the SIP instalment has to be debited and give a fresh ECS mandate to the bank.To ensure that there is no break,send the renewal instruction at least 30 working days before the last date.If the existing SIP expires,the renewal can be done by quoting the same folio number.

Monitor your SIP

Starting a SIP investment is only half the work done.Although an SIP should be for a long period to harness its full potential,dont continue with it indefinitely without checking on its performance.Says Srikanth Meenakshi,director,FundsIndia: An SIP should not be taken as a fire and forget investment.One needs to keep track and review periodically to ensure the realisation of goals.
While monitoring the fund,compare its performance over different time frames with other schemes in the same category.Only if the fund consistently underperforms the category should you consider switching over to another scheme.If the chosen vehicle is underperforming,shift to another,but stay committed to the market, says Raghvendra Nath,managing director,Ladderup Wealth Management.Also,keep an eye out for any undesirable change in the fundamental attributes of your scheme,such as a rise in the expense ratio,revision in the investment mandate,investment style or changes in its stewardship.
In this way,you can keep a watchful eye on how your SIP investments are faring without getting worked up over the direction the broader market is taking.One should have a clear time horizon in mind while investing in the equity market.Do not bother about intermittent volatility, says Hemant Rustagi,CEO,Wiseinvest Advisors.If you give in to the markets mood swings and exit your SIP midway,you will not gain from the low prices.Remember,the stock market rewards those who are patient.

Handling finances for & after wedding

Before they marry,couples need to discuss how they will share their joint wealth

UMA SHASHIKANT


It is the season of weddings,and as I attended my share of the events,several questions crossed my mind.It is tough for families to view everything from a monetary angle.I risk being told off that there are things that money cannot buy.However,all of us know the power of money and how poor financial decisions can hurt us.Perhaps,it would simplify things and help us deal with these questions if we have a money framework that we can follow.
First,I am amazed at the amount of money that is spent on weddings even by the simplest of families.The grandest weddings are still conducted by those who seek a good excuse to spend the black money they have hoarded and earn some social brownie points.The money spent on weddings is easily a multiple of the savings of the family.
A goal or an expense that cannot be met comfortably by the current regular salary needs a well-thought out saving and investment plan.However,several families scoff at including weddings in their financial plans.The confidence about future incomes makes youngsters big spenders.However,middle-aged parents,who are spending a large sum,may be compromising another goalretirement or the education of another child.This is why the funding of a wedding needs to be a project that a family should plan seriously well in advance.
Second,several newly-weds end up being a part of the extended families.It is not uncommon for children to stay with parents after marriage along with their spouses.I see doting parents living with their children and raising their grandchildren,thus enabling the younger generation to pursue paying careers.But what about the finances Who manages the household expenses Who bears the EMIs and loans Is there a common spending pool Is there a fair contribution to it
A household with multiple incomes and common expenses needs a working plan to run smoothly.A plan to take care of the macro items without getting into the nitty-gritty.For example,if there are advantages of living with parents,do the younger members invest the savings in rent,housekeeping and childcare for the future benefit of the parents I find that most households begin with trust,goodness,generosity and kindness,but the lack of a sensible spending and sharing plan results in acrimony,leading to a deterioration of relationships.
Third,weddings are expensive,from the functions and trousseau to the honeymoon.Later,to please a new spouse,there may be more expenses on travel,gifts,eating out,and the like.Reduced saving ratios,higher credit card expenses,and occasional hand loans from friends are all par for the course.However,without pre-planned savings,or a plan for repayment,unbridled enjoyment can result in financial stress and a high-cost debt.Many people are unwilling to discuss finances or the affordability of an expense with the new spouse.Most are likely to spend with a sense of joy and entitlement.It is important to make a mental map of where this will go in the long run.Cash-flow maps for spending and repayment need to be maintained,budgets should be made even if these are not disclosed,and care should be taken to ensure that all fun is not about spending money.Including low-cost fun activities and setting the tone for affordability,sooner than later,is important.Debt traps are not good to deal with in the early days of marriage.
Fourth,young couples tend to set benchmarks for their standard of living based on their peer group.To have their own car,home and a lavish lifestyle is too enticing to be ignored.There is a need to prioritise and sequence the goals to avoid stress.Buying a car and home,and bringing in a huge EMI because of an employed new spouse,can turn into a risky proposition,especially if the spouse would like a career break to raise children or if one of the spouses job faces a risk.Having too many loans and EMIs,and clubbing multiple financial goals can stress finances seriously.It may be a good idea to see what portion of the joint income can be devoted to these possessions and how it would be funded and managed.
Fifth,young couples find it tough to discuss your money and my money.Many are still not comfortable with prenuptial agreements.Money is personal to each person who earns it,and attitudes to money can be very different.I know of a household,where the husband saved his income,while the wife used hers to run the household.The couple sadly broke up,and the wife was left with no assets.Each spouse needs his or her corpus to fall back on.How,how much,when and where are the decisions that need to be taken.
Sixth,everyone needs a finance buddy.Many of us are unwilling to discuss money issues with parents,spouses or siblings.We dont want them to know we have enough,or that we are running short.We all need a friend who knows what our money attitudes are,and helps steer us when we are in trouble.Someone with whom we can discuss alternatives without worrying about being judged.It can be an outsider,adviser,tax consultant or an uncle.Many of us clam up when faced with a crisis and having a friend helps in resolving money issues.
There is a lot that changes in our money lives when we decide to get married.It may be worthwhile spending time to think about our money attitudes,capabilities,wealth and willingness to spend before we end up quarrelling about it.

Here is a great educative movie about investments

In finance, investment is the application of funds to hold assets over a longer term in the hope of achieving gains and/or receiving income from those assets.Here is a great educative movie about investments:

http://www.youtube.com/watch?v=vU1l1TB7GzI

10 rupee notes to soon become history!

Seems it is time that like 10 paise coin and 'chawanni' (25 paise coin) and that good old one rupee note, your friendly 10 rupee note may soon become history!

That is true. Reserve Bank of India, the Godfather of Indian money has decided to phase out the 10 rupee notes and replace them with the 10 rupee coins.

10 rupee coins -- those quirky, double coloured discs, we had never taken seriously will replace the 10 rupee note. While these coins have been in circulation since 2009, they were well, as we said, never taken seriously.

The life of paper notes, according to RBI is only 9 to 10 months which is why they are being replaced by coins that are way more long lasting.

Time to start stocking the 10 rupee notes. They will soon have antique value!

http://www.rediff.com/getahead/slide-show/slide-show-1-money-10-rupee-notes-to-soon-become-history/20130113.htm

Investing in GOLD? Read this!

http://www.rediff.com/getahead/slide-show/slide-show-1-money-investing-in-gold/20121228.htm

Portfolio construction: Why keeping it simple is crucial

Cricket is the favorite pastime for a majority of us. Each one of us will have an opinion on every aspect of the game. Similarly, many of us see ourselves as seasoned investment gurus knowing (or pretending to know) its each aspect. Well, for the true gurus, it took years of toil and self-belief before they became persons of authority in their field. Likewise, the foundation for your wealth creation is construction of a strong portfolio. And portfolio construction gets the least attention.

A Yuvraj cannot become a Dravid overnight and vice-versa. Similarly, you need to know your risk appetite, choices and goals. With this background, you go about building your innings. You set small targets, which are in sync with your overall long-term goals. In the early part of the innings, you tend to leave the balls pitched outside your off-stump, get yourself accustomed to the pitch and the ball movement and generally make yourself comfortable.

Similarly, in portfolio construction, you will set your goals and return expectations, and rebalance targets. As in cricket, you can set your target, if you are batting first, or chase a target if your batting second. If you have a lower risk appetite, you will want to achieve a real return beating inflation on a consistent basis. A higher risk appetite will indicate that you can cope with volatility, which could lead to an alpha return over the investing period.

We chase returns because the human mind has been conditioned towards it. Quick returns are good for your ego and it takes tremendous amount of patience not to follow the herd.

A well-flighted ball is asking to be hit. But with the fielder positioned at long off and long on, will you take the bait. More times than not, Yuvraj may take the bait, but Dravid may not. There is nothing right or wrong about it. What matters is the confidence each of them has while executing the shot. So, execution is the key.

Similarly, your mental make-up, which drives your portfolio design, plays an important role in the wealth creation journey.

You cannot compare the equity returns with returns of other asset class. So, having an appropriate asset mix is the core requirement. This is more popularly known as asset allocation. Again, there is no thumb rule about the asset allocation methodology. For sake of convenience and monitoring, typically, a percentage of asset mix is recommended.

Again, this is not a thumb rule and you are free to follow your own self-designed mix if you have the time and resources to track and monitor them.

The crucial part You plan, design and execute. But things may not go as per your plan. A freak run out in a cricket match changes the course of the match. Wickets tumble and you are bowled out.

Remember the years 2008 and 2011 when the equity markets went down; so did your portfolio value.

Now, this is where portfolio rebalancing comes into play. You will always play to your strength. A conservative investor would normally prefer a passive asset allocation and follow the set strategy and, by rebalancing the portfolio, would have ensured that the asset class mix is always maintained.

However, an aggressive investor would prefer a more tactical asset play and would have actively gone overweight or underweight, based on the market scenario. As shared earlier, your risk profile and mental make-up plays an important role. While constructing a portfolio, an important point to note is that you should not compare returns generated between asset classes. You cannot compare the return generated by equity with that generated by debt. This is like comparing apples with oranges.

Both equity and debt have a role to play. Debt will provide the anchor and equity will provide the alpha. Both perform their respective roles and provide the stability to the portfolio. The total portfolio return is what needs to be considered and not the returns generated by each asset class in isolation. So, get the basics right and keep it simple.

Brick by brick

* First, you need to know your risk appetite, choices and goals

* With this background, you set small targets, which are in sync with your overall long-term goals. You set your goals and return expectations, and rebalance targets accordingly

* If you have a lower risk appetite, you will want to achieve a real return beating inflation on a consistent basis

A higher risk appetite will indicate that you can cope with volatility, which could lead to an alpha return over the investing period

* You cannot compare equity returns with returns of other asset class. So, having an appropriate asset mix is the core requirement. This is called asset allocation

* Both equity and debt have a role to play. Debt will provide the anchor and equity will provide the alpha. Both perform their respective roles and provide stability to the portfolio

The author is founder and managing partner of Zeus WealthWays LLP

Simple steps to e-filing income tax returns

http://www.rediff.com/business/slide-show/slide-show-1-perfin-simple-steps-to-e-filing-income-tax-returns/20120723.htm

Why retail investors always lose

Historically, the bulk of the money, almost 80-85 percent, always comes in at higher than 17-18 (Sensex) price-to-earning multiple (P/E) multiple. "We never see inflows at low P/Es and when markets begin to recover. Instead we see outflows because people who feel they have been trapped, and now some returns are there, they are taking out money," that is why investors get disappointed with equities time and again.

http://www.moneycontrol.com/news/mf-interview/hdfc-mfs-prashant-jainwhy-retail-investors-always-lose_795117.html

Get 10 lakh for not hopping jobs

Right Insurance ?

Decoding your restaurant bill

http://www.rediff.com/getahead/slide-show/slide-show-1-money-decoding-your-restaurant-bill/20111006.htm

SERVICE TAX At Restaurants - VERY IMPORTANT !!!
Interesting.
I find restaurant bills often so confusing,
...
I just give up and pay the amount shown n the bottom line.

Perhaps we shouldn't.

Incidentally, I also resent the inclusion of Service Charges in
restaurant bills, because it assumes that I was satisfied with the
service. Just a matter of principle. Service Charge should be
something I leave behind at my personal discretion.
I recently demanded that the service charge be removed as the service was non-existent. After a short - very short! - discussion, it was removed. About Service Tax..... Be aware


This happened at the restaurant.

Let me explain.

We had been to several restaurants recently. I observed that "service
tax" was being misused in the way it was being charged to customers.

Let me give an example.
- - - - - - - - - - - - - - - - - - -

Food and Beverage = Rs. 1000.00

Service Charges @ 10% = Rs. 100.00

Service Tax @ 4.94% = Rs. 54.34 (on F&B + Service Charges)

VAT @14.5% = Rs. 145.00

Total = Rs. 1299.34


As per the definition - "Service Tax can be charged ONLY for the

services provided to the customer".


Now, see what is happening here in the above example.


Service Tax should be charged only on the Service Charge amount i.e
Rs.100 ONLY, and NOT on the entire amount (1000+100).

In this example, the customer should be charged only Rs 4.94, whereas
he has been charged Rs. 49.00 extra.

Where does this money go?
Only the restaurant owner and the chartered accountants who work for them know.

· So, I have started asking them the questions - and am
surprised to see the reaction from famous restaurants. Either they
say: "Sir we cannot change the format of the bill - so , we will
recalculate and tell you the revised amount. You may pay only that."

OR

· "Sir, you do not need to pay the Service Tax amount itself"!!

I now have 3 to 4 restaurant bills, but for which I have paid only the
service tax on the service charge and NOT on the total amount.



Every bill MUST carry the TIN number and Service Tax Number, if they
charge it. So . . . , I ask for the Service tax number if it is not
available in the receipt that they provide.

As we cannot go to any government official and ask them to get this
right - because of our system.

Please remember - we cannot change any political leader - but we can
change ourselves.

If we change ourselves - things will change.
http://www.rediff.com/getahead/slide-show/slide-show-1-money-heres-what-those-taxes-on-your-restaurant-bill-mean/20131112.htm

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