Importance Of A Financial Advisor

 

Creating a financial plan is not everyone’s cup of tea. Sometimes you may not have the time; sometimes you may not have the required skill set and most often, you may not have the inclination to undertake such an exercise. So, how can you go about acquiring a suitable plan? Simple; delegate the job to an expert!

At present times, the financial markets are flooded with a variety of financial instruments with varied characteristics and maturity periods. Previously you had to be content with bank fixed deposits and investments in gold, real estate, insurance products and equities. But at present times, you also have the choice of mutual funds, ULIPs, insurance products with riders, gold ETFs and SIPs. Even though these instruments are easily available, it is difficult to choose appropriate instruments and construct a portfolio which matches and meets your unique needs.

Enter financial advisor

Keeping this in mind, you need the services of a professional financial advisor who is qualified to suggest investments in suitable financial instruments. Financial advisors construct your financial portfolio by considering your income, age and other parameters. Moreover, they also give you valuable advice on how to revisit your portfolio when there is a change in market conditions, your income levels or responsibilities. They help you invest the spare/excess cash available with you in a productive manner so as to reduce your tax liability and maximize gains. The advice given by a financial advisor also helps you to negotiate salary components with your employer which will indirectly help in reducing your tax burden. In case you are earning in foreign exchange, the services of financial advisors will help you deploy those funds into the most suitable investment avenues.

Lastly, the services of professional financial advisors become imperative because one size does not fit all; your income levels, expenditure and tax liabilities are likely to be different from those of your friends and acquaintances.As a result, what has worked for them may not work for you as well.

Conclusion

While choosing a financial advisor, be sure to go by good references and not the lowest price tag. Then, once you have chosen a financial advisor and are convinced that his or her advice is based on scientific principles and sound experience, you must trust his or her advice. Most importantly, remember that for your financial planning exercise to be successful, even if it constructed with the help of the best financial advisor, you must have patience and perseverance. Some financial goals take relatively long to materialize.

Read More

How To Create A Personal Financial Plan

 

Today, it is imperative to supplement your savings with a sound Investment Strategy which is why financial planning is a must! For many of us, creating a financial plan may seem like a daunting task and leaves us unwilling to even start. However, the truth is – it’s simple as well as beneficial! Its All About Money throws light on 8 easy steps – starting from goal planning, investment planning, risk management, retirement planning, and so on; that will help you create your financial plan from start to finish.

FOLLOW THE STEPS BELOW TO CREATE YOUR OWN PERSONAL FINACIAL PLAN

STEP 1. GOAL PLANNING

• Identify your goals & prioritize them
• Assign a value to each goal
• Save for emergencies

STEP 2. INVESTMENT PLANNING

Make a monthly budget where you divide your income into three parts
• Savings
• Expenditure
• Investment
Your investment plan depends on below factors:
How much risk you can take depending on your demographics such as Age, Income, Number of dependants, etc.
• How much risk you are willing to take
• How much time you can spend on monitoring the investment
• Your purpose for investing

STEP 3. RISK MANAGEMENT (INSURANCE)

There are many allied benefits of getting insured if you plan carefully, such as below:
• Your dependants are secured in case of your sudden demise or in case of an accident that leaves you unable to earn
• You can insure an asset that you have purchased (Your Home) using loan
• In case of hospitalization or critical illness, the cost will be taken care of through insurance
Note: It is advisable to start Insurance planning early, as the premium rates are higher when you are older

STEP 4. RETIREMENT PLANNING

One must start laying foundations for one’s retirement from the start of one’s career. Long term investment options are best suited
Equity Investment helps you build serious wealth over the long term. Besides, the risk in equity investing considerably reduce if one stays invested over a long term.
Other retirement investment options are –
• Pension Plans
• Provident/Gratuity/Superannuation
• Public Provident Fund
• National Pension Scheme

STEP 5. CREATING THE FINANCIAL PLAN

Planning your cash flow: Keeping an account of your current and future cash flow will help you plan your investments, stay liquid and deal with emergencies comfortably
An Organised Budget: The numerous, one-time, small expenses add up to land a giant blow to our financial health.
A budget serves three purposes:
• Gives a detailed itinerary of your expenses
• Shows where you can cut down expenses
• Helps you spend and save wisely
• Regulates your expenses
Loan Management: Managing your loan involves –
• Allocating funds for EMI
• Planning large repayments

STEP 6. TAX PLANNING

• Invest in tax-saving investment options
• Make the investment early to enjoy the interest for the entire year
• Compute your taxable income for planning your cash flows
• Use all possible tax deductions that you are eligible for, in order to minimise your tax burden

STEP 7. REVIEWING YOUR PLAN

Financial Planning is an ongoing process and you must review your plan regularly, because the circumstances in your life change. Any major changes in your life such as marriage, children, education & job change must be accounted for to consider altered circumstances.
This is because as per your life situation:
• Your risk capacity changes
• Your asset allocation gets altered
• Insurance needs will arise or get altered
Review your plan every six months or annually and monitor your investments regularly to protect yourself against sudden shocks.

STEP 8. ESTATE PLANNING

• Create a list of all your assets
• Get familiarised with the estate devolution rules to avoid disputes later
• Create a Will after discussing it with your family and friends
• Place your Will with someone or somewhere that can be accessed easily by your family
In the end, it is your wealth that you will be giving away, so plan for it wisely and generously.

Read More

Different Types Of Investment Opportunities

 

Every day brings a new twist to the sentiment of Indian investors. If one day the stock market is up 500 points, the next day, it is down by nearly the same amount or even more! Doesn’t this confuse you? Not only this, there are a number of aspects that would be on your mind.

Some of these are –

• The equity market has gone nowhere in the last 5 or 6 years. Even long term investors are losing patience and starting to question the usefulness of equities.
• Gold prices have had wild swings much to the dismay of the average Indian investor who always believed in gold as the “safest” investment.
• Debt mutual funds’ performance took a sudden nasty turn just when investors had loaded up on long term funds in anticipation of the interest rates sliding. This has shaken investor confidence.
• On top of all these woes, investors had to contend with Ponzi schemes and blatant frauds in the commodities spot market.
• Real estate prices have remained unaffordable and even unbelievable in some cases putting them out of the average investors’ reach.

Well, investors are having it tough no doubt. It’s a storm out there with literally no place to hide.

Sticking to investment fundamentals

As with everything else in life, investments too will have their ups and downs. It is the reality after all. There will be good periods and also the bad ones. In this scenario, using a sensible approach is the only way out. Disciplined savings habit, wise investments with adequate diversification and a clearly defined asset allocation pattern based on a financial plan aren’t just bookish gyan to be brushed aside. Just as sound technique is essential for success in cricket, a strong commitment to fundamentals is the secret of investment success.

Investment opportunities

Here are some attractive investment opportunities that you can consider at this point in time.

1. Fixed Maturity Plans (FMP):

   When everyone expected interest rates to fall, it surprisingly rose! This has given an unexpected but excellent investment opportunity. Since interest rates are considered to be at or near the peak now, this is a good opportunity to lock into these attractive rates through FMP. As FMPs have a fixed maturity date, invest for the full tenure of the FMP; this will help you get the prevailing high interest rate for the term of the fund. Depending on your investment horizon, you may choose FMPs with tenure of up to 5 years.

2. Short term funds:

   Bond funds come in a variety of investment terms. There are long term and short term funds depending on the tenure of the bonds that they hold. As short term interest rates spiked recently in response to the RBI measures to stabilize the rupee value, short term mutual funds have been offering attractive returns. Since low tenure bonds and funds experience lower volatility due to interest rate movements, these are good options for a 12 to 18 month investment period.

3. Long term funds:

   Bond funds that invest in relatively longer term bonds would benefit tremendously when interest rates fall. The current high interest rates are expected to fall in the near to medium term. By investing in these long term funds, you not only get higher interest but also an attractive capital gain when interest rates start falling (market prices of bonds rise when interest rates fall). If you can remain invested for more than 3 years and are comfortable with short term price falls and rises, you can consider these funds

4. Equity SIP:

   Most successful equity investors invested when everybody preferred to stay away from equity. There is very little enthusiasm for equity shares among investors now and hence their prices are at an attractive low. By investing regularly in equity funds now, you have the potential to earn attractive returns when the market does turn around eventually in the near future. Systematic Investment Plans are an automated way of investing a fixed sum at fixed time intervals. All it takes is a standing instruction to your bank through the mutual funds scheme and your money would start flowing into the scheme without any further effort. Investing bit by bit through this period of gloom, you not only reduce your investment risk but also enhance your return potential. You may start and more importantly, continue an SIP in a good equity fund.

To conclude, don’t despair! There will always be some investment avenues that would make sense in a given situation. Happy investing!

Read More

Gold Investment In India & Its Benefits

 

Gold prices have been moving southward; should you consider this as an opportunity to invest in gold?

Everyone appears to believe that the bull market for gold has come to an end. Further, they believe that gold prices will ‘keep falling’. The reasons forwarded are primarily that after a tumultuous period where European sovereign defaults were anticipated and sputtering of the US economic recovery, after several initiatives by respective governments both seem to have stabilized and a calmer future is now foreseen. A calmer economic environment is supposed to bode well for financial investments leading to lower dependency on traditional forms of hedging viz. gold. Gold has hence lost value and continues to be in a downward trend.

For that to be true, certain things have to fall in place. The last bull market in gold ended when the US Federal Reserve (Fed) changed its policies in 1979. Monetary policy was significantly tightened. Interest rates, which trailed inflation rates, were hiked up significantly allowing investors to have very decent real rates of return (interest rate minus inflation rate). Not only this, inflation was also kept in check to maintain real returns.

 In this situation, bonds became more attractive than gold (due to high interest rates and falling inflation). By contrast, gold prices fell nearly 70% during the period 1980 to 1999 reaching US$ 250 per oz.

In order to address slowing GDP growth in late 1990’s, US monetary policies were loosened leading to lowering of interest rates. This was coupled with the attack on World Trade Centre in New York in 2001 which led to questioning the US status quo on global military dominance. Both these events hastened the weakening of the US dollar and strengthening of gold prices.

This lasted till 2012 and since then, gold prices have started falling again. What is the reason? Is the US planning to enact similar monetary policies it had during the 1980s? No!

In fact, the truth is that governments across the world are printing more and more currency notes resulting in inflation only moving one way – up. In fact, nearly every major country in the Western world is running a big deficit. Central banks and central governments are committed to a particular course of action. Does it lead to more valuable paper money? Does it lead to price stability? Does it lead to sustainable growth?

Or does it lead to bubbles, crises, booms, busts, and possibly an eventual blow up? Clearly, the value of paper money looks to be increasingly precarious. In this situation, the only real value will reside in GOLD!

Key Gold FactAccording to the US Geological Society, gold mine supply would exhaust in 12 years.

30-year gold price history in INR per gram.

Read More

National Pension Scheme vs. Employee Provident Fund

 

It is important to first understand that NPS (National Pension Scheme) and EPS (Employee Provident Fund) are as different as chalk and cheese. Although both cater to the post retirement needs of a person, the tax benefits, rate on investment, etc. are very different.

In order to understand what exactly makes NPS different from EPS, it is important to get a clear and broader understanding of the benefits and shortfalls of both and which one supersedes the other.

What is NPS?

Just like the commonly known Employee Provident Fund, the National Pension Scheme too is a retirement plan, which is open to all the Indian citizens. It caters not only to employees of organizations but also to the wage workers and is available in 3 forms:

1) Tier I – wherein premature withdrawal is not allowed. The holding is up to retirement.
2) Tier II – Premature withdrawal is permitted in case of genuine reasons.
3) Swavalamban account – Here the government shall pay Rs. 1,000 for 4 years into the account as its contribution. The main objective of this account is to encourage savings among the wage earning category.

What is EPF?

An Employee Provident Fund is specifically for the salaried. It is a dear scheme that covers majority of the working class. Here the employee and employer both contribute 12% + Dearness Allowance each into the EPF account.

Thus, while an NPS account can be opened by any Indian, an EPF account is available only to a salaried person.

Return on Investment

As mentioned before both are retirement plans, however the return on investment which can be earned by the two differs greatly. The EPF interest rate for the year 2014-15 was 8.75%.

However, in case of NPS there is no specific interest rate as NPS is a market-linked product. The money is not with the government but with designated fund managers, which you can choose between. You can also choose between different funds as investment options, some of which invest in fixed income but others invest in equities. Up to 50% of your assets can be in equities. Equity investments are the great advantage that the NPS has. While equity investments can be volatile over the long horizons of a typical NPS investment, they are likely to generate much higher returns than fixed income securities.

Can you take a loan of any of these?

In case of EPF, an application for loan to a maximum extent is allowed thus making EPF nearly liquid. However NPS offers no such option so it is literally a long term holding with no exit route.

Perks of planning for retirement

For EPS your employer is obligated to match up to your 12% + DA contribution and this gets added to your retirement savings. So you save twice by saving once. Unfortunately for NPS there is no such obligation on the employer to contribute.

What about Tax?

EPF – Tax deduction is available Up to Rs.1 lakh under section 80C and taxable as per applicable tax slab if withdrawn before 5 years of service.

NPS – Section 80CCD of income tax act provides deduction under the section 80CCD(1) in respect of contribution made by the employee, and a deduction under the section 80CCD(2) in respect of contribution made by the employer to the New Pension System (NPS).

Contribution made to the pension scheme under section 80CCD (2) (employer’s contribution) shall be excluded from the limit of one lakh rupees provided under section 80CCE.

So, if you’re genuinely looking for retirement saving, then keeping the tax dimension aside, NPS is far better structured and should deliver more satisfying returns because it is designed as a very methodical retirement savings plan, whereas EPF is something to channelize long-term savings into safe fixed income.

Read More

5 Tips While Buying Insurance Online

 

Purchasing insurance online has become a quick, convenient and economic way to purchase insurance products.

The trend of purchasing insurance online is gradually gaining pace in India as it is becoming popular with today’s tech-savvy generation. With the advent of online insurance, you do not need to go to an insurance company’s office or visit an insurance agent. Rather, you can purchase any type of insurance policy online through the internet – be it health, motor, travel or life covers. Besides online insurance companies, which directly sell their products through their web pages, there are websites like Insurancepandit.com, Bimadeals.com, Policy-bazaar.com, etc. which display insurance products from different insurance companies. Such sites help you to compare the features of the different insurance plans thereby enabling you to make informed decisions while you buy insurance cover.

 Here are 5 smart tips you may consider while buying insurance online:

• Amount of insurance -

  You should buy only as much insurance as you need. The general thumb-rule is that you should buy a life cover which is 10 times of your annual income to protect your family in case any untoward incident happens to you. However, there are more accurate ways of gauging how much insurance you need. One popular method is by calculating your Human Life Value (HLV). To do this, all you have to do is go online and find a couple of HLV calculators. Fill in the requested fields and submit and they will give you an idea of how much insurance you should buy.

• Selecting an insurance company -

  This is one of the most essential steps in your insurance-purchasing exercise. Your decision to purchase a policy should never be dependent on how good the website of the company is or, for that matter, how easily or how fast you can purchase a policy through its website. Also, don’t select the company simply because it is the first one that appeared during your search on the internet. Rather, you should check its claim settlement ratio, its pedigree and its history within the insurance fraternity, before zeroing in on the company.  Also make sure that you find out about the customer service policies, location of offices, etc.

• Product:

  Once you have identified the quantum of insurance you want to purchase, based on your requirements and the company from which you plan to purchase insurance, it’s time to choose the type of policy that suits you best. You should check the features of the policy such as the term of the policy, the premium-paying term, the date of maturity, the charges and benefit structure. Benefit illustrations under different return rates are available with all ULIPS. They also disclose charges and your would-be investment status on a yearly basis.

• Performance of the fund -

  While purchasing a ULIP (which is an insurance policy which doubles up as an investment vehicle), you can check the company’s past performance. Details of the performance of all funds of life insurance companies can be easily accessed online. Stability is an important factor that needs to be considered here. A company that has a good track record is more likely to have a stable fund performance over time and hence is less risky.

• Security of the insurance company’s website -

  This is the most important of all tips for purchasing insurance online. While you are ready to pay, check if the website is Verisign protected or not. Also check whether the browser of the company’s website displays the term ‘HTTPS’ or just ‘HTTP’. If it is the latter, you should refrain from using the website for payment because the ‘S’ in ‘HTTPS’ denotes secure access.

Once you follow these tips, most of your key concerns will have been met. However, if you still feel unsatisfied after buying the insurance policy online, the ‘free look’ facility, allows you to return the policy within 15 days of purchase.

Read More

Types of Insurance & Which type of insurance should you buy?

 

With so many types of insurance products available it could become difficult to decide what type of product is best suited for you. Here’s what you need to know to help you decide what to buy, based on your financial needs or life stage…

Technically, insurance should be sold based on the needs of the person who is to be insured. But sadly, we often come across overzealous insurance agents who oversell expensive insurance products, in some cases to earn fat commissions. Now, become a proactive buyer by educating yourself about different types of insurance products designed for various life stages.

Term Insurance Plans:

The sum assured of such plans is paid to the beneficiaries (family, parents or children) only if the policyholder dies within the policy term. This type of product is designed for 100 per cent risk coverage. Hence, the premiums for this type of life insurance policies are the lowest amongst the entire insurance category.

Suitability: Single or Married with or without Kids

Whole Life Plans:

The policyholder enjoys life coverage throughout his or her entire life. On the death of the insured, the validity of this life insurance policy expires and the corpus is paid to the family.

Suitability: Single or Married with or without Kids.

Endowment Plan:

In this type of plan, if the insured dies during the term of the plan, the beneficiaries receive the sum assured. If, however, the insured survives the term of the plan, he or she receives a lump sum of money. Such plans help you to accumulate funds over a longer period of time enabling you to meet future obligations such as buying a flat or an annuity policy.

Suitability: Ideal for individuals who wish to save for the future and at the same time purchase insurance cover.

Money-Back Plans:

With such plans, the insured regularly receives a percentage of the sum assured at regular intervals throughout the policy term. The periodic payouts of Money Back Plans are useful for meeting financial obligations from time to time such as children’s higher education or marriage, foreign tours, etc.

Suitability: Ideal for those looking for a 2-in-1 product – insurance cover plus savings.

ULIP:

This category of insurance combines the advantages of risk coverage with the benefits of mutual funds. A certain percentage of the premium is invested in listed equities, debt funds and/or bonds, depending on what options you choose, and the balance meets insurance and fund management expenses.

Suitability: ULIPs are a good option for investors who would like to get involved in managing their investment cum insurance funds.

Read More