Thursday, Mar 4 2021

Source/Contribution by : NJ Publications

It's about to start a new Financial year and we usually start the new year with new goals and resolutions, then why not to plan for TAX saving. Although, tax planning should ideally be done at the beginning of the financial year, in the month of April, you have one more month in hand to plan and break your investments over the year, yet many of us have still not kicked off the tax planning process. So, without wasting any more time, you must immediately get on to your Taxes.

Calculate your Tax Liability: Since there is already a time crunch, the plan must be a sure-fire to avoid making mistakes later. Hence, begin with estimating your annual income, you already have nine months' numbers with you, so you are left with just three months' to judge. Remember to include:

Any Annual Bonus that you are expecting,

Any Capital Gains or Losses through redemption of earlier investments or any imminent sale of assets

Interest incomes from fixed deposits or for that matter, from saving accounts also

Dividend Incomes, etc.

Expenses: Once you are through with the Income, try to cut it down by deducting the expenses eligible for deduction. Most people start investing in PPF's and NSC's randomly on the basis of their annual income. But you don't need to always invest to save taxes. There are certain expenses which you have already paid for, and which can help you bring down your tax liability. The money you save by not investing can be directed to products which are more suitable for you, since then you won't be limited by Section 80C. So, if you have spent on or are about to spend on any of the following from April 2020 until March 2021, then they should be deducted from your gross taxable income:

Tuition Fee of your Children : The tuition fee paid by you for your children to any registered school, college, university or any other educational institution based in India, for full time studies, is eligible for deduction under Section 80C of the IT Act. Remember, this deduction is eligible for fee paid for upto 2 children.

Rent Paid : If you are living in a rented accommodation, the rent paid by you to the landlord, is eligible for deduction. Salaried individuals can claim HRA exemption provided by their employers, while business owners or salaried people who do not get HRA exemption, shall claim the rent paid under Section 80GG of the Income Tax Act.

Medical Insurance : Your health insurance premiums can also be claimed as a deduction u/s 80D of the Income Tax Act.

Home Loan Principal and Interest : If you are paying your Home Loan EMI's, then both the principal repayment as well as the interest paid, are separately eligible for deduction. The principal repayment can be claimed under Section 80C for upto Rs 150,000 and the interest component can be claimed under Section 24, for upto Rs 2 Lakhs.

Payments made for purchase of a Residential property : In addition to Home Loan installments, if you have acquired a house or a land in FY 2020-21, then the payments made at the time of acquisition like the stamp duty, registration fee, etc., are also eligible for deduction.

Apart from these, there are a number of expenses that you can claim as a deduction from your income, like Interest paid on education loans, donations paid, deductions available to disabled people, etc.

Assess the investment amount : Once you are through with the expenses part, and are at the income post deductions, the next step is to assess the amount you need to invest. If your Sec 80C limit isn't yet exhausted after providing for the tuition fee or home loan principal, Life insurance policy premiums, etc., if any, now you need to fill in the gap with investments.

Asset Allocation : Your tax investments are not just a tool to save tax. They are a part of your overall financial plan of achieving long term goals. Therefore, these investments must follow your ideal asset allocation, they must be linked to a goal, and shouldn't be treated as a random mandatory investment created just to save tax.

ELSS Schemes for Saving Taxes and Wealth Creation : While most of us have been investing in PPF's, Tax Saver FD's, Traditional life insurance policies, etc., since ages. But these products have a number of shortcomings, like the interest rates are gradually becoming exceptionally low, there are high lock in periods and the returns are taxable, except in PPF. So in this scenario, investors must consider ELSS schemes of Mutual Funds, these are eligible for deduction under section 80C, with the minimum lock in of 3 years, the returns generated are way higher than all other conventional products, and that too tax free.

You must at once, sit with your advisor, who can guide you with the various investment options and the ones which are most suitable for you. So, once you are through with the plan, it's time for action. Start investing and also accumulating the receipts for all of the above expenses paid and the investments that you are going to do to avoid the last minute hassles..

Tuesday, February 02 2021

Source/Contribution by : NJ Publications

It was cold, windy evening of January 2012. Mr. & Mrs Arora (retired couple, both senior citizens) were enjoying winter evening & having a cup of hot coffee in their 3 BHK luxurious apartment in South Delhi when they received a phone call. Next 15 days were one of the worst period they experienced in their lives. Their son, Mr. Akash Arora in his late 20's met with a severe accident while driving a car on his way back to Delhi from Chandigarh due to intense fog. He incurred multiple fractures and was in hospital for 15 days. Fortunately he survived and recovered fully after 15 days of hospitalization, but the total medical bill made Aroras poorer by Rs.7 lakhs. Unfortunately Akash had medical cover of only Rs.3 lakhs assuming this would be sufficient for him at a young age of 27.

As Aroras belong to higher income group and have created wealth over the years, additional Rs.4 lakhs which they had to pay from their own pockets did not pinch them much but not all of us belong to that category. Can such type of incidence happen to any of us ? Are we in a position of bear cost of high hospitalization/medical bills on our own

You may argue that this can be an exceptional event and may not happen in everyone's life. But can we predict which family will suffer this trauma and which one will escape ? Another point worth highlighting here is lifestyle related health problems. In today's fast paced life when every one of us is a part of the 'rat race' and all of us want to win that race, we are leaving healthy living habits behind. Eating junk food, irregularity in eating habits, high pressured work culture resulting in incidences like heart attack at a young age or diabetics or blood pressure problems. These have become very common in India now.

Unfortunately in India we mostly realize importance of medical insurance only when something of this sort happen either to us or to our near & dear ones. Why to leave things to destiny when you can cover the risk through medical insurance, popularly known as mediclaim.

Understanding the Basic Traits of Health Insurance: Health insurance is a contract between insurance company (insurer) and insuree who takes insurance coverage against any medical emergency by paying a specified price (called premium) depending on multiple factors. Health insurance is nothing but passing risk of bearing medical cost to insurance company against the premium paid.

So medical insurance is nothing but passing risk/cost of medical treatment to insurance company by paying premium. So in event of any medical treatment, your insurance company will pay you to the extent of insurance cover against the premium paid by you..

Friday, January 8 2021

Source/Contribution by : NJ Publications

Albert Einstein had once called power of compounding as the eighth wonder of the world.This is one investment principle which makes money making simple. There are two facets of power of compounding which if you follow as an investor, creating wealth becomes easy. First is to start investing early and giving time to your investment and second stay invested, do not withdraw money in between and let it grow.

In simple terms compounding is nothing but reinvestment of interest/income earned at the same rate so that interest/income earned also generates additional return at the same rate in future. Let me explain this with simple example :

But why is it so important in world of investment and how can it create wealth for investors ? Let’s try to understand this with simple story of chess & grain. Chess was invented by Grand Vizier Sissa and then he gave it to a king in India. The king offered anything in return; Vizier said that he would be happy merely to have some wheat: one grain for the first square of the chessboard, two grains for the second square, four for the third, eight for fourth and so on. The king was amused by the ‘small thinking’ of Vizier but the king could not fulfill the desire of the inventor of chess. Why? The number of grains for the whole board = 18,446,744,073,709,551,615. This is more wheat than in the entire world; in fact, it would fill a building 40 km long, 40 km wide, and 300 meters tall. So, the moral is if one uses the ‘Power of compounding’ smartly, then becoming rich is not a dream.

Let me explain the same concept in investment parlance. Let us understand a story of a tortoise and hare. The hare saves Rs. 10,000 every year for the first 10 years. After that he saves nothing. However, he compounds his money at the rate of 15% for 30 years. The tortoise starts at the year 11 and keeps saving Rs. 20,000 every year (double of what hare saved) for the next 20 years. Like the hare, he too compounds his savings at 15% every year. So hare invests only Rs. 1 lakh and tortoise invests Rs. 4 lakhs. Let's tally the score at the end of 30 years. Tortoise makes a respectable Rs. 23,56,202 whereas the hare makes Rs. 38,21,468! This is nothing but power of compounding for hare and cost of s15.5 lakh for starting late for tortoise.

So there are two simple logic of generating compounding impact on your portfolio:

1. Start investing early in life. No matter how small that investment is but start investing whatever small amount you can save. Ideally starting point should be 1st month of pay cheque of your life. So as soon as one starts earning, he/she should start investing.

2. Let your investment grow consistently without doing unnecessary withdrawals in between.

The same logic of compounding applies to retail investors approach. No matter how small you start with, important is to start investing early so that your money gets time to compound over a period of time. As investor starts early and has time on his side, he can look at higher return potential asset class like equity to generate positive real return and create wealth over a period of time. Important is not how much you invest, more important is for how long you stay invested.

Rule of 72 might help you in understanding this concept. Rule of 72 gives you doubling period. In short it explains how long your investment will take to double. This rule says that to know doubling period you divide compound rate of return into 72 and you get doubling period in number of years. e.g. if your investment generates 12% return then 72/12 = 6 is the number of years require to double your money.

So if you park your money in fixed deposit giving 9% return you will require 72/9 = 8 years to double your money whereas if you park your money in mutual funds generating 15% return you can double your money in 4.8 years.

As you can see from the above graph, investment of Rs. 1 lakh will grow above Rs. 2 lakh by 5th year at 15% compounding while it takes 8 years in compounding at 9%.

As Albert Einstein said, 'compounding is something one who understands earns it and one who doesn't understand pays it'. Remember compounding works best with equity asset. That may be the reason why world's richest men list include people who have created wealth by taking advantage of compounding with their equity investment.

"Do you think there are any specific habits that make some people more successful with money than others?" This is a question that a lot of clients ask us.Initially, we avoided saying much as we did not want to make any general statements. As we moved around the country and met a lot of successful clients, we realized that there are certainly some differences in how financially successful people manage money vis-a-vis the not so successful. We came across a lot of people earning high salaries but who were always short of money as well as people with average salaries but always had money on hand. We were able to discern certain patterns which we would like to share with you:

1. Surround themselves with positive people. They tend to stay away from negative people and negative thoughts and do not listen to reasons why something cannot be done. They spend most of their time with people with a can-do attitude who find ways to make things happen.

2. Are not held back by failures. They use their mistakes and failures as stepping stones to success rather than obstacles or reasons to stop trying. Rather than running behind achievement, they spend a lot of time putting in the necessary efforts towards achieving their goals. Too much achievement can result in fear of failure.

3. Manage their time effectively. Hours, minutes and seconds are non-renewable and precious resources. They set their priorities and passionately focus on them. Successful people tend to limit their screen time (TV, video games) compared to unsuccessful people. There is nothing inherently wrong with watching TV but it tends to take up a time which can be better spent exercising, reading or learning something new.

4. Ignore the opinions of others. There is no compulsion to keep up with the neighbors. Limited exposure to mass media and advertising allows them to be more productive and not get influenced by cultural norms. They do not follow the herd while taking investment decisions. Warren Buffett, one of the richest people in the world, stays in a 5 BHK house bought in 1958 for $31,500 and currently valued at $700,000. People with trendy lifestyles and the latest fashions tend to be usually short of money.

5. Have a sense of direction. There is purpose to their actions. There is a reason why they work hard, save money and invest wisely. Their daily actions are aligned with their long term dreams and goals. People who are always struggling with money have no direction and idea of what they want from life.

6. Focus on the big wins. They pay attention to the details and develop smart saving habits, but are not paisa wise and rupee foolish. While they may save money on the small things, they do not sacrifice on critical wants like housing, food and income. While the not-so-successful people end up wasting away their paisa and rupees.

7. Do difficult things. They work harder, longer and smarter than other not so successful people. They are willing to sacrifice today’s small comforts for tomorrow’s gratification and big rewards

8. Make their own luck. They keep their eyes and ears open and are constantly aware of what's happening around them. They recognize opportunities as and when they come and boldly seize and act on them before the others do.

9. Believe they are responsible for their own future. Any given situation, whether difficult or easy, is nobody’s fault and may be beyond one’s control. What is controllable though is how you respond to it. Successful people do not react to any given situation but respond pro actively and productively.

10. Grow and change over time. They are willing to adapt, evolve and appreciate different points of view. They are constantly acquiring knowledge and learning from their experiences with a view to change and mold their minds in the right direction.

Most people (including most of us) practice only a few of the above mentioned habits but not all. The most successful people we have meet practice all of them and the not-so-successful people do none.

To conclude, people who are successful with money and life take what they do very seriously. They treat their life as a business and behave as the CEO and CFO with the goal of “growing their business” over time. Your personal wealth is your real business, everything else is supplementary and supportive. Please nurture your business very carefully..

Retirement period is considered to be a new beginning for an individual. It is the time to unwind and pursue hobbies which you were not able to pursue due to lack of time during your working life. Your post retirement period can be the most relaxing period of life after long working years, but also on the other hand, it will be a period when fresh income will stop and you will have to manage with whatever retirement corpus and/or pension you receive. With higher life expectancy, increasing cost of medical treatment and double digit inflation, life looks more challenging for a retired individual.

With urban Indian, the biggest challenge of retirement life is perhaps increasing life expectancy with advancement of medical treatment but coupled with rising medical costs and with private employment & lesser possibility of employer sponsored pension, we all may need to fund around 25 years of retired life from our own savings if we consider retirement age at 60 and life expectancy of around 85.

Interest earnings from debt / small savings have been the traditional source of income for retired individuals. Looking at the bigger picture, we find that typically, interest rates are high in underdeveloped and developing economies but in developed economies, they are relatively very low. Prudent economics encourage the government to bring interest rates down or aligned with market rates for government sponsored saving schemes like PPF, Postal Schemes etc. We have already seen a declining trend over the past decade in such products. With falling interest rate scenario, only debt retirement portfolio will not generate return sufficient to meet rising expenses during retirement period of 20-25 years. This leaves very little option for a retired individual to look for in terms of investment instruments which can generate inflation beating return.

Inflation: The crux of the problem During working life, the inflation effect more or less get nullified as your income grows faster or in line with inflation rate but during retirement, inflation eats into your savings as you stop generating additional income. With stagnant and/or slow moving pension, inflation greatly increases the gap between expenses and cash inflow during retirement. This becomes very critical when we consider extended periods of retirement of over 20-25 years. So it becomes imperative that your portfolio fulfills either of the 2 conditions in face of rising expenses and falling interest rates:

Your retirement corpus or any post retirement portfolio be of such huge size that all future expenses can be managed by earnings and withdrawals. Your planning focuses on both current earnings and also future growth of portfolio. Here you would need to generate inflation beating returns. The Bucket Idea: We can represent the entire portfolio planning exercise in a simplistic bucket concept. The simple rules of this idea are...

Each bucket represents a different need/objective and aims to fulfill the same and one should evaluate it according to its objective One should not compare returns from each bucket in the same time frame as buckets would be for different time frames The buckets must consider your entire portfolio in all asset classes. Remember to plan your buckets with your financial adviser with proper disclosures. Just to briefly state at the beginning, there are different baskets and you must choose baskets as per your own objectives and needs. To begin with, let us ignore the size of the basket as it would be explained later.

Bucket 1: For emergency funds / short-term expenses /planned medical expenses Bucket 2: For generating earnings/income for meeting expenses – either by pure earnings or with capital withdrawals as option in rare cases Bucket 3: For ensuring portfolio growth and ensuring total 'value' of portfolio is kept intact even after inflation Bucket 4: For generating good wealth in long to very long term Now we begin choosing the buckets, one at a time. Remember, that estimating the need and size of the bucket will eventually be the outcome of a thorough financial /portfolio planning with your adviser...

Bucket 1: This is essentially your emergency fund for meeting any medical emergency or for upcoming /planned medical treatments, etc. The emergency fund should also cover your upcoming expenses for few months, say 3 at least, at all times. The emergency fund can be kept in bank or in cash though it is recommended that you keep only limited amount in cash if access to bank / ATM is convenient.

Bucket 2: This bucket essentially is for generating returns /cash inflow for meeting your expenses. The objective here is to have regular flow of income ensured through interest earnings for the next 3-5 years at the upper end without facing any return/income fluctuations. This bucket is most important and must remain with you always such that projected cash inflow is always assured first.

Over the time, this bucket will lose value due to inflation and withdrawals, if any planned. With rising expenses, this bucket may need replenishment from time to time. Capital withdrawals should be avoided as far as possible especially if you are in the beginning years of retirement. Meeting expenses by withdrawals is recommended only when you are in later years of retirement / very old age as it comes at the cost of sacrificing future earnings.

On the other hand, in cases where there is good retirement kitty available, there can be a surplus cash generated over expenses. It is highly recommended to make proper use of this surplus and put it preferably in bucket 3 or 2, as may be required. Money can be withdrawn manually and with mutual funds, you can opt for Systematic Withdrawal Plans or SWPs with set frequency and amount.

Typically, fixed/regular interest paying debt instruments can be a part of this portfolio. It will predominantly be a debt portfolio and may comprise of PPF, Bank FD, NCD, Post Office Senior Citizen Savings Schemes, etc. In most cases, the size of this bucket would be the largest. Debt mutual funds are a very good match for bucket 2 as they offer great choice, comfort, features, liquidity, convenience and taxation advantages without any additional risks. There are products to match any investment horizon and one can choose from a wide variety of products to build a smart portfolio in debt mutual funds.

Bucket 3: This bucket is for replenishing and/or generating additional value to your portfolio. The idea is to not let your total portfolio value decrease but grow especially in the beginning to middle years of your retirement period. You must gain more in long term in bucket 3 from what you lose on bucket 1 or 2 in terms of 'real value' after accounting for inflation. The size of this bucket would perhaps be the largest at beginning of retirement when you should plan for 20+ years of retirement ahead of you and start decreasing when you approach old age.

Typically balance funds or preferably diversified equity mutual funds can easily be put into this bucket. You can also add some component of gold here. With a horizon of 5+ years horizon at the minimum, this bucket should ideally create inflation beating returns.

Putting regular surplus savings, if any, into bucket 3 is a very good option as wealth can be generated without any big portfolio risk or volatility. Doing a mutual fund equity SIP from any surplus earnings from bucket 2 can be a very smart idea. One can also plan for Systematic Transfer Plan or STP from bucket 2 to bucket 3 using mutual fund products in both. An STP has similar advantages as SIP with difference that it is from an MF fund to an MF fund while in SIP it is cash being invested.

Equity is something that has the potential to deliver superior returns to inflation but only in long run. Exposure should be taken after your needs are safe bucket 1 and 2. Further, one must not lose sleep by seeing volatility in bucket 3 and if you are the one to loose sleep/ grow impatient due to market fluctuations, perhaps it would be wise to instead opt for peace and avoid investing in bucket 3.

As the idea is to also replenish bucket 2 by using bucket 3, one can shift money at regular intervals with adequate surplus value being realized. This can be an outcome of what the financial advisers often term as 'portfolio rebalancing'. The quantum of withdrawal should be limited to matching the real value of bucket 2 and that which is essential to fulfill the objective of bucket 2.

Bucket 4: Having the bucket 4 is purely optional. This is a purely aggressive asset class portfolio with clear objective of capital growth in long to very long term, say 8+ years at minimum. This bucket makes sense to be chosen only at the beginning years of the retirement and it is something that the retiree feels free to forget and not use any time soon. We are planning for a long retirement so having this basket does carry some sense.

Diversified equity mutual funds, mid-cap / small-cap equity funds, etc. can be kept in this bucket. One can again have the option of investing small lump-sum at retirement and/or preferably start an SIP or an STP from bucket 2. At regular intervals after say 5-6 years, one can start shifting money /appreciation from this bucket to your bucket 2. The size of the bucket would obviously be small and smaller than bucket 2 and 3. Further, this bucket is not recommended in old age.

Total Retirement Portfolio: One can have any desired combination of buckets but the popular options can be as given below. The actual size and quantum of money can be determined only after proper financial planning / asset allocation exercise.

Bucket 1 and 2: An extra safe option but comes at sacrifice of real value of portfolio. In future, earnings from portfolio may not be adequate to meet rising expenses. Recommended when you have a very comfortable retirement kitty or other source of income /support Bucket 1, 2 and 3: A balanced portfolio that has some scope for preservation / growth of assets to compensate fall in real value. Generally recommended for all who do not have a very comfortable retirement kitty and have to rely on portfolio for meeting needs even in older age Bucket 1, 2, 3 & 4: An aggressive portfolio. Recommended only if you do not have any sufficient retirement kitty and need to have good portfolio growth in long term to meet expenses in older age. Growth must never be opted at the cost of earnings safety in foreseeable future. Bucket 1 : 5-20% exposure Products: Cash / Bank Balance / Liquid mutual funds Horizon: Immediate / very short-term / short-term Bucket 2: 20-60% exposure Products: Debt mutual funds / Bank F.D. / small savings schemes Horizon: short to medium term (<5 years) Bucket 3: 10-40% exposure Products: Balance funds, diversified equity funds, Gold Horizon: long (5-10 years) Bucket 4: 0-20% exposure Products: Aggressive equity mutual funds / direct equity Horizon: long to very term (>8 years) Buckets & funds summary

Retirement kitty can be well invested in buckets 1, 2 & 3. Regular expenses / medical costs, etc. can be met from Bucket 1 & Bucket 2 Filling Bucket 3 from Bucket 2: Investing any surplus earnings, SIP or by STP Replenishing Bucket 2 from Bucket 3/ 4: By STP / Switch / shift at regular intervals over time The Asset Allocation:

A popular perception is that post retirement, we must keep all assets safely into debt. Though this is actually a sound theory, it does lack in addressing the bigger problems it might generate in long term. The idea must always be to do a thorough financial planning exercise to estimate the real needs and then define a proper portfolio with sound asset allocation into multiple asset classes like equity, debt, cash and physical assets during retirement years. The equity component has strong applications and can be effectively used to make your retirement planning more long term sustainable and rewarding.

Typically, the asset allocation would be skewed towards debt. The physical assets like gold would be optional for diversification and inflation hedge in medium to long term. The equity part would be for meeting growth objective over a long term since the expected post retirement period can extend 20-25-30+ years. The long term returns potential of equity has often been talked about here and the SIP route definitely adds extra safety and comfort into the asset. Thus, when it comes to portfolio planning post retirement, one must at least consider multiple asset classes and take exposure with proper planning as per the need. Going beyond portfolio & buckets !!

If you have not yet retired, try to get yourself health / medical insurance as soon as possible It is recommended that you keep all valuables /jewelery safe / in custody especially if staying alone. Take extra care of your physical security. One can enjoy retired life only if he/she is healthy and fit. Maintaining a good lifestyle with diet/yoga/walks/exercises can keep you fit and healthy and also keep those frequent medical bills away.

One can look for extra income by way of paying guests / rent of property Reverse mortgage can be looked at in absence of any financial support/income if you do not wish or need to give ownership of property to any dependents after you in inheritance

Every individual who is retired or is approaching retirement, would seek a steady income flow post retirement to meet expenses. With expected long retirement years, it becomes a challenge and hence the traditional way of thinking has to be changed and an active portfolio management with focus on both safety and future needs has to be considered. There is now less risk that can be taken compared to the accumulation phase to provide a greater sense of certainty that assets will continue to support a comfortable retirement. However, at the same time, there has to be some capital preservation and growth over the time, to ensure that income streams keep pace with the rising cost of living. Such objectives can be conflicting, with higher levels and a trade-off between returns and risk has to be made. The Bucket concept is nothing but a simplistic representation of building a smart portfolio post retirement.

After years of working hard we should all not shy away from retirement but accept it as a fact of life and the dawn of the golden years of your life with immense possibilities. One can seek many pursuits in life and be more socially, politically or spiritually active in life. In this phase of life, money carries less significance in life but even then it forms a critical aspect as one has to meet the basic needs and be self reliant in leading a dignified life. Irrespective of what age one is, retirement planning is very critical and the early you begin, the more comfortable and peaceful your retired life can be. We wish and sincerely hope that every one of us enjoys a healthy and peaceful retirement.

We all want to give the best to our children. We feel that our children do not need to go through the same experiences, difficulties and compromises we had when we were children. And true to our wishes, our children have experienced a very comfortable life where things have been very easy for them. They have been exposed to social media and television at a very early age and have huge aspirations and dreams.

Perhaps one concern we all have is that real life is tough and our children need to realise that. They need to realise the amount of hard work and effort that goes into earning money. As parents, we all wish that our children are much more sensible and careful when it comes to dealing with money. However, this is not something that will be easy for you. Inculcating the right understanding, respect and value for money and developing the right habits from an early age will take time and patience on your part, perhaps many months and even years. In this article, we will explore a few of the ways we can let our child on the path to financial literacy and right habits.

Things to do ...

Recording: The first step which everyone should do is to ask and teach the child to record all his/her spendings. Please do not comment or make any negative observations here as the child may stop recording those things or hide them from you. Let them record everything without fear. There are many mobile apps which help record expenses or instead this can be done the old way – pen & paper or diary.

Motivate them to keep track of their spendings and give them pocket money with the small condition of maintaining the records and sharing it with you for next pocket money. Once there is a track of spendings over a few weeks /months, ask them to make observations. Take a back seat and let them self learn.

Budgeting: Once the children are habituated to keeping records, budgeting should come naturally. Follow a fix periodical pocket money /budget for them. To begin with, this can be for say a few days for small kids, then for every week and slowly progressing to å monthly allowance for more mature children. Once the children are habituated to keeping records, budgeting will be very easy as they know they have to live within that budget for the rest of the period. Just ask them their daily balance without making any judgements or comments. Your role should only be to be strict while giving your pocket money. Ask your children for any major events in advance and adjust your pocket money in advance but not post the event.

Patience: An essential element of learning is patience and this has to be inculcated slowly. There can be many ways of teaching this. For example, if your child has asked for any particular toy or gift, let them wait for it. You may either give an appropriate future date for the same. Alternatively, you may divide the money and pay them equally over many days while asking them to save the same. Eg. If a toy costs say Rs.2,000, pay them Rs.100 daily for 20 days and make them wait slowly till the full amount is accumulated.

Saving: Savings is the most important habit one should focus on developing. With basic habits of recording and budgeting, savings should come easy with patience. Show them how they can cut few corners /spendings and save more. Motivate them for saving with some extra rewards from your end once their savings targets are achieved. For eg., if they manage to save 20% of their pocket money, reward them with say extra 20%. Motivate your children to save larger amounts for bigger and bigger gifts/events. For eg., if they have managed to save say Rs.3,000 for one item/gift, instead of going out and spending, show them better options of say Rs.5,000 and ask them if they would like to have that. Put in your rewards as well. Let them take pride in saving big and then spending. From toys to cycles to electronics to even bikes, this habit can be great learning for your child.

Responsibility: Letting children learn with some real responsibility is a good way to teach them great values. One can begin with small responsibilities like caring for toys, asking one to get repairs for broken toys, caring for small pets like fishes in your aquarium or birds or other big pets like dogs for teenagers. Pets can be a very good way to develop empathy as well. Put as much responsibility on them as you can. Try not to interfere even if things may start looking bad, let your children take responsibilities and learn the consequences of not doing what is needed. Of course, you can lend a helping hand when the child is doing something. You may even give the responsibility to say buying food and other things for your pets to the children and allocate a budget for the same.

Participating: As your child grows and learns, start involving them in planning your household expenses. Let them also have their own share of inputs on things like outings, entertainment, purchase of electronics, holidays, etc. Value their inputs and discuss options. For eg., if they want holidays at some premium location, ask them if they are ready to forego /cut some spendings and wait longer? Also start to involve them in sharing and monitoring things like investments and insurance. Teach them as and when you start sharing. Slowly ask them to maintain all your financial records and documentation. Also let them participate in your meetings with your financial advisors /insurance advisors /tax consultants, etc.

Lessons and habits learnt at an early age stay for a long time in our lives. For our children who are exposed to a virtual world almost all the time, the realities of life need to be taught within our comforts as parents. Early lessons in money management and instilling the values of understanding of the importance of money, money's real value, patience, delayed gratification, etc will lay a strong foundation for financial well-being in life. This is of utmost importance for your child, even more than any educational course he/she may wish to pursue..

Leonardo da Vinci once said that “simplicity is the ultimate sophistication.” This quote still stands very true for everyone today and for everything, be it mind or heart, relationships, home, work or money. One of the best ways to achieve simplicity is to declutter. In this article, we will attempt to make a case for decluttering and how to do it.

Why declutter matters?

There are obvious benefits for decluttering are many. We live in a world of many. Today getting anything is very easy, just a click away. There are many distractions, updates, communications, events happening at virtually every second. The world today is smaller and we find a lot of things happening around us. Often we find our head spinning with so many choices around us. Here are the obvious benefits we will enjoy once we walk on the path to decluttering.

Saves time: by removing time we spend on unnecessary things

Make better choices: making by removing unnecessary things /details

Helps prioritise: from among many things

Bring focus: on things which are really needed

Aids memory: by reducing the things we need to remember

Being consistent: by simplifying things

Get peace: by removing complexities

How to declutter and achieve simplicity?

Simplicity is something that many of us desire but many do not know how to do so. Here are the important steps to do so.

Target: The first step is to decide what to declutter? Since almost everything around us may be decluttered, deciding where to start is an important step. Chose an area or subject which you feel requires urgent attention and has been draining you out mentally or physically. This could be your finances, relationships or even your kitchen or wardrobe.

Learn: The second step is to learn how clutter and lack of simplicity are impacting your time, productivity, money, etc in your chosen area. Have a closer look at everything going in there. In case you are looking at your finances, just observe how many financial transactions, holdings, investments, accounts, advisors and such other complexities are there. Are they too many? Understand what and how you have been at a disadvantage due to this.

Prioritise: The next step is to prioritise. What is the most important? What is the one thing you can and cannot live without? Organising into important and not important is an important step and you really would need to be strict here. Keep doing this till the time you feel you have a shortlist of the most important things that matter.

Reduce: Once you have prioritised, the most critical action now is to remove the things you do not need or do not really carry any real value for you. In finances, one could do this by consolidating your investments, closing unused accounts, closing policies that do not serve the real purpose of protection, moving portfolio with only one advisor, reducing debt, and so on. One has to be very ruthless here to remove things that do not matter.

Add: It would be rare that you would need anything to be added to your chosen target area of decluttering. However, it is possible and perhaps even a good time to add the most important things which you have been missing out since long. In finance, a comprehensive financial plan could be the one thing you are likely to be missing out.

In short, here is what we have done – subtract the obvious and add the meaningful. That is what declutter and simplicity is really about. Remember that you have succeeded in life when all you really want is only what you really need.

Simplicity in finance:

Simple expectations: The major reason for mistakes, frequent churning and bad product choices is often exaggerated expectations. We need to have sound, grounded and long-term reasonable expectations and hold on to same at all times.

Declutter portfolio: Most of us would likely have many insurance policies, bank FDs, small saving schemes and even mutual funds and equities. Time to have a strategy and remove the products that do not add real value.

Prioritise your goals: One needs to prioritise one's goals. Often the random, small goals are given priority at the cost and compromise of long term big goals. This has to stop

Have steady plans: Frequent changing of your plans has many costs attached to it. Have a comprehensive financial plan and stick to it.

Have discipline: Disciplined savings over the long term is the ideal and easiest way to create wealth. Start a SIP, keep growing your SIP and forget about it.

Reduce expenses: If you look around, there are many unnecessary expenses around you. This is impacting your financial well-being, one expense at a time.

Do not run after ideas: Do not chase ideas or stock tips or get rich quick schemes. It does nothing but adds uncertainty and complexity to your finances

Do not make too many mistakes: Not making too many mistakes or big mistakes in life is the surest way of letting your money grow and not protecting you from financial shocks.

Socrates once said, “the secret of happiness, you see, is not found in seeking more, but in developing the capacity to enjoy less.” If we all live to this principle in our lives, I am sure that our lives will be much happier, peaceful, rewarding and healthy. Let us commit ourselves to simplicity in all aspects of our lives and declutter thing which weighs us down, physically, mentally, emotionally and financially..

Over the last few years, the term “financial planning” has been very often used and heard by many of us. In this article, we explore as to what this term means and why it is important for us all.

What is financial planning:

Simply put, financial planning is the process of meeting your life goals through the proper management of your finances. The life (read financial) goals can include buying a home, saving for your child's education & marriage or planning for your retirement or protecting your family. It is a process whereby a qualified financial advisor will consider your entire financial situation and goals and provide you with appropriate action steps to fulfil your goals and better manage your finances. It is not a one-time process but is continuous in nature as your life situations and finances change over time. You also need to regularly review your financial plans & your investments to ensure that you are well on track to meeting your financial goals/objectives.

Why financial planning is needed?

Given the nature of today's life, with growing uncertainty, rising aspirations and increasing costs of living, doing thorough financial planning have become a must for each of us. It is also better to plan and be ready for any situation rather than be passive and wait for things to happen before doing anything about it. A special case to mention is of Retirement planning, which has become very critical since the average life expectancy has increased and appropriate planning is needed to ensure that your 20-30 years of your life after retirement is dignified, peaceful and self-reliant.

In the absence of proper financial planning, the following are the risks faced by a client.

Continued lack of understanding of your financial situation

Delay and wastage of critical time for planning for goals

Continued exposure to financial risks in life to you and family

The financial planning process:

The financial planning process is a logical, six-step procedure from the perspective of a client.

Establish and define the relationship: The first step is establishing a relationship with the financial advisor/expert. The client should inquire about the services offered and the process. The client should also inquire about the professional’s competencies and experience. The client should also enquire about any fees and how the advisor would be remunerated from the same. The client should make clear any expectations he/she has with the advisor/expert.

Sharing of information: The next step would be the identification of your personal and financial objectives, needs and priorities that are relevant to the scope of the engagement before making and/or implementing any recommendations. The financial expert would request sufficient quantitative and qualitative information and documents from you relevant to the scope of the engagement before making and/or implementing any recommendations.

Analysis and assessment of your financial status: The next step would now be to analyse your information, subject to the scope of the engagement, to gain an understanding of your financial situation. The step involves assessment of strengths and weaknesses of your current financial situation and compares them to your objectives, needs and priorities.

Development of financial plan recommendations and presentation: The next step involves the financial planning expert considering one or more strategies relevant to your current situation that could reasonably meet your objectives, needs and priorities. Then the financial planning recommendations based on the selected strategies will be developed and presented to you. You may seek to understand the supporting rationale in a way that allows you to make an informed decision.

Implementation of recommendations: Once you have understood and given your approval to the recommendations, the execution will happen. Note that the expert would expect your agreement on implementation responsibilities that are consistent with the scope of the engagement. Based on the scope of the engagement, the expert identifies and presents the appropriate product(s) and service(s) that are consistent with the recommendations accepted by you.

Review your financial situation: The expert and you would then mutually define and agree on terms for reviewing and reevaluating your situation, including goals, risk profile, lifestyle and other relevant changes. While conducting the period review, the expert along with you will review your situation to assess progress toward achievement of the objectives of the recommendations, determine if they are still appropriate, and confirm any revisions mutually considered necessary.

Advantages of financial planning:

To summarise, the following are the key reasons or benefits that you would get from financial planning.

Proper understanding of your financial situation

Finalisation of the financial goals and knowing what it would take to achieve the same

Understanding your insurance needs and ensuring financial security

Understanding how your financial decisions and choices will impact your financial well-being

Having a path laid out for you and your family's long term financial well-being

Most of us do not have adequate information about financial planning and only in recent years has there been some growing awareness about it. Most of us though still believe that they are knowledgeable and smart enough to decide upon their finances on their own ignoring the fact that this is a very broad subject that requires professional expertise. We are ready to visit and pay an accountant, doctor, lawyer or any other professional but are shy when it comes to asking for a financial plan from financial experts. A better, secured financial life is a dream for all of us which, with proper financial planning, can become a reality. The need is to understand this crucial part of our life and give it the importance and priority it deserves..

Systematic Investment Plan or SIP as it is commonly known, is an investment plan (methodology) offered by Mutual Funds wherein one could invest a fixed amount in a mutual fund Scheme periodically at fixed intervals – say once a month instead of making a lump-sum investment. The SIP, as we popularly know it, is the ideal way to invest in mutual funds, especially for retail investors. Over the years, it has proved itself as the preferred and the best way to create long-term wealth, without affecting their day-to-day lives.

Why SIP?

The benefits of having a SIP are well-known among investors today and you are not alone. As per the latest available figures from Association of Mutual Funds of India, popularly known as AMFI), an industry body, there are about 2.98 crore or nearly 3 crores SIP accounts in India through which investors regularly invest in Indian Mutual Fund schemes. The SIP method of investing has been gaining immense popularity in the recent years.

AMFI data shows that the mutual fund industry had added, on an average, 9.55 lacs SIP accounts each month during the last financial year (FY2019-20), with an average SIP size of about ₹2,850 per SIP account. Today investors are investing about ₹.8,518 crores per month in mutual funds through SIP route. In April 2016 this figure was only about ₹.3,122 crores. That's a growth of nearly 2.7 times!

The reasons why almost every prudent investor is today thinking of SIP route are multiple. The primary advantage being that helps in Rupee Cost Averaging. In simple terms the Rupee Cost Averaging means that you are investing a fixed amount of money at regular intervals ensuring that you buy more shares of an investment when prices are low and less when they are high. Think of it as buying say gold every month of a fixed amount. As gold prices fluctuate, you will be buying less or more of gold every time. When you do this for a long period of time, your average purchase price of gold per gram or tola will be much lower to the prevalent market prices in future. That leads to better returns over time.

Another reason why people prefer SIPs is because it help in investing in a disciplined manner without worrying about market volatility and timing the market. SIP also offer great convenience. The SIP instalment amount could be as small as ₹500 per month. There is also the option of choosing the right frequency – say weekly, monthly or quarter and also the preferred SIP date from the multiple date options given by fund houses. As compared to lump sum investment directly in an equity fund at any particular date, SIP is better since that risk of market fluctuation is reduced. However, this is subject to market conditions and also individual investment horizon.

What is Step-Up SIP and why is it needed?

Step-up SIP, also popularly known as top-up SIP, is an automated facility through which SIP contribution can be increased by a predetermined fixed amount, or a fixed percentage, at periodic intervals. Thus, with a step-up SIP, the SIP amount increases automatically at a pre-defined rate and period. For example, a person who is investing ₹10,000 every month via a SIP can opt for a step-up plan and ask the fund house to increase his SIP amount by say Rs.1,000 every year.

In a normal SIP done today, of say Rs.10,000, will remain at Rs.10,000 even after say 5 or 10 years. But during this time your savings potential and your goals /aspirations would have also increased. Since most people are too lazy, to voluntarily increase their SIP investment contributions very year, their SIP contributions will likely remain stagnant. They would fail to integrate their income growth with their investment plan. And one fine day the investor will realise that he has lost on the golden opportunity to save more through SIP in past so many years. This is where step-up SIP steps in as an automated function and facilitates long-term wealth creation. Over time, as your circumstances change and your income grows, you are likely to have more money available to invest. The step-up SIP will take care of your growing savings potential and evolving financial goals with time.

In short, if you continue investing with a fixed SIP amount, then you are not taking a wise move and loosing out on the wealth creation opportunity in equities in long term. You need to opt for a Step-up SIP.

SIP Step-up can be done quarterly, half-yearly or annually. It can also be planned as a fixed amount of increase or a fixed percentage of SIP amount. For example, you can either increase it by say Rs.5,000 every half year or say 10% every year. The increase in the SIP amount should ideally is based on your expected rise in income and your requirement for achieving your financial goals. Just to add, even big financial goals, which look unachievable today or command very high fixed SIP amount today, can be expected to be achieved with a smaller but a rising SIP. A Step-up SIP is necessary to fulfil goals faster, with a bigger corpus than planned and also get returns that counter inflation.

Why much can I benefit?

Step-up SIP incorporates the power of compounding so that the investors can reach their financial goals sooner. It works wonderfully well in long term. Here is a simple comparison for how much wealth can be potentially created with step-up SIP. We consider that the starting SIP is of Rs.10,000 monthly and the expected returns is of 12% annualised. Step up

As you can clearly see, the step-up SIP can greatly benefit wealth creation and will give compounded benefits especially over long term. The difference over a normal fixed SIP is staggering in long term.

Just to summarise, topping up an SIP offers the following advantages:

Adapts to your rising income - you can plan an increase in SIP in line with your income and savings potential increase every year - either in fixed amount or percentage. We would prefer you decide on a fixed percentage rather than an amount.

Achieve goals faster - step up SIP would bring big financial goals within your reach and/or help them achieve faster.

Helps fight inflation - Many investors choose to increase their contributions to stay in line with inflation. As inflation consistently erodes the value of your money it may be wise to raise contributions to an investment plan for the long-term.

Allows you to keep investing in an existing plan rather than open a new one - This facility also saves you from the hassle of managing multiple SIPs. A rise in income need to be systematically invested. But looking for a new investment opportunity is tedious and time-consuming. Instead, topping up an existing investment could be the most efficient option.

How to start Step-up SIP?

SIP is a very convenient method of investing in mutual funds through standing instructions to debit your bank account every month, without the hassle of having to write out a cheque each time. The step-up SIP works in similar fashion. While starting a new SIP, an investor can choose the step-up option. While completing the form, the investor is required to enter the initial amount, step-up amount, step-up frequency. This is operationally very convenient and easy so let us not bother too much about same.

However, we would suggest that you talk to your financial advisor /mutual fund distributor today on your financial goals and your investment plans to not only start a normal SIP but a step-up SIP.

Happy investing.

As families seek to improve their financial situation and develop plans for the future, a logical first step is to determine their present financial position. A common tool used to determine same is the net worth statement which is a personal balance sheet listing the assets and liabilities of the household, with total net worth being the difference between the two. However, there is a lot we can know about our portfolio than just this measure. We would encourage investors to do an annual assessment of their financial situation to understand the same and to also chalk out a plan for progress for the future. In this issue, we will talk about the wealth of information which can be gleaned from a personal financial statement than just the bottom line.

Usage:

Application of the ratio analysis technique to personal financial offers potential in expanding insight into specific strengths and weaknesses of a family's financial situation. The ratios are presented below with indications of how each ratio might be used to assess liquidity, solvency, or the general financial position of a particular investor/family. The information should provide more specific directions in assisting the client to develop financial goals. A ratio typically expresses a relationship between two or more data points /information /parts of the financial statement and provides a context in which to evaluate various aspects of the financial situation.

Key Ratios:

Emergency Funds - Liquid assets / monthly expenses: Liquid assets are those assets which can be easily sold/liquidated and quickly converted to cash without any loss of value. This ratio provides insight into the adequacy of liquid asset holdings to cover monthly expenses if the family experiences a sudden loss of income due to loss of income for any reason. This ratio may be modified to include financial assets which are not in ready liquid form but could be easily redeemed and converted in cash.

Financial experts typically suggest at least 3 to 6 months of coverage depending on the situation, assets covered, income stability, the number of dependents, and so on. The higher the ratio, the better it is for families.

Debt Exposure - Assets /total debt: This ratio examines the relationship between assets and the total debt obligation of the family. Please note that which assets to be included here is of primary concern. If you only include liquid assets, the ratio will indicate how easily you could close off and repay all your debt. However, you could also include all your redeemable financial assets in addition to liquid assets. In such a case, it would show a different picture of your debt ratio. Together these ratios help in determining whether the family has overextended itself or has maintained a debt level within reasonable limits given the family's level of assets.

Experts suggest that a ratio of say at least 10% (assets as % of the debt) and above should be comfortable when only liquid assets are considered. When total financial assets are considered, then 30% may be considered a minimum level to indicate a healthy financial situation. If you are only considering long-term asset creating debt like home loans, then again the ratio of 10% should be acceptable.

Net Debt Position - Total debt/ Net worth: Normally the debt position of a family is not evaluated unless the situation is extreme. This ratio expands our understanding in assessing the debt position of the family by relating total liabilities to total net worth value. Experts recommend that families should keep this measure below 1.0 or 100% meaning that that total debt should never be more than your total net worth. However, if a family has recently purchased a long-term debt, like home loan, this ratio may go a bit higher in initial years. During such times, you could exclude that home loan debt and other such asset-creating long term debt and look at the ratio again. Experts suggest that in such a case, your debt should not be more than 40% of your net worth.

Debt servicing ratio - Monthly debt liabilities / Net income: The debt servicing ratio measures how easily you can service your debt. In other words, it is the ratio of your EMI to the net income. You must never let the total debt obligation cross 40% of your net income. The less it is the better. The idea is that the rest of the 60% has to be adequately saved for consumption and savings. However, this ratio for most individuals living in urban areas may touch dangerous levels of even over 80%. Increase in EMIs compromises your lifestyle and your ability to secure a better future through savings. One should aim to move from a situation of high debt and low savings to a situation of no debt and high savings as your age/income increases.

Liquidity of Portfolio: Liquid Assets/Net Worth: This measures the proportion of total net worth held in liquid form. This type of net worth component ratio should be evaluated after considering the family's financial goals rather than as an objective standard. If the majority of the goals are of short term or near to maturity, then the proportion of liquid assets should be higher. However, if you are having long term goals not anywhere near to maturity, your assets should be held largely in non-liquid assets like say equities. The reason being that such assets will provide better returns than liquid assets. Thus, it is up to the financial advisor /family to ascertain the right/optimum portion of liquid assets in your net worth.

One can further modify this ratio to also include all financial assets in addition to liquid assets as part of the total net worth. This ratio would indicate if you are investing too much in non-liquid and financial assets like gold, property, etc. One may think of ensuring a good balance between financial and non-financial assets with more bias to the former.

Savings Ratio - Savings / Net income: This ratio is used to show you how much money you are saving over a specified period. It is strongly advised to have a savings rate of at least 10% to 20% of your net income. The higher the number, the better it should be. In times when you do not have any debt EMIs or other expenses, one should be shrewd enough to let this ratio grow as much at possible. The equation should be calculated as income (-) savings = expenses whenever you are planning your monthly budget. Making the most of your available cash-flow and directing it towards savings is very essential as times may change in future when savings may not be that easy.

Conclusion: While there may be many more ratios for understanding personal finance, the above ratios are the key ones that help you understand your portfolio construction, your security and your savings behaviour better. Do not just stop at looking at net worth or the current value of your investments. Go beyond, take some time out, at least a couple of hours every month to calculate and track the trend of your personal finance ratio. Believe us, it will do wonders to your knowledge and your financial situation.

Have you ever asked yourself – what has all the technology advancement and development around brought us? Has it really added value to our lives? Has it added happiness, contentment and sense of security to us?

It would be a true eye-opener if we could ask this question to us every now and then. Those past their 30s would fondly remember the good old days when we had little possessions but also little to worry about so many things in life. We had plenty of friends, relatives and time to enjoy life. Were we not happier then?

Recently, there was a whatsapp forward which made me wonder about these things in life. Of course, there are many advantages of modern life which we could even dream off few decades back. Technology advancement and development and impacted every bit of our lives, be it medical care, communication, entertainment, education, travel, work or the daily comforts in our life. It has surely made our lives more comfortable and without boundaries.

The past few decades have also seen an alarming change. Wealth and income inequality has increased anywhere in the world despite substantial geographical differences. Today, the richest 1% are twice as wealthy as the poorest 50% put together globally. Unfortunately, the rising income disparity is true even for India. There is much evidence that rich are getting richer and poor are getting poorer, everywhere.

There is a visible change in our society happening in the past few decades. Families are growing smaller and more distant. We are becoming more commercial in our social dealings and there is much materialism which is evident in almost all aspects of our lives. True, the income opportunities may have increased for many but only a few have managed to increase their wealth substantially. In this article, we will focus only on this critical aspect of the modern life which has direct, tangible and measurable impact on our financial well-being.

Why are we not getting rich?

The Savings trap:

Post economic liberalisation in 1991, India pursued a path which encouraged open market and privatisation and capitalism. A change from the socialistic approach which was followed for many decades without visible growth in economy or the standard of living. Post this change, many new industries and markets took birth and prospered. The people who participated in this growth saw their wealth growth. However, a majority of the people did not participate in this economic growth of India.

Between 1979 (base year for Sensex launched in 1986) and now, the Sensex has grown from 100 to 41,150 in 40 years. That's gives us an annualised growth of 16.25% without counting dividends! Your money would have multiplied more than 411 times during this period. However, the only people who benefitted where those were the industrialists, entrepreneurs and the equity shareholders from this growth. Be it due to traditions or culture or awareness or lack of proper markets, a lot of us and our parents avoided equities. We gave our money to banks and government savings plans which gave us a paltry single digit returns.

Even today, equity savings culture has not growth substantially. A lot of us are looking at sovereign or guaranteed investment options which give us negative real returns after tax (real returns is returns less retail inflation). This simply means that even though we feel we are saving money, the fact is that we are eroding or slowing burning our money. The unfortunate irony is that we are happy to get that.

Here is a short example to get this message home. You get returns of 7%. Tax rate applicable is 30%. Your net returns is 4.9%. Inflation in December, 2019 was 7.35% as against 5.54% in November 2019. Even if we consider an average of 5%, for all practical purpose, we are loosing our money by 0.1% yearly.

In short, even though we are earning more than before and saving even more, we are not really creating wealth over time. This is the savings trap we need to break. Think over it.

The Security trap

We don't have adequate social security in India. That's an unpleasant and unfortunate fact. Even if available, often it is grossly inadequate. It is just about enough to cater to the 'poor segment' of the population but inadequate as far as the middle class is concerned. There is no debate that events like accidents, sickness, diseases, disability, death etc carry a huge burden on us and often give us unbearable financial shocks. I am not even counting things like theft, fire, etc for properties here.

There was an alarming report published in June 2018 by experts from Public Health Foundation of India. The report said that 55 million Indians were pushed into poverty in a single year because of having to fund their own healthcare and 38 million of them fell below the poverty line due to spending on medicines alone.

Most of us do not have the full required range of insurance of ourselves. Life, health and personal accident insurance are the three critical insurance policies we should have but most of don't. Even for those who have the same, most of the times there is underinsurance. A lot of insurance agents who sold traditional life insurance policies which promised nominal returns at the cost of insurance coverage, did grave injustice to investors. The investors neither got adequate insurance nor created wealth. Pure term insurance products was rarely sold till only recently when there was demand for same from investors.

The Spending trap:

In the past few years, we have undergone a cultural and behavioural change when it comes to our spending habits. As kids, we used to buy new clothes and shoes only on Diwali. We spend little on electronics, ate outside very rarely and went on holidays like on budget trips (by today's standards). We bought things only when we had money and we rarely borrowed as it was considered not good in our upbringing.

Cut to today. There is a popular line which says 'today we spend money which we don't have on things which we don't need to please people who we don't know'. We have replaced what we need with what we desire and what we can afford the most, by stretching our budgets. We buy the best gadgets we can even though the old ones are working fine. We buy cloths, watches, shoes, cars as a status symbol. We holiday in exotic locations to post pictures on Facebook and get happy on the likes. Today our celebrations for birthdays, anniversaries, marriages are grand and lavish. We are buying things on loans which are based on our current /projected income growth.

Unless we break this spending trap, we will not realise the full opportunity of saving and investing in growth assets. Every time we spend unnecessarily, we are sacrificing future wealth for our immediate gratification. This has to be controlled and if possible, stopped.

Conclusion:

It is not possible for 'all' of us to become very very rich in our lifetime. To be honest, most us avoid taking risks and/or do not have the necessary skills or talent or opportunities to do so. But we can all strive for a much better future for us and our families and we can become rich by our present standards. At the worse, we should avoid stagnating at our current levels of wealth (in real terms) while making sure that we never fall down from our present levels. Remember, it is not just important to become rich but also stay rich.

The clear message is that we need to get over the three traps mentioned in this article. How? We need to [1] save and invest in growth assets that give us real returns in long term [2] get adequate insurance to protect ourselves from any unfortunate events that can wipe out a life time of our savings and [3] control our arbitrary spendings and reduce debt. These simple things are very simple and easy to execute and possible for everyone of us.

As we start a new decade of 2020s, let us also pledge to make this decade a decade dedicated for our family's prosperity and financial well-being.

We believe in Vasudhaiva Kutumbakam, the old Sanskrit phrase meaning the world is one family. The technological advancements of the 21st century have truly made this true. We are living in a very interconnected world. Every place and every person is today well connected to each other, digitally and even physically with linkages to the remotest places on the earth. All this time we enjoyed this connectivity, accessibility, the interdependency of business and all the comforts of the modern world. However, we are now shocked and quick to realise the perishability of this new world.

The past decade has seen nature responding back to the unadulterated infiltration on it. We have seen the impacts of climate change manifest itself in many forms. Millions are being already impacted and signs are there that things will only worsen in the coming decades. Just in the past few months, we have seen earthquakes, cyclones, deadly fires and of course the world-changing pandemic. Needless to say, Covid-19 is a game-changer for everyone. It will change how we work, socialise and perhaps also respect nature. One industry has been at the forefront at helping people manage the risk emanating from uncertainty and it is insurance. While there are many forms of insurance which help different stakeholders to manage risks, we limit our focus to only personal insurance in our discussion.

At a personal level, we are concerned only with the direct risks faced by us. Covid-19 has surely made people realise the importance of having adequate health insurance. However, health is just one part of our vulnerability as humans. Let us first fully understand these vulnerabilities or risks of our lives in the form of 3 deadly Ds.

Death

Disease

Disability

The above 3 D’s are pretty obvious and any common person can imagine the impact of any one of them happening on our lives. Death, especially of any earning member in a family is disastrous in all manners, financially the most. 'Disease' is something which has perhaps become very common today given the lifestyle and food habits we are following today. And without adequate support from the government to the middle and the aspirational class of the population, getting quality treatment is getting damn expensive. But what if you survive any unfortunate incident but … Disability has huge ramifications on our lives which many of us haven’t visualised. It may severely hamper our earning ability for life and add to ongoing medical costs. Have we accounted for them?

To this shortlist, we can do well to further add another two Ds – Damages and Dependency. Damages would mean damages/losses to movable or immovable properties or assets. This can be your home, shop, factory, godowns, vehicle, crops, cattle and so on. Again very self-explanatory. They are prone to human acts, accidents and also acts of the ‘god’ or natural calamities, which are getting a bit common now.

Dependency is a new word for many but perhaps the only one on the list which is almost certain and very worrying. Dependency comes from the risk of being alone and/or from longevity or living longer. It is something which we cannot really buy an ‘insurance’ against. The idea of being dependent on others for care and treatment and even for living our daily lives may be frightening for many of us today. The dynamics of the modern world and how a modern nuclear family chooses to live, in contrast to our previous generation, is something we will have to think about. Now imagine doing so without adequate resources or wealth at your disposal. That puts us in a precarious position. Perhaps the Covid-19 may have a positive impact on the same. If earning opportunities are available closer to home, many immigrants would prefer to work from home or closer to home. We will have to wait and see. But the safest way out of it to create a sizable, retirement corpus. That would be also enough for the rest of your life at a retirement home of your choice if needed.

So where are we today? We have only made ourselves more vulnerable in this modern world. We haven’t evolved as humans. All our technological advancements in all fields lay worthless as an unknown enemy made the most evolved and most powerful species, us, realise our weakness and vulnerability. It is not the end of the world though, and we will survive and we will again prosper. However, things will not be the same again. What we need to do is to do a recheck and value the most important thing in our lives - our health, both physical and mental. We need to take care of it. Financial protection in the form of insurance is no longer in a debate. Having adequate life, health, personal accident and critical illness insurance should be your next ‘To Do’ task. There are enough digital ways of buying the same at the comfort of your home. Just call your insurance advisor for a comprehensive review of your insurance portfolio. It's high time you do it.

"Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market." - Warren Buffet.

These words spoken by the investing legend has proved to be true in the present market conditions. The past two decades have seen a few such times of uncertainty and market crashes. Beginning with the dotcom bust in 2000, quickly followed by the 9/11 crisis in 2001 and later the global financial crisis in 2008-09. Time and again, the message to equity investors has been clear.

Equity markets carry unforeseen risks.

Markets can be highly volatile in the short term.

Over long periods, equities are good wealth creators.

These learnings have been reinforced in the current markets. However, for many new investors, especially millennials who have started investing in the past decade, the temporary crash may have come as a surprise. It would be perhaps best if we set ourselves in the right mindset, attitude and expectations. Here are a few things that you must remember with equity investing…

Focus on basics:

Risk comes from not knowing what you are doing. Before starting with equity investing, it would do us good if we understand the asset class properly. Equity is not recommended for everyone and it has to match your risk profile and investment objectives. These are the prerequisites of equity investing and the next step is deciding on your asset allocation. A properly diversified portfolio with proper adherence to asset allocation over time is a very basic principle and strategy for portfolio management. Apart from this, starting early, choosing the right product for the asset class and investing regularly are other basic points one needs to follow. Stock selection and market timing have been repeatedly flagged by experts as futile as they cannot be practised accurately and sustained over long periods of time.

Long-Term:

How much is long-term? Many investors might be wondering. This is really a subjective question and there is no right answer. At times, market crashes can potentially wipe out many years of growth. Looking at returns during such temporary times is not the right thing to do. History has shown us that there are much more ‘positive’ or bullish investors than ‘negative’ or bearish investors by nature. That's why we find the bronze sculpture of the ‘Charging Bull’ or the Wall Street Bull standing on Broadway in the Financial District of Manhattan, New York City. Thus, markets have remained in bull and or neutral market phases much longer than bearish phases. Thus, the probability of profits increases as you increase your horizon. For many, long term is anything over 10 years but every wise investor agrees that it must never be below five years.

Conviction:

Investors who demonstrate conviction, especially during market corrections, have a big advantage over those who do not have such conviction. Typically equity assets change hands in markets when such conviction is tested. Your buying at lower prices means that someone is selling at those prices, booking losses or forgoing future profits. That is the cost of not having the conviction that the person is paying and you are benefitting from. As Indians, we are blessed to have a growing economy with huge potential for growth over the next few decades. It is destined to emerge as a global economic powerhouse within our lifetime. Equities should give us the opportunity to participate in that growth.

Patience:

“If you aren’t willing to own a stock for ten years, don’t even think of owning it for ten minutes” - Warren Buffet. Patience is simple yet very difficult to practice. In a fast-paced world, we expect that our investments too deliver returns within a year or so. Most investors become impatient quickly and either redeem or move their investments if returns are not visible soon or if there is a correction in prices. There is absolutely no need for ‘active’ portfolio management for long-term wealth creation. Many studies point out that it is not very helpful to do so. Only those investors who have patience, stay invested with conviction in equities will emerge successful.

Courage for Action:

All the world’s knowledge and wisdom is futile unless it is put to use. Many investors, in spite of having all the knowledge and even guidance from advisors /experts, fail to take timely and/or required action when needed. The courage to back your conviction is the last impediment to success as an equity investor. Investors to be really successful, have to back their basics, long-term investment horizon, conviction and patience with ‘meaningful’ action to get ‘meaningful’ results. Going forward, we would do well to stay put and perhaps even increase allocation in a staggered and disciplined manner.

Conclusion:

We have summarised almost all the key points necessary to be reminded at current times. We believe that the uncertainty is still not over and we may expect subdued and volatile markets with low economic growth in the coming months. We must stick to basics, not panic and follow the disciplined approach to investing. Covid-19 has made us realise our weakness as humanity and also showed us a mirror in many aspects of our lives. Let us take the investing experience also in our stride and put it to good use in future.

“He that is good for making excuses is seldom good for anything else.” - Benjamin Franklin

Most people have many reasons 'not' to invest. Even those who do save, little is saved in new investment vehicles. A large part of the income is understandably spent on meeting needs, repaying loans and leisure/entertainment only a very little part is left with most of us. However, many have adequate income today to invest meaningfully. It is really unfortunate that even then people find excuses not to save and invest. In this article we will talk about the most common excuses people have to avoid making investments. Most of these excuses are ungrounded, not true even though the person may believe them so. will also unmask the fact and truth behind these excuses.

I Don't Have Enough Money

This is the most common reason quoted by people. Let us dissect the truth behind it.

You can start with any amount: When we say we don't have enough money do we have an amount in mind? Most people do not think of what amount they can invest and hope that they will start saving once they have enough. However, this is futile exercise and quite often it only delays your savings till you regret it. To be honest, there is no minimum amount for saving and you can even start by saving Rs.500 per month if the intent is really there.

You can always prioritise spending: Those you find it difficult to save would be better off having a closer look at where the money is being spent. It can be quite surprising how much you could save if you would only be paying attention. Petty expenses on dining out, movies, ordering food, impulsive shopping online, etc can go a long way when diverted to investments. Only the right intent is needed.

It may because of lack of intent: Intent or rather the lack of it as we now see is perhaps the true reason you have the excuse of not having money. Surely, those who despise saving and believe in only living to the fullest in life openly declare their lack of intent. It may suit you if you have enough wealth to retire and take care of your family. But what if not? Surely, there has to be a balance and a good reason and space for the intent to save.

If you can't save, it is an alarm to talk to your advisor: If you have the genuine intent and still do not have adequate money to save, there is a severe problem. You need to consult a financial advisor to really understand your financial situation and guide you further.

I Am In Debt

This can be a genuine excuse which is not impossible to handle. Let us see what we can do if you find it really hard to save because of huge debt.

You need to have a plan: The first thing you need is a better understanding of your situation – how much you are earning, how much you own and owe, what is the cost of servicing each loan and so on. Perhaps the plans can unravel ways you can still manage to save a bit by cutting corners in other areas.

You need to pay off expensive debts: It is also advisable if we can dilute some of our assets and pay off expensive loans and find space to divert the EMIs saved towards real savings and wealth creation.

You may restructure the loans: When you think things have reached a point of no return and it is impossible to manage your affairs, there is still a way out. We would suggest you restructure your loans, leverage your good credit rating to negotiate with the lenders. Perhaps there may be a way out still, if you really wish to pursue it.

I Don't Have Time:

Call it procrastination, laziness or just simple lack of interest. Lack of time is a common excuse. Let us unmask the truth behind this.

Why this may not be true?

Account opening is now digital: Gone are the days of physical transactions. Now everything is digital and so is the first step is to open an online account. Thankfully, the account opening process is entirely online. You may chose the right financial advisor, distributor, broker and open the account online yourself.

Transactions are done digitally: Often we hate to do the paper work for transactions. We also hate depending on our advisor /distributor to bring in the papers and submit them to the operational offices. Good news is that transactions in most financial products, especially mutual funds, can be today done completely online, any time any where.

Goal planning tools readily available: If you think you need too much time to plan for your finances and these things bore you, well you are mistaken. There are many user friendly tools available today which can help you plan for your financial goals. This can be an option for you if you do not wish to talk to your advisor. Explore these tools which hardly take few minutes and you will know how much SIP or lump sum you need to save to fulfil your financial goals in life.

Ask your advisor: Some may find the investment topic boring. Finding and approaching a good advisor can make a huge difference in such a situation. However we do not recommend you start online investments all by yourself unless you have a good amount of experience and knowledge to handle things.

These are just three of the most common excuses for not saving. There could be many more and you may even have a hundred excuses, however, there is only one reason to save – financial well-being. If you have the foresight and the common sense but lack bank balance to retire, savings is the way forward, without excuse. You would do well to remember a famous quote from Florence Nightingale -“I attribute my success to this – I never gave or took an excuse.” Happy saving and investing.

The ultimate goal of every investor is collecting a big corpus to secure a peaceful Retirement. So, you invest throughout your life and once your retirement approaches, you have your retirement corpus in your hand. Now what do you do, is it the end of investing? Shall you keep the retirement corpus in your bank account and keep nibbling at the big piece of cheese inch by inch? No, you can't do that, you can't let your life long perseverance die in your saving account. You need to have a post retirement investment plan to deliver justice to your money. Also, you may live long, so the next 3-4 decades are at the mercy of your retirement corpus, you don't want to run out of money in the last 10 years, so your nest egg must be utilized in a way that it lasts you until your D Day.

There'll be no new addition to the corpus, hence you must spend and invest wisely. So what should be your approach to investing after you retire?

There are various approaches that you can follow, depending upon your risk appetite. The Risk Appetite is dependent upon a number of factors like:

- Passive income source if any, like pension, rental income, interest income, and the amount of income;

- Whether you live in your own or rented house;

- Other assets that you may own like property, gold, stocks, etc,;

- and your attitude towards Risk.

Your Portfolio Allocation between Equity and Debt will largely depend upon your Risk Appetite, the sum of the above factors. Although we suggest retired investors to concentrate on limiting risk, yet if you have a stable financial background and a high risk appetite, then you can expose a major chunk of your retirement corpus to market linked products and vice versa.

There may be various approaches to Portfolio Management after retirement, which are different from the way you have been managing your portfolio during the working years. Some investors prefer securing their basic monthly expenses first by investing a portion in products which may give them a monthly income at least equal to their expenses and dedicating the rest to products with a high growth potential. While there are some investors who break their Portfolio into parts, the early, middle and last stages of retirement and invest accordingly. And there may be some who invest largely in Equity initially and as they age, gradually increase the Debt component by selling of Equity. And likewise there are many approaches, depending upon individual needs and preferences.

We suggest you to sit with your advisor and figure out your Portfolio Allocation and Investing Approach, which is in line with your financial position and Risk Appetite. Devise a financial plan and review it from time to time like you have always been doing.

Whichever approach you choose, you must be mindful of certain key points, which are as follows:

> In absence of a regular source of passive income, do not expose your money to excessive risk. A large chunk of the Portfolio should be invested in products where money can be withdrawn easily, without incurring any loss to the Principal.

> If you have any outstanding loans, then before investing, secure your mental peace by paying off your debt.

> Increase your emergency fund, an emergency can lead to a serious financial crunch since now there is no hope of a monthly pay cheque coming in to rescue you. Plus medical emergencies are also likely to rise.

> Do not limit yourself to traditional investing products, explore newer options like bonds, debt mutual funds, company deposits, etc., even if your risk profile demands you to limit yourself within Debt. The modern products are capable of delivering better returns, better flexibility, liquidity and investing convenience.

> Don't invest in products where the volatility is more than you can tolerate.

The bottomline is, Retirement isn't the end of investing, Investing is important, even though if you have a very large corpus or limited expenses, it is likely to be exhausted if not invested. Your Retirement is the beginning of a new life, now is the time to do things that you've always wanted to do. It's the time to pursue your passions, and you can live your entire retirement life to the fullest by planning for your future and investing right.

Young adults are perhaps the richest among all of us. They have something more than all of us - "time" at an age when the possibilities are unlimited. In case you are an young adult in 20s or 30s or a parent / guardian with children approaching or in their 20s, this article is for you. The article tells us few things which perhaps we were never told when we were young. We bring to you six valuable tips that can literally make a huge impact in lives of young adults going forward.

Learn about Personal Finance & Investing:

Knowledge about personal finance topics and investing at an early age is a great asset. Young adults must know about different asset classes, investment products, insurance, loans & credit, time value of money, inflation, savings, taxation, financial planning, etc. Such knowledge, especially during early years of career can really help someone take great decisions for future. If you are a guardian, be sure to involve the young adults in your own investment decisions. There are many ways in which young adults can gain financial knowledge. Some of the ways are...

read books, finance magazines and watch TV shows on investments interact with financial advisors, accountants, experienced family members attend investment seminars/ camps by regulators, participants in financial services industry enroll for any certification from the many offered by NSE/ BSE on the subject matter Control your spendings

Young adults are perhaps the most valued consumers hunted by every big brand ranging from cars to shoes to laptops to even holiday packages. With the newly gained earning power and lack of big responsibilities, it is natural that spendings on entertainment, gadgets, accessories, hanging out / parties, etc. form a big chunk of the spendings. Surely it is a time to enjoy life but young adults are advised to control their urge to spurge and not make impulsive decisions. It would be great if one can budget such spendings and avoid taking big decisions like buying of motorbikes, cars, laptops, etc. without adequate thinking and research.

Start investing immediately:

We have often spoken on this topic. The benefit of saving early can never be under estimated. Even if the savings is small, due to the power of compounding, the wealth created by you can be enormous, as seen from the following matrix.

In above e.g., Mr. Lazy would have to invest thrice the amount or Rs.3,000 monthly saved by Mr. Smart if he wants to match the wealth created by him at age 35.

Get PAN & start filing tax returns:

If you have started earning, it is best to start preparing & filing income tax returns (ITR) except when you are exempted to do so. There is a perception that if the taxes are paid, there is no need to file ITR. This is a misconception and it is essential to know that it is our constitutional obligation to file ITR when you are required to do so. Further still many believe that their incomes are too small to attract the attention of IT authorities and get tax scrutiny and hence may indulge in not filing returns or understating income. You may note that IT authorities uses a system whereby cases are picked up randomly on certain criteria. You may never like to be the one to get short-listed and invite unnecessary hassles. Remember that you are permitted to save taxes but not evade taxes.

Filling of ITR has many advantages as they are considered standard income proof globally and they help you while applying for loans, visa applications for jobs abroad, requesting tax refunds, etc. The PAN issued by IT authority is a prerequisite for filing ITR and is also mandatory for all financial transactions. So it makes sense to get yourself one even if you don't have much income to talk of.

Get health & life cover

Getting adequate protection in young age, where people tend to be more adventurous, is highly advised, even if there aren't any dependents on you. Buying health or life cover at a younger age is also considerably cheaper than buying the same after few years. Such protection can really help one in case there is any unforeseen emergency and financial burden on parents will be avoided.

Start thinking about home

The average age of home & car buyers has decreased dramatically in the last 20 years. Powered by easy availability of loans, fat pay packages & growing aspirations, the first time home buyer today is often around the age of 30. The first time car buyers are even younger. It would thus be best advised that young adults keep these goals in mind and start saving as much as possible for home & car goals, if any, from now onwards. It would really benefit you a lot when the time comes for purchase in near future. Often young adults delay saving for the goal and end up paying lesser down-payments and taking higher amount of loans which should be avoided. Lastly, even if you have a home of your own, it is advisable to think of buying a home as an investment for future and also enjoy tax benefits on same.

Conclusion:

Having time on your side is a great advantage and never to be missed. Few young adults may choose to ignore & not act on 6 tips shared above at their own peril. Experience has shown that wise decisions, actions and discipline in these formative years go a long way in securing a better financial future down the line. Simple actions taken today can help you avoid taking tough decisions at times when you have family to support and lot of responsibilities on your hands. So go ahead and make the best that this time has be offer, smartly.

Most of us, if not all, are in a journey from scarcity or deprivation towards financial well-being and ultimately financial freedom. A big part of financial freedom, to me, is having your heart and your mind free from the worries for the needs & necessities in life. Most, like me, may have traveled many years in search of this elusive freedom but are yet to reach a point where anyone of us can jump and say, “Hurray! I have made it!!”. Worse still, we do not know for sure if we would say that line even once in our lifetime. This uncertainty was disturbing. What is the point then in slogging for decades in our work if we could not be financially free? What was that I was doing wrong? Was I on the wrong path? The questions where simple but profound and had to be answered. But sooner than later, the realisation was thankfully clear to me.

We have all perhaps, spent too much criticizing all factors external for what we do not have today. Whether it be business, salary, markets, friends, family, our advisors and so on. Rarely do we realise that it is only our decisions and actions in our past that has led us to what we are and what we have today. That's the only true fact. It is our own experience, our own mistakes and the lessons from our past hold that now hold the key for our future. Understanding these lessons, some from our own and some from other's lives, can help us take control of our journey towards financial freedom. So let us pause for a moment and recall our own important lessons of life. Here are a few lessons that I could recall,

TIME NEVER COMES BACK:

Time is the most important resource that we have in our hands. One could always make and loose money and again make some money but time once gone cannot be bought back. To know, that we have only limited productive years of our lives remaining before us, is humbling.

Worse, what's the point of financial freedom at an age when you are too old to do anything exciting? The lesson was that we had to make the most of whatever time we have and we have spend and plan time as our most valuable resource. The time we have now is more precious than it was at any time in past or will be in future.

IT IS EASIER TO AVOID DEBT THAN PAYING A DEBT:

Ajay, a friend, had a decent job with good salary. But even after years of working, had no wealth created. It turned out that he had three loans – home, personal and vehicle loans that he was repaying apart from the fat credit card bills that hit his salary account regularly. It was clear, Ajay was not investing in his future but was still paying for his past. Ajay still continues to toil in his old job when he could have done so much more! Apart from the financial hit, being in debt often makes us feel suffocating, discouraging and makes us avoid taking any risk in our lives. And that perhaps costs a lot lot more. The lesson learnt was to avoid getting into debt and spending only on what we needed rather than what we desired or wanted. Even if debt could not be avoided, it was better to reduce to the maximum extent possible, especially when it came to depreciating assets.

NOT BELIEVING IN THE POWER OF COMPOUNDING:

Long back I remember hearing the stories of wealth creation by investing in equities over 15-20 years in time. I also distinctly remember reading about SIP and mutual funds and the power of compounding over long time. Today, when I look at the returns for the past 10-15 years given by some equity mutual fund schemes, I often think of the great wealth that I had missed creating all this time. It is amusing that neither me nor my bank balance remember where I saved or spent the money that I had during all these years. The one regret I now have is that I should have invested more and more to the extent I could have in equities and had the patience to hold the investments all this time. I could very easily have been an example of wealth creation myself. The lesson learnt, and the hard reality is that, the power of compounding in equities is true and it is only me that stopped it becoming a reality in my own life.

QUICK MONEY IS LIKE A MIRAGE:

Vijay, another friend, I remember invited me to join a plantation scheme of some company in north India. But Vijay was not alone and I often got to hear of many other schemes to invest into and get high returns. Some networking schemes promised to make me millionaire faster than any else could. Mind you, these schemes were very popular and some are even today. While I was fortunate to have not invested heavily into these schemes, my friend Vijay and a distant relative did loose a lot. Last heard, a panwala in my locality who had recently closed shop; was running a chit fund and he disappeared overnight with over s2.5 crores! The lesson that I fortunately learnt very early in my life, at a small price, was that promises of quick money making schemes are seldom true. It is always better to trust and invest in legal and governed financial products, even if the promise is not too high rather than to invest in dreams and unsolicited avenues. What puzzles me more now is why people like Vijay and that distant relative had so easily trusted these schemes while shying away from equities all the while?

I HAVE TO TAKE CONTROL:

Looking at the past, I also realise that I have procrastinated many decisions and never took control at the right time I should have. The reasons that I can find and justify today are only of lethargy, indecisiveness and the general lack of a vision or a goal in future as a compelling force to take timely action. Fear, lack of knowledge or resources or operational issues turns out to be the least important reasons today even though they might have resulted into many decisions being not taken. On procrastination, I find that many decisions that I chose to procrastinate, even for few days, ended up being extended into months and some were even never taken. Lack of vision or financial goals in life is another big reason why most of us find ourselves still looking for answers to fund those goals. The lessons learnt are many here but they all boil down to one thing. We need to take control of things NOW else everything else will take control of us, day by day, each day.

CONCLUSION:

Life is the best teacher if we want to learn, be it financial matters or otherwise. Peeking into my past experiences has only made me realise this and made me more humble. Today, when I look back, I believe it was not the right decisions or the intelligent ones that I made but the wrong ones and those decisions that I did not make which are more responsible for my present. The timeless principles of investing – start early, save regularly and save in right asset class instantly come to my time. They sound very grounded and appear golden today; somewhat matching the shade of hair colour on my forehead. Perhaps, had I trully believed in them long before I started colouring my hair, I could have afforded my own hair stylist today.

No one can predict equity market. Right? But the other side of the coin is that no one can create wealth by ignoring equity market. Equity market becomes more predictable with the increase in investment horizon, and we have discussed and proved this on many occasions. The fact of the matter is that equity is best suited to help investor meet financial goals in life with the potential of generating inflation beating return, but another equally important fact is the inherent volatility of equity, specially in a short term of less than 5 years.

Financial goal based investing is at the core of any investment exercise., After all we all save and invest to achieve a specific goal or need in life, which can be to provide good education to our kids or to spend on their marriage or simply to have peaceful, worry free retirement. With the right advice of your financial advisor, you invest in the right asset class, generate return as expected or even exceed that, and reach the desired corpus required to meet a specific goal, but imagine a situation when equity market crashes just few months before you actually need that money, or a bank/company goes bankrupt in which you had put fixed deposit. Remember co-operative banks and many companies going bust in late 90s or recent crash of equity market in 2008.

Lets imagine Mr. Shah, who had been investing in diversified equity funds through SIP for last 10 years to save for his son's higher education, which was due in 2009 for which he required to pay fees in March/April 2009. He was a happy man in September 2007, as he had not only built the required corpus, but in fact had exceeded due to strong market rally and super performance of equity funds in which he had invested. His joy multiplied manifold in January 2008 with the increasing value of his portfolio. This strong rally of equity market tempted him to continue out of sheer greed to earn more. But come March 2009, his portfolio was down by more than 50% and he had to arrange for his son's fee from other sources.

Time Horizon and Risk Factor

These two are inversely proportionate to each other in case of equity investment. As investment horizon increases, risk reduces, and vice versa. Equity investment can prove highly risky with anything less than 3 years of investment period, but becomes more predictable with reasonable period of above 3 years. A common mistake that investors make is, they try to chase equity return in short term and lock long term money in fixed income product like PPF for 15 years. Ideally it should have been the reverse.

As can be seen from the below graph, if someone invests Rs. 50000 every year in both PPF and equity fund, over a period of 20 years, then equity fund clearly outperforms PPF. At the end of 20 years, an investor makes Rs. 24.71 lakhs in PPF while the same amount grows to Rs. 58.9 lakhs in equity fund.

Let us try to understand by putting numbers in the above example of Mr. Shah. Lets assume that he started SIP in 1999 and he wanted Rs. 7 lakhs for his son's education, when he reaches 17 years of age in 2009 (in approx 10 years time). His monthly SIP need was Rs. 2868 so he started with Rs. 3000 of SIP (assuming modest return of 13% per annum).

Eventually he got return of 20% during period of 1999 to 2008 and reached the figure of Rs. 7 lakh in the beginning of 2008. (when SENSEX was touching 20000 for the first time). Greed overtook rationality, and Mr. Shah wanted to cash in market rally and continued with his equity investment. We all know what happened to equity market between January 2008 and March 2009, when he actually wanted the money. SENSEX was down by around 50% and so was his portfolio.

Isn't this a very practical example? Many times we come across this kind of situation, when we find equity market at a low level, specially when we have need of the saving. What to do in this kind of a situation?

Conventional wisdom says that one should start shifting money from equity to debt as one reaches near his/her financial goal. Considering the inherent volatile nature of equity, it is always prudent to shift corpus from equity to debt, and ideally the entire amount should be in debt for at least 1 to 2 years prior to the actual need. This can ideally be done in two ways:

Opt for Systematic Transfer Plan (STP) This is the facility available in mutual funds under which an investor can give standing instructions to transfer money from one fund to another. As one approaches the goal, STP instructions can be given to start switching funds from equity to short term/liquid funds to protect any potential downside from equity.

Shifting: As discussed, switching of invested money should ideally start around 1-1.5 year prior to the actual goal. As the objective here would be to protect any downside and not return optimization, short term/money manager funds can be an ideal option or one can also look at 1 year fixed maturity plans (FMP).

The idea here is to protect the funds created over the years. When you start investing, focus on equity, take maximum advantage of power of compounding and invest through SIP over the years. Switching to liquid/short term funds should start either as soon as investor reaches the desired amount or at least 1.5 to 2 years prior to the actual goal.

E.g. With our example of Mr. Shah, he could have started switching funds from equity to short term money market funds in the later part of 2007, as he reached his desired amount of Rs. 7 lakhs or could have simply put that money in 1 year FMP product. This would have not allowed him to participate in future rally but at least his money would have been secured and even during that 1 – 1.5 year period money would have generated inflation beating return.

Ideally, it is advisable to shift the amount required for a specific goal to liquid/short term funds at least one year or year and half ahead of actual requirement to protect any downside or it can be done as soon as required amount is reached, irrespective of the time horizon. Whatever path you take, prudent investment approach suggests to realign your portfolio in favour of debt to protect the amount you have built to meet your specific goal.

There is a strong correlation between your investments and your goals. To make life simple, every goal must have an investment attached to it. To justify its presence, the investment must qualify in two tests viz. it must mature at the time of attainment of the goal and the maturity value of the investment must be adequate to meet the goal.

We have spoken a lot about the investment options that are available and how they can be customised according to your goals. Today we would talk about the latter, i.e. the basis of investments “your goals”.

Most people do not invest because of lack of excitement to achieve or lack of knowledge. “Plan for your retirement” may not excite you, but “Having Rs. 5 crore at the time you retire” or “Getting Rs 50,000 a month even after retirement” would definitely excite you. It's just a matter of choosing the right set of words. You have to make your goals simple and exciting and your financial advisor will take care of the need for knowledge.

Personal finance, saving and investments are terms which might scare you off, but a little modification in your perception and presentation of these terms can make things smoother to understand and apply. As a part of the simplification process, you must make your goals exciting, as the thrill will motivate you to invest for them and work to achieve them. Following are a few key points which can help you make your goals exciting:

Pen down your goals: We do remember what is important for us, what do we want to achieve at the back of our minds, yet it is prudent to write down your goals along with the target date. Writing down your goals will remind you constantly that you have to work hard to achieve them, you can go on check-marking the ones you've accomplished. You can review the list to track your status and edit them as per your requirements. So, whatever short and long term goals you have set for yourself, just write them down irrespective of how and when you'll achieve them.

“Written goals have a way of transforming wishes into wants; cant's into cans; dreams into plans; and plans into reality” ~ Michael Korda

Step by step: If you are the one who is averse to investments, try your luck with investing for one short term goal. Start with a thrill, you may go for a one year debt mutual fund to actualise your dream of going for a vacation with your wife, the one which you have been postponing for dearth of money. After one year, when you come back from the vacation, you will not be the hesitant investor anymore, but an investment fanatic. The contentment of achieving one goal will help you in setting and working for the next goal. The joy which you will imbibe from this vacation will motivate you to invest for your next goal, and this motivation will set you on track.

Challenge yourself: If you feel you may not be able to conserve money from your income, to provide for your investments, “Challenge Yourself”. Your income is limited and you have a lavish lifestyle. Due to maintenance of your standard of living, you have not been able to own a house and it is your dream to have your own house. However, you feel setting a goal to buy a house is of no point since you will not be able to achieve it. It is only you who can help yourself at this point. Provoke yourself, start with a short period, say a month, develop a conviction that you will not waste money in parties, fine dines and shopping, and for this month you will limit your expenses to necessities only. After a month, when you see the extra money, you'll realize that your dream can be actualized. And at that point, the goal of buying a house occupies a place in your mission list.

Process driven: Make a list of short and long term goals. Break down your longer term goals into short term goals. Let's say you want to leave certain assets for your kids to inherit. This is a very long term goal. But before that you must provide for their education, marriage etc, these are relatively shorter goals which also in a way form a part of the former. Or you may want to be debt free five years down the line, paying off your credit card debt is a short term goal and is a part of your long term goal. Achieving your short term goals one by one will set you on the path to reach your long term objectives.

Achievable: The goals that you set for yourself must be exciting but attainable, else they will loose their charm. If today, you are hardly able to make both ends meet, you have other important objectives to fulfill, like your children's education, owing a house and you set a goal of owning a BMW after five years. You are most likely not achieving this goal. So, by exciting we mean goals which are thrilling and realizable.

Now, keeping these points in mind, once you are through with setting your goals, approach your financial advisor, who will help you in prioritizing your goals, allocating budgets and developing a portfolio to help you achieve your goals.

We have all made mistakes in past and most likely would also make mistakes in future. Making mistakes is not crime but is something human in nature.However, we must learn from past mistakes and failure to do so is most undesirable. When it comes to personal finance decisions, the best way of learning is by analysing the opportunity cost for our bad decisions.

Opportunity Cost: But before we start, let us first understand what is 'opportunity cost'. The opportunity cost can be understood as

the cost of doing any action measured in value terms of the best alternative that is not chosen or is foregone.

a sacrifice value of the second best choice available to someone who has picked among multiple choices Opportunity cost is a key concept in economics, and is used in decision making where there are scare resources to be optimally utilised. The concept can be applied beyond financial costs: you may apply it for lost time, pleasure or any other resource that provides some benefit. Thus, opportunity cost can not only help us in evaluating investment decisions but also can be universally applied to any decision that we take.

Analysing Wrong Decisions: Let us now attempt to analyse our decision using opportunity cost and a few case studies. The case studies are random examples of what most of us usually are or have ended up doing in past.

Above is for illustrative purpose only. Assumptions: MF Equity returns: 15%. Debt returns: 10%. MF Cash: 7%. Inflation 6%. Post Retirement Inflation 4%. Returns on Kitty: 8%. Some figures are rounded off.

Including the above instances, we can short-list the following very common types of action / inaction that have lost opportunity costs attached to it...

Planning for financial goals: Here the opportunity cost is often in nature of inability to meet the targeted value fully if we either delay savings for goal or invest in wrong asset class. Retirement planning: This is highlighted here since it has huge impact involved which are not very apparent to us and is often ignored. There can be huge opportunity costs in terms of the required savings to be done and the retirement kitty created if we delay or invest in wrong asset class. The biggest risk is that the kitty becomes insufficient to meet our expenses during retirement. Ignoring Insurance: Ignoring, delaying or taking inadequate insurance is very common. Lack or inadequate life insurance is something very scary since the idea of our loved ones left without any money in itself is unimaginable. Still most of us take inadequate cover without finding out actual cover required and instead directly start looking at products. The opportunity cost in absence of medical insurance is something which would now be very obvious.

Idle money not invested: Due to financial indiscipline, we often ignore investing less substantial money on time in appropriate avenues and money is often left idle in form of hard cash or current / savings account balance. We must invest idle money, beyond that required for emergency, running expenses, etc., into liquid MF or similar schemes / products for the small durations of time available. A regular practice of doing so actively can help you good returns on idle money which is not visible to us now.

Common investment related bad decisions.: If we can summarise, there would largely be 3 types of bad decisions w.r.t. investments:

Investing in wrong asset class as per investment horizon
Delay in starting investments or SIP
Investing inadequate amount
Other bad decisions: Apart from above we also have many other common instances of bad decisions like...
Investing in 'Ponzi', 'Get Rich Quick' or 'Chain Marketing' schemes with hopes of making huge money! Taking personal loans for avoidable reasons
Making cash withdrawals from credit cards
Not paying credit card dues on time inviting very high interest costs
Making delayed payments of utility bills, etc. attracting additional money for every instance
The famous and the most successful investor – Warren Buffet has said that “you only have to do a very few things right in your life so long as you don't do too many things wrong” to be successful. Indeed, many small things ignored add up and become significant enough to impact our lives. And bad investment / financial decisions are no different.

The following are the suggested ways that will help us go a long way in improving our financial situation over long term.

Always remember that every financial action or inaction has some opportunity costs Procrastination or laziness is a big enemy for wealth creation

Small things make big impact over time. Discipline, awareness and active decision making are the right habits to adopt

Prepare comprehensive financial plan at the earliest. Do not shy away from seeking advice on small financial matters.

The idea behind this article is to make you aware that every financial decision has costs attached to it and that proper planning, discipline and timely action in our financial matters can help us ensure that we keep the wrong things to the minimum in our lives. A few wrong things are enough to overshadow the benefits from many rights things that we may have taken.

Around 25 Lac new demat accounts have been opened during the lockdown phase. Lot of retail investors have hooked on to the direct Equity bandwagon. Most of these investors happen to be so called “millennials” who are using “new age digital platforms” to participate in Equity story. This is being portrayed as “growing maturity” among investors. Investing when markets were low. Discussions are happening about these “smart” investors who prefer to invest directly in stocks over the boring Mutual Fund route.

But seriously is that the case? Young Millennials flocking to stock markets, buying shares directly is probably the most disastrous thing happening to Long Term Equity investing in the country. These first time investors have all the time in the world, have access to loads of information from various apps, websites, blogs and have hit the Equity Markets to make a quick buck. When you see good quality stocks down by 40-50%, obviously many people are enticed to invest and make some money out of it. But do you really end up investing in “good quality stocks”?

In Equity trading, only one person makes the money, the stock broker. If making money in Equity markets would have been so easy, we would have Equity crorepatis in every nook and corner of the country. The general progression of an Equity trader, Level 1, buy large cap stocks from sensex/nifty. Stocks like Infosys, TCS, HDFC Bank, ICICI Bank, etc. Make some money in these stocks due to market volatility in week 1 or week 2. Then you broaden your horizons and start looking at mid & small cap stocks and realise probably you would have made more money by investing in them(Indusind Bank/Axis Bank). Level 2 – Exit Large cap, Move to mid cap and small caps. Now start observing stocks available at cheap prices, less than Rs. 10 or in some cases Re 1 and see how phenomenally these stocks move or watch stocks hitting daily upper circuits and wish you had bought them. Level 3 – Move to Penny stocks or stocks in the news like Vodafone, Alok Industries, Ruchi Soya, etc. The super risk takers discover F&O segment in stage 3 and realise with same kind of position or investment, they could have made 5 to 10 times more profit!!

The thrill in equity markets is unparalleled, the volatility gives adrenaline rush to investors, till the time markets are moving upward and you keep making money, you keep putting in more money in order to increase your profits in the short term. But then one fine day, BOOM! the markets start changing course. Now investors are stuck with illiquid stocks whose price don't move or stocks perennially hitting lower circuits. In the initial stage, the concept of averaging comes in. Keep buying at lower levels to average out the cost. After a point though, you realise you are stuck badly. All the money invested or earned is wiped off significantly. Then you curse the Equity markets and pledge never to invest again and conclude with your experience that nobody makes money in Equity.

Don't believe me! So which stock did most of Direct Equity investors have in their portfolio in 2019. The answer is Yes Bank. As of Dec 19 end, retail investors collectively held 48% in the bank. Never mind, all of them have become long term investors now with 3 year lock in on their investment. And the stock price has slid from Rs. 400 to around Rs 25. And this is not the first time, it has happened before also. Remember 2008, Reliance Power. 40 Lac retail investors were shareholders in the company. Yes 40 Lac!! The stock was a craze during its IPO with subscription of some 7 Lac Cr against IPO size of 11,000 Cr. From a price of Rs 250+ in 2008, few days back it touched a low of Rs 1 (it's trading around Rs. 4 now). While the millennials might enjoy dabbling in this penny stock now, Old investors have lost 98% of their money!

Is it Easy or Tough to make money in Equity Markets then?

Money can definitely be made in the stock markets. You need to have loads of patience, research skills, be updated about markets, sectors, industries, global and local trends, changing regulations, economic conditions, etc etc. Sounds crazy, isn't it. Opt for a simpler option, invest in Equity through the Mutual Fund route instead and keep patience.

Stock market investing is a specialised skill. It's a huge industry world wide. There are thousands of books written on it, we have had nobel laureates deciphering how to invest in stocks. From Benjamin Graham to Peter Lynch to Warren Buffett, there are gurus who have made money as investors. There are also lots of predictions and forecasts but truth is nobody knows what's going to happen in the markets tomorrow. Every new day is a day worth learning in the stock markets.

Investment mistakes can be very expensive.

When experienced fund managers, analysts, researchers with all their experience, knowledge and resources can't crack this stock market code, it's a bit tough for retail investors, esp for those who have started recently during the lockdown mainly to kill boredom. Value investing or Growth. P/E model or P/B model. Profits or cash flows or market share. There are too many variables in the play for buying the right stock at the right price. It is not as easy as it looks like.

Still, you may argue that ok I don't buy crap companies or penny stocks and I am a having a long term horizon as an investor and am not a trader. I can still do it. Well, you may not be wrong. But, being a large corporation today making loads of profits doesn't guarantee long term performance. Remember market leaders like Nokia, Kodak, Lehmann Brothers. To add more, Blackberry, Yahoo, IBM. All market leaders of yore, have now gone kaput. Too American na! OK lets talk about India.

Say you were in 2001 and you choose companies to invest from sensex, top 30 companies in India. So, you may buy Satyam, MTNL, NIIT, ZEE! Yes, they were all part of Sensex in 2001. You will be surprised to know that 50% of the companies in Sensex in 2001 were not part of it in 2010! Companies who were part of Sensex in 2010 included Reliance Communications, DLF, JP Associates, Reliance Infra, Tata Motors! Some of these companies have ceased to exist, while some have performed really badly. Even stock of Reliance Industries gave close to 0% return between 2008 to 2017. BHEL, a Navratna company delivered a 0.1% return from 2000 to 2010. Only 10 stocks, have remained as a part of Sensex from 2001 till 2020. So should you buy them? Is there a guarantee that they will continue to deliver superior results in future too? Nobody knows!

Sensex has delivered 15%+ compounded return since it's inception. From 100 to 36,000, 360 times in last 40 years. But still large number of investors have ended up losing money in Equity markets. This has happened because retail investors can't control their emotions and end up buying and holding on to wrong stocks at wrong time. It is much easier to book profits but our ego, doesn't allow us to book losses. Rather than investing we are more in love with the stock. Due to this behaviour, we end up selling our winners (as they give short term profit) and are left with losers ('cause we expect them to regain their price). Investors behaviour is highly irrational at times, in fact the subject of investor behaviour itself is so complicated, that books have been written on it and nobel prizes have been awarded to those trying to decode it.

It's really a shame that media sings the praise of the fact that too many investors have joined Equity bandwagon. Media should actually start cautioning such new investors and teach them about perils of direct Equity investing. Stories like millenials going digital might sound fancy but truth be told what we learn from history is that we don't learn from history. Human behaviour in general and investor behaviour in particular has not changed even in the developed markets, who are having more than 100 years of investing in Equity Markets.

Only time will tell whether this hypothesis is right or wrong. The truth of the matter is when in all other walks of life be it health, nutrition, beauty, home decor we are ready to take professional advice and pay hefty fee to a professional, it always makes sense that when it comes to our own money, it's beneficial to take expertise of not only a professional fund manager but also getting the right advice from a financial expert, who can make a financial plan for you and guide you to invest your hard earned money according to your needs and risk appetite. And if you like speculation, believe me, the thrill will be much more in a casino!

The two wonders of personal finance "Saving" and "investment" are often perceived as same by most of us. But, both these terms are distinct and have a very important role to play in our financial life. An investor must understand the difference and relevance of both the elements. And we have to participate in both activities to secure a sound financial future for ourselves.

To begin with, let's understand the meaning of the terms "saving" and "investment". Saving is nothing but the excess of income over expenses. So, if your monthly income is Rs 50,000 and your expenses are Rs 30,000. So your saving is Rs. 20,000.

This Rs. 20,000 helps you in meeting your upcoming family emergencies, buying clothes for a cousin's wedding, or buying gifts for your family this new year, or meet other unexpected expenses, etc.

This saving can be in the form of cash at home or money lying in your savings bank account. When this saving is put to use with a view to generate a return, this process is called investment. So, when you use your saving and buy a mutual fund, or an FD, or put it in real estate, you do it because you want to generate an income on your money. So, these are investment activities.

Although your money lying in your saving account is also giving you a return of about 4%, but it isn't your investment, because the return is not even able to cover the cost of inflation. If Rs. 2000 can get you a third AC train ticket from Mumbai to Delhi today. Five years later, you would need around Rs 2800 for the same ticket. Now if you deposit Rs 2000 in your saving bank account today, it would give you around Rs 2500 after 5 years, which will not be enough to provide for the ticket. Therefore, money kept in a saving bank account is not enough to cover the cost of inflation and hence is not an investment.

This means money looses its value over time because of inflation, and in order to combat with the evil of inflation, we must Invest. A major differentiating factor between saving and investment is the purpose behind engaging in each. And that is where we shall give a deep thought and decide if the goal for which we are saving, will be met by simply saving or if we need to put in more efforts and "invest that saving" and actualize our goals.

Saving is generally not backed by a goal. The money is being saved because that money is not in use today, or is saved for meeting any uncounted expenses. Or even if there is a purpose it isn't a defining factor of your life, it can be saving for buying a mobile, or a dress, etc. On the contrary, there is a specific purpose behind investing which has a significant impact on your life. We invest for buying our dream house, we invest for our children's education, we invest for our children's marriage, we invest for our retirement or may be we invest simply to create wealth. These goals can not be achieved by just saving. Imagine saving Rs 10 Lacs in a bank account @ 4% interest for meeting your daughter's wedding expenses which is planned 10 years hence. There will be a huge mismatch between the funds you have in your saving account then and the funds you require. And this gap can only be filled with investment.

Therefore, it is important that in order to achieve our life goals, we invest. And each goal must be aligned with an investment. For each goal, a particular type of investment is required which is determined by the investment horizon, amount required, your financial position, risk taking ability and various other factors. Your financial advisor will help in selecting the investment products ideal for your goals.

The bottomline is it is important to save and to invest the saving. Both of them are independent as well as interdependent. You must be able to draw a boundary between saving and investment, and not just save for your future. Saving & Investment is an ongoing process and should not be disrupted. So, if you are saving and not investing or worse not saving at all, then you must get your act together as your financial health is dependent on these exercises.

There is none better way to look at simple ratios to evaluate your financial situation. Companies and analysts are much more comfortable using ratios rather than actual figures for better understanding and decision making.Nothing binds us as normal investors to speak of our own financial situation in terms of ratios. We are sure that the practice would not only make it simpler to evaluate and understand situations but also interesting enough for you to engage in the exercise.

In this article, we present you with few personal finance ratios that can use used to evaluate your financial health. Assessing these the personal finance ratios and fixing your own targets or benchmarks will also go a long way in bringing prudence and control in your own financial situation. It can thus open a new world of possibilities for you...

The following few ratios have been devised based primarily upon common sense. These are not standard, academically defined ratios and you may change the composition of the ratios according to your own needs. Further, you may even devise new ratios that may better suit your unique needs. The objective is to incorporate the use of ratios in our personal financial lives to make more interesting!

Savings Ratio = Actual Savings / Post-tax Income Savings Ratio indicates how much you are saving out of your post-tax income for any period. The higher this ratio, the better it is. However, merely savings is not enough. The savings should be in a right asset class. Money kept ideal in bank accounts or other non-productive avenues do not qualify as savings. One may however cover asset building EMIs, like for home loans, insurance premiums, mandatory savings from salary, etc in savings. The idea is understand how much you are saving in building assets and securing your future. A good savings ratio is anything over 25%, The more it is, the better.

Expense Ratio = Actual Expenses / Post-tax Income The Expense Ratio indicates how much you are spending out of your post-tax income for any period. The lower this ratio, the better it is. Typically Expense ratio should not be beyond 75% of your income. Expenses can be further broken into fixed expenses & variable expenses where fixed expenses would cover expenses like car / personal loan EMIs, rent, tuition fees of children, salary to servants, utility payments, etc. Variable expenses would include expenses on grocery, shopping & entertainment, etc. One can then also look at the proportion of fixed and/or variable expenses to post-tax income to better understand your spending pattern. Typically for any households having higher Variable expense ratio would mean that more unnecessary expenses are likely being made which needs to be controlled.

The relationship between Savings & Expense Ratio is also interesting since Savings + Expenses = Post Tax Income. One should ideally treat Expenses as net of Income & Savings rather than treat Savings is the residual after meeting all Expenses. By this approach we can limit & control our Expenses while making required Savings.

Debt Repayment Ratio = Debt payments / Post-tax Income As the name suggests, the Debt Repayment Ratio can be used to understand the portion of your post-tax income that you are spending on payments of loans. Such loans would typically consist of home, car, personal or private loans. This ratio should be ideally below 40%, the lesser it is, the better. If it crosses over 50%, one can consider oneself in sort of some debt crisis and should act to minimise the debt portion.

Debt to Assets Ratio = Total Liabilities / Total Assets You must be familiar to the Networth concept which is the balance after deducting all liabilities from the assets of an individual or a company. The Debt to Assets Ratio is on similar lines and speaks about the relative proportion of debt to the assets of an individual. The lower this ratio, the better it is. Typically, 100% or above of debt, as proportion of your assets, is unhealthy. However, due to liabilities of home loan and car, it is not unusual to find even higher proportions of Debt to Assets Ratio. While considering assets, one can either consider only disposal assets or total assets or derive ratio for both. Disposal assets can be considered better since liabilities can be paid off from such assets only and not those assets which are currently used for personal consumption, like for instance your residential home. A lower Debt to Assets (disposal) ratio would mean that you have greater flexibility to manoeuvre your financial situation.

Liquidity Ratio = Liquid Assets / Net Worth The Liquidity Ratio indicate what percentage of one's net worth is invested into liquid assets. In liquid assets, one may consider cash, bank balances and investments in cash & equivalent investments of very short maturity period. Networth, as said earlier, would be the balance of your assets after deducting all your liabilities. This ratio should not be either too high or too low and depending on your situation, a comfortable range can be between 5% to 15%. A higher ratio would indicate that you are not making productive use of your capital and that money which can is invested for better returns are lying ideal. A lower ratio would indicate that you run a risk of going short of cash to meet normal expenditures or to meet any emergency needs.

One can also view this as Emergency Ratio and can keep a few months of expenses in liquid assets in absolute money terms. This is more recommended it cases of individuals having high networth.

Conclusion: The above ratios with ideal figures are for broad guidance. Typically, depending upon your life stage, there can be acceptable deviation from the ideal figures given above. For eg., for an unmarried person or a working couplel, the Savings ratio can be higher as compared to a family with one working spouse and children. We also need to consider special cases like in case of retired persons, where there is no post-tax income. Thus in such cases, low Savings ratio and high Liquidity ratio is acceptable while Debt to Assets Ratio and Debt Repayment Ratio will be a must.

Although the above personal finance ratios cannot be used for complete financial planning but they can definitely serve as a valuable reference points for better insights to your personal financial world. We encourage all readers to undertake such exercise at regular intervals of time and set benchmarks to be met with the help of your financial advisors, if felt necessary.

As kids we would have read the famous story of Alice in wonderland. In the story, she once reaches a crossroads and was not sure which road to take. A passing cat asked her where she wanted to go to which Alice replied

"I don't know!". The cat then smilingly replied "Then it doesn't matter which road you take".

The classic moment in the story is true to each of us in our daily lives. In our lives too we are often at crossroads like Alice and unknowingly we choose our roads without knowing where we want to reach in our life. When it comes to investments, this is in fact the reality for most of us. Since we don't know what we want to achieve from our investments, any investment decision helps us achieve it.

The need for setting goals can never be undermined, be it business, personal life or your personal finance. Every wise investor would know the purpose or objective behind his/her investments and more often than not, the same would be geared towards achievement of some goal in life. The goal can be any personal or financial goal like retirement or a fixed amount at any time in future, with the condition that it can be monetised or spoken in terms of money.

Advantage of setting goals: The following are some of the benefits of setting financial goals in your life...

Goals make you think & prioritise: When you actually start planning for your goals, you are forced to evaluate the need, intensity and priority for each of your goal in life. This gives you a lot of clarity on which goals to pursue and in what priority. Often important goals which are not on the top of your mind, crop up and make you think.

Goals make you take action: After identifying goals, one becomes more inclined to take actions for achieving the goals. We often neglect or delay the action because the goals are not very clear in our minds. Defining goals would help you realise the urgency for taking appropriate actions Goals tells you where you: Unless the goals are defined, we would not be able to comprehend our current situation with regards to the future. Defining goals also clarify their feasibility and practicality for achievement and accordingly, depending of our current situation, we may either change the maturity period or the returns expectations or the targets of the goals.

Goals helps you to keep focus: Understanding your goals would help us keep focus on achieving them. This helps us on a daily basis and you may start making a choice between making small expenditures or saving for the goals. Also, we would be more discipled and regular in making our investments and at the same time, not withdrawing from the kitty saved towards the goal. Goals lead to success: With goals in mind, you will make optimum use of your financial resources when while planning for them. You would eliminate wastefull expenditure, invest in productive asset classes and tend to maintain discipline in your investments. All these factors ensure that you are much closer to your goals then they mature.

Just like we discussed the benefits of goal-setting, there are similarly down-side risks to not setting and planning for goals.

Compromise on goals: Not identifying or delaying planning for your goals for too long would ultimately lead to situations wherein you would need to either compromise on your goals, in terms of value or by pushing our goals into future. However, more often than not, goals like child marriage, education, retirement, cannot be postponed and it is best left unsaid as to how you would plan when they actually arise. You may even loose out on smaller goals & moments of happiness like say vacations, which would be very much possible if you are planning in advance for them.

Failure to make optimum use of finances: Not setting goals and planning for same will lead to misdirected investments and spendings. Chances are that there would be unwarranted spending which would had been invested had planning been done. There is also high chances that you would save in asset classes or product which are not in line with your goals. For e.g., While planning for retirement after say 15-20 years, you will probably identify equity as ideal asset class for you to invest. However, in absence of same, you may avoid equity investing as a risky asset since your goal & time horizon is not clear.

Compromising on Long-term financial well-being: In long term, better management of your resources would enable you to achieve same while also creating and protecting your wealth at the same time. Needless to say, you are more likely to be credit-free, while having appropriate wealth at disposal for a better life, especially post retirement. By avoiding goal setting & planning, you may well be inviting financial in-stability or insecurity in long-run since you may be forced to take credit or dilute your unplanned investments when your goals mature.

Setting financial goals is something that we are not completely unaware of. It is like basic common-sense. We all know its importance but rarely do we plan and act accordingly. We have discussed in detail the benefits and risks of not setting your goals and planning for them. Very clearly, they have potentially very far-reaching & defining consequences to your financial well-being in future. Those who are wise would understand its criticality and start taking appropriate actions towards it in immediate future. And for those who fail to do would leave matters increasingly to luck and chance for as long as they continue delaying same.

Following are some tips which can help you in building and managing your Emergency Fund:

Ask your advisor: Your emergency fund must be sufficient to meet emergencies. Contact your financial advisor and give him the details of your fixed and variable monthly incomes and expenses, including EMIs, leisure, medical expenses, credit card payments, etc. He will help you in determining the amount you need to keep aside for emergencies. He will also guide you with respect to the assets you should invest in, as an emergency fund will serve its purpose only if can be liquidated easily in case of an emergency.

Keep it separate: You must always keep your emergency fund isolated from your normal savings account. This will help you curb the temptation to withdraw your emergency fund for your usual or recreational expenses. An emergency fund is supposed to meet emergencies only, it should not be used on new clothes, vacations, casinos, etc. Because if you use it now, you will not be left with anything then.

Cut down the unnecessary expenses: If you feel you are not left with enough money after your monthly expenses and other investment commitments, and hence you cannot start investing for an emergency fund.

Think again! Yes you can, there are many things you spend on every month, time and again, which you don't even require. The expensive shoes and clothes you buy, which you seldom wear, the gold and silver you buy only to stack in your locker, and the like can be exchanged with bringing in mental peace and stability into your life.

Use unusual income: Most people plan to buy the latest gadget or go for a vacation when they are expecting their annual bonus, or a sudden gain, or sale proceeds from old furniture or other household

items. But you as an investor must set priorities, and providing for emergencies would definitely occupy a higher position than purchasing the latest 55 inch LED TV. So, use your next bonus in contributing to your emergency fund.

Invest Regularly: Like your other monthly installments of expenses and investments, make it a habit to invest for your contingency fund regularly. You must keep aside a fixed sum from your monthly income dedicated towards emergency. This is a good approach as you may not be getting big surprise money any soon or you may not have lump sum money to invest plus it builds discipline in saving and investing.

So, the bottomline is reach your advisor and build an emergency fund. Remember it is an 'Emergency' Fund and shouldn't be touched unless an emergency happens. Follow the above, with discipline, perseverance and a little extra commitment, you can protect yourself and your family from the unlooked-for emergencies. The emergency might not happen in the next twenty years, but when it does, you'll be happy to look back that you took this decision this day. Remember your family's future is dependant on you.

Asset Class is a often used word in finance, especially investment & portfolio management. We also used the term many times in our articles. In this article a take a academic look at the various asset classes.

We all aim for success in our investments. But success in any investment is a play between returns & risks. You may not have any control on the returns or risks that your investment portfolio actually generates but you definitely have control on making a smart allocation that maximises returns and minimises risks. While planning your investments, 'risks' is often not properly understood and even less planned. This article introduces you to this aspect of planning in your investments.

Planning for investment risks or “Risk Management” is nothing but the identification and assessment of risks followed by smart allocation of money in such a manner that the chances of an unfavourable outcome and/or the losses because of same is minimised. Risk management also involves regular monitoring and rebalancing your portfolio to control such risks.

The steps in any risk management exercise, including investments, would be as follows:

Know the risks faced - identify, characterize and assess threats
Understand the risk involved – determining the extent of risks & probability of occurrence
Identify ways to reduce risks
Prioritize & act on risk reduction measures
Regularly monitor & control risk
The third step involves identifying different ways to reduce risk. A smart person knows that 'not taking any risk' is also risky and that deciding to not take any action is also an action in itself. Risks management strategies can be broadly classified in the following 4 ways:

Avoidance - eliminate or withdraw the source of risk or in other words, do not take exposure to risks
Reduction - mitigate the risks faced by smart strategies
Sharing - transfer or share the risks, i.e., insure yourself from same, if possible
Retention - accept and budget for risks
An investor can adopt any combination of the the risk management strategies while managing his investments. While strategies of Avoidance, Sharing & Retention are largely self explanatory, we take a closer look at the strategy of Reduction, which we believe is much more relevant and meaningful to investors. Risk Reduction would entail strategies whereby you can reduce the overall risks in your portfolio while not compromising on your returns potential. A few of the smart strategies for the same are listed below for your consideration...

Diversification: Even as a child we learnt that we should not keep all our eggs in one basket. This same principle also applies to investments. To reduce risks, we must diversify our portfolio / investments into appropriate mixture of different asset classes, products and companies / sectors, etc. To begin with, we must take a complete picture of our entire portfolio before we start with diversification. As earlier said, diversification can be in various types and ways. For example you may well diversify your portfolio into equity / debt / commodities / real estate, etc. at the higher level then say within equities, you may diversify into direct equities, mutual fund equity schemes, etc. and further even diversify into large-cap or mid-cap, sectoral or theme companies or funds. Diversification must be such that the portfolio is easy to manage and monitor. One of the good ways to diversify, if you are investing directly into equities or debt products, is to invest in mutual fund schemes which may be equity, debt or cash oriented.

Asset Allocation: While the diversification principle tells you to spread your investments into different asset classes, products, etc., Asset Allocation provides the tool which you can use to properly balance your portfolio to get the best risk-return trade-off suited to your risk appetite. Every asset class has a peculiar returns expectation, risk in terms of volatility of returns and an ideal time horizon for investment. Further, different types of investment instruments respond differently to the changing market conditions, varying political and economic scenario. Asset allocation is allocating your investment into different class of assets which usually have no correlation with one another. One can thus be assured, upto an extent, that even if one type of investment doesn't perform, the portfolio will he hedged due to the investment in another type of instrument which may fare well.

For example, in a booming market, one can increase allocation to the stocks as the strong corporate earnings and relative stability will increase the value of stock holdings. On the contrary, in a rising interest rate scenario; investors would wish to increase their allocation in bonds, reduce allocation in equities and keep a crtain position in cash. Hence, modifying one's asset allocation from time to time will help minimize losses in different economic situations depending on which asset class looks favourable or otherwise.

Rupee Cost Averaging: The Guru of value investing, Benjamin Graham, trusted dollar (or rupee) cost averaging as the most effective way for investors to reduce the risk of fluctuation in asset prices. More relevant to investing in equities, rupee cost averaging is nothing but the practice of investing a fixed amount every period (month, quarter, or any period) in an asset. This strategy ensures that you are investing small amounts at all prices reducing the price risk involved to a large extend. Further, as studies show, the periodic investment averages the purchase price of the asset such that the average purchase price is often lower than the market price. SIP or Systematic Investment Plan in a mutual fund equity scheme is one very popular way of investing based on this strategy of risk reduction.

Portfolio Management: The strategy simply requires that your portfolio must be very professionally managed and monitored at regular intervals and that investment decisions must be driven by proper research and analysis. This would keep risks controlled on your portfolio. However, doing this on a sustained basis is not easy for common investors. The investors can however take assistance of experts and professionals like 'wealth managers', 'financial planners' or 'portfolio managers' for managing their portfolios and guiding investment decisions. Often such professionals/ experts have relevant experience in the field and have more knowledge and resources dedicated to this work which cannot be matched by common investors. Investors would be advised to even pay fees such professionals / experts for services in order to get unbiased and high quality services. Over time, one can surely reap many times profits in terms of better investment decisions and reduced risks through professional portfolio management services.

Hedging: Hedging is another strategy of reducing risks suited and used by more advanced investors. Under this strategy, the investor exposed to risk in one asset class or product would take an opposition position or exposure in say future & option contracts. The idea is that if the investor suffers losses in one investment, it will be offset by a profit in the other. Hedging is very commonly done with derivative products of futures & options.

Risk and return is inseparable so to earn a good return, having a proper risk management system in place is very crucial. Therefore, assessing one’s risk tolerance and time horizon is the starting point to following a proper investment plan and supporting it with risk management techniques. As investors, we must also understand that the risk that we seek to control is similar to everyone but the impact of same on us is subjective in nature and will be unique to our own peculiar situation. In other words, the 'risk' tolerance level for each of us is different and is dependent on one's age, income levels, assets, investment dependency, risk attitude, life-stage, etc. Risk attitude is something that shows how much comfortable are you in investing in products of different risk-return levels. You may like investing in equities and commodities for higher return while others may be interested in minimizing risk and earning a satisfactory return at the same time. In the end, the person who best understands and controls risks will never be on a loosing side. After all, successful investing is more about not making big mistakes rather than choosing winners...

It may just take luck for a person to acquire or make wealth. However, it would take a lot more to keep holding on to that wealth. At the bottom of the things we do and the way we live life is money. Protecting wealth over a period of time, especially across generations is not easy. There are just too many factors that pose a risk to your wealth and one must be very well protected from all sides. In this article we take a birds eye view at picture of protecting wealth and explore a few strategies or ideas that you can apply in your lives.

The True Meaning Wealth Protection may come with the question: What is wealth? The dictionary definition says it is an abundance of worldly possessions. With the uncertainties prevailing in our lives, it is very important to protect your wealth. Most people focus on growing their wealth but protecting your wealth is just as important. While you can’t always predict life’s changes, you can plan ahead to help protect your finances from being diminished. Without adequate protection, you will be vulnerable to the nasty effects of a chance misfortune which may cause financial losses. Hence protecting wealth must assume a very critical part. Below of the few simple connotations that we can derive for term 'protection':

Ownership protection means ensuring that you and/or your loved ones continue to own the wealth that belongs to you. Often protection of ownership is required to protect against the following risks:

risks that arise on ownership issues specially in case of property transfers and inheritance risks to ownership of business assets and capital if legal fool-proof work is not done risks to unattached / personal wealth in case you are suffering from huge losses or claims The following are few ideas by which we can protect the ownership of our wealth & assets

Legal Documentation: Proper legal documentation and ownership records of all family / personal assets. All the records / documents must be safeguarded and stored at a place which is known & accessible to you and your lawyers/ spouse, etc. in case of any eventuality. Due diligence and audit of title / ownership documents must be done in case of any purchase of assets or business stakes, especially property.

Estate Planning: It is about declaring successors to your wealth and the proportion of distribution through proper estate planning and making your 'will'. One may also look at formation of trusts to oversee large properties or businesses. A non-existent or outdated will may mean passage of assets to unwanted persons and undue financial burdens to loved ones.

Court Attachments: One might do well to keeping business entity distinct from self. This means protecting personal assets safe from payments due to creditors and other claims on business. One idea is limiting your civil liability through formation of Private Limited Company, subject to extant laws. In proprietorship & partnership firms, the personal wealth is not treated distinct from that of the owners or partners. Also from an individual's perspective, retirement benefits like pension, PPF, EPF and gratuity cannot be attached by authorities or under any decree of court.

Protection of value: Protection of value means the protection of the purchasing value or worth of money. Due to inflation or price rise, the value of money decreases over time and the thus, in order to retain its purchasing power, the amount money has to rise. Thus, one must always keep in mind the 'real returns' or value of money while committing to any investment or other avenue. In addition to this, the following points should also be kept in mind.

Post Tax Real Returns: After having appreciated the concept of real returns, the next step is to look at post tax real returns, i.e., looking at the returns after tax, and then adjusting for inflation effect. Thus, if an instrument giving 8% returns, taxable at say 30%, the post tax returns will be (8%-2.4%) 5.6%. In an environment with an average inflation of say 7%, the real post tax returns would then be a negative of 1.4%.

Idle Money: In the above above case, if your money is kept idle, you will be depreciating your money at the rate of inflation. One should minimise idle money and put aside money into avenues that preserve capital. Though savings bank accounts with deregulated interest rates are a bit attractive, mutual fund liquid funds and other debt products are options that one should explore.

Protection from usage: This is a very broader & general idea that highlights the need to have proper management and usage of wealth, especially the business ventures and investments.

Avoiding Personal assets as collateral: Taking up business or other loans by putting your home or other personal property as collateral must be avoided as far as possible. A basic minimum wealth should be kept intact at all times and should strictly be used only as the last resort after exploiting every other opportunity.

Unprofitable expenditures: Unwarranted spending on assets, businesses which is not required. Further spending money on assets that depreciate rather than appreciate over time or incur expenses to maintain rather than generate income are to be avoided. Excess spending on shopping, life-style, etc. is highly undesirable and further, buying unrequired assets on loan is a strict no.

Avoiding aggressive risks, fictitious business venture, get-rich-quick schemes: There are no free lunches and never an easy money. It would be better if we can avoid shortcuts to creating wealth as almost certainly they can be disastrous. Never invest if you do not fully understand how the scheme/business works or if you are not sure of the management's credibility and expertise. Diversification of risks: The idea is to optimally spread your business risks and investment risks such that your capital and/or income is not jeopardised. It should work towards having investments in and earnings from multiple sources.

Hedging against risks: Business risks or risks of exposure to say commodities, currency, metal prices, etc. can be safeguarded by hedging

Investing in right asset classes for right duration: When it comes to investing, selecting the right asset class is a most important. An overexposure or underexposure to say equities can both be harmful for creating wealth. Matching the right asset class with the right desired duration of investment and your risk profile is what is required.

Protection from risks / uncertainties After having taken all precautions and necessary planning in management of wealth, still life may throw up surprises or situations wherein all planning may come to fail. There are a lot of uncertainties in life and we should best avoid or reduce taking exposure to such risks and at the same time prepare ourselves for the worst, in case anything goes wrong.

Risks to life & health: An unfortunate event can happen anytime and anywhere to anyone. Specifically, there can be death, disease or illness, disablement, etc. which can put severe financial pressure at the worst of the times. Taking 'adequate' insurance thus becomes very critical for continued financial security of your family. Life Insurance, Health Insurance, Personal Accident cover for self & family members are few very critical covers that one should take after consulting your advisors.

Risks to property / assets: Similarly, protection of business property/ assets, factory, shop, home & home contents, goods in transit, etc. becomes very important and the loss therein may result in liability and financial losses. There are many general insurance products that can be explored. However, as a practice, we should take adequate safe precautions in construction, maintenance & storage of such property.

Risks to reputation / profession / : Apart from the tangible risks, there are also other risks that businessmen and professionals or officers are exposed. Again products like Professional Indemnity, Directors & Officer's Liability, Public Liability, Commercial General Liability, Money Insurance, where one is protected against losses, suits, damages, claims, loss to customers, third parties, any many other risks.

Protection of wealth is a very vast subject. The idea cannot be justified in couple of pages, though a fair understanding can be built up. Wealth protection goes beyond protecting your investment and it extends to protection from the happenings in your lives and the risks that you are exposed to. After all, almost everything, directly or indirectly generally ends up in rupee terms. And when we realise this, our approach to life and everything that we may do will have an element of protection somewhere. Wealth protection is not an act or event but an attitude and philosophy to follow.

To most of us, food, clothing, and shelter were the norms for survival. Then came technology and connectivity in the form of mobile phones. These are now indicators of our survival and safety. However, in addition to the real, touch, and feel type of safety indicators, we need the security of health, both physical and financial type. While physical health can be a subjective discussion as to the right food, adequate exercise, and healthy lifestyles, financial health is rather easy to discuss.

We save to invest for our future goals in various instruments according to the asset allocation as advised, which gives us financial security. However, mere investing will not suffice. Protecting the investment is equally important. We need to also protect our finances and future goals from unexpected expenses.

While certain expenses can be avoided, reduced, or delayed, expenses like sudden hospitalization due to injury or sickness can’t be. On top of that, these expenses are sudden, painful, and unavoidable. Accidental injuries can happen anywhere, anytime to anyone, and now the health dangers have also started to behave similarly. The current situation prevailing in the entire world for the last few months has intensified this second probability stronger than the first. Almost anyone can get infected and if not diagnosed soon, will have to get treated in a hospital. These expenses rapidly start our eroding bank balance, investments, and sometimes even credit scores. Luckily, we have the option to opt for health insurance to take care of such situations.

What do most people understand health insurance as? A common misnomer is to pay INR 15,000 to 25,000 to some insurance companies for the insurance to avail the tax benefit. Usually, in this amount, a family of 4 may get a health cover for approximately INR 300,000 to 500,000. Unfortunately, such cover is not sufficient in today's time. A hospitalization for major surgery will cost much more than this amount. In fact, the treatment of COVID for a week will cost you more than a few lakh rupees.

Therefore, taking health insurance for the nominal amount or merely for tax benefit will not help much. Since the hospital bills are steep, non-negotiable, and can not be delayed, borrowing and withdrawing from investments are the immediate consequences. A rather serious long term impact has forced a compromise on financial goals, particularly child's education and marriage or even our retirement goals. Such goals need long term planning with total discipline, as they are also non-delayable and not negotiable.

Moreover, the financial pain doesn’t stop on the day of discharge. In case of an accident injury, even after discharge from the hospital, a few weeks or months of inactivity will stop the income during that period, while the expenses would keep on mounting. Only accident insurance with loss of income feature can come to the rescue. Add accident insurance with loss of income feature, at least for the earning member of the family.

Regular evaluating and upgrading of insurance every few years is highly advisable. We keep on upgrading our lifestyle right? We upgrade our phones, laptops, curtains, bikes, and cars every few years in the name of a better life. Time has come to upgrade our health insurance for a better financial life. The importance of health & Accident insurance can be at best explained as ‘Food, clothing, shelter, mobile phone, and insurance are the basic requirements of life’.

It has been universally believed that life is, now, going to be completely changed and taking new forms of living it in a different way. Perceptions and mindset of people have changed drastically to develop more practical approaches towards life. Health insurance has now become a primary requirement with the phenomenal increase in deadly disease and advanced medical procedure.

Till now, we have been depending either on the Government or on friends and relatives for our medical emergencies. But we have witnessed a number of cases wherein friends and relatives avoid visiting the hospital to see the patient under the threat of being asked for financial help. “ Sukh ke sab sathi, dukh mein na koi”

The time has come to retrospect and reallocate our resources as per the basic theory of need hierarchy. We have been wasting lots of resources on unnecessary elements but ignoring the basic requirements like health insurance. If we feel that health insurance premium is very hefty and disturbing our budget, then we must try the illness.

Health Insurance today comes with various add on features and depending upon the budget of the customer or his lifestyle, various options are available. There are 24 Non-Life Insurance Companies and 7 stand-alone health insurance companies in India who offer health plans. Choices are many, features are many but important is to buy before any eventuality comes your way.

Motor Insurance is generally a combination of Third Party Liability policy & Owner’s damage Cover (OD). The Motor Vehicles Act was passed in the year 1988 and regulates almost all aspects of road transport vehicles, including having a mandatory Vehicle Insurance cover under section 130 (177) Motor Vehicle act. It means that the vehicle owner should have the mandatory Third Party Liability policy. It is very much recommended to take a comprehensive policy so that you can claim for any expenses incurred on repairs due to any external accident or loss of your vehicle.

At the time of renewal, Car owners might do the mistakes like considering only Cheaper Premium and overlooking the other important features like value of the vehicle (IDV) and the additional covers available (Zero depreciation, Return to Invoice, Road side assistance, Engine Protect Cover etc.) And this is reflected in the casual attitude of the customers while buying a motor vehicle policy. Hence it is critical to create awareness & education in understanding the benefits & their importance while purchasing a Motor vehicle Insurance policy .

Critical points to be remembered while renewing Your Motor Insurance policy.

1) Insured Declared Value (IDV) IDV is Insurance Value of Your Vehicle after the depreciation (10 to 15%) from the previous year. Higher the IDV, higher will be the coverage and beneficial to the Owner of the vehicle.

2) No Claim Bonus (NCB) As the name suggests, NCB is the reward offered by the Insurer for driving the vehicle safely and not incurring any claims. Typically the NCB ranges from 20% to 50% depending upon the age and the past claim experience of the vehicle.

NCB is owned by the Policy holder of the vehicle and can be carried forward / transfer to the new vehicle under his/her ownership..

3) Hypothecation Hypothecation means offering an asset as collateral security to the lender. Herein, the ownership lies with a lender and the borrower enjoys the possession. In the case of default by the borrower, the lender can exercise his ownership rights to seize the asset. If You have repaid the vehicle loan, It is important for You to remove the hypothecation clause from Your policy document.

4) Zero Depreciation Policy : Zero Dep policies are also called as Bumper to Bumper or Nil Depreciation policies. It is one of the crucial and important Add-on cover offered under Motor Insurance Policy.

In Zero Dep policies, 100% of the claimed amount is payable. Where as under the comprehensive policy, the claim is payable as follows:

Zero depreciation is offered only till 5 years of the vehicle age. Though some Insurers offer it till 7th year.

5) Other Add ons: Usually following Add-on benefits are offered by the insurers:

i) Consumables Cover

Usually consumables like oil, nuts and bolts etc. are not covered under insurance. With this add on, you can claim the consumables however small they might be. It covers expenses towards consumables which are unfit for further use, arising out of damage due to an accident.

When the Vehicle is damaged beyond repairs in an accident, Insurance companies will refund the complete value/amount mentioned on the invoice.

iii) Roadside Assistance

This benefit assists you in situations where you need help on the road with your car. The service offers many benefits from getting your set of wheels fixed on the spot to towing or taxi service to help you reach your destination. Roadside Assistance is usually provided to anyone who is stranded anywhere within the radius of 500km from the middle of the city.

iv) Engine Protection Cover Any damage caused, from leakage of the lubricating oil to water entering the engine due to natural calamities such as floods, that can cause permanent engine damage is covered under this add on benefit.

v) Tyre Protection Cover: This Add On may ideally cover following, though conditions may differ from company to company:

Cost of replacing the damaged tyre with a new one.

Labour charges toward removing, refitting and rebalancing of the tyre.

Accidental loss or damage to tyre and tubes which would in turn make the tyre unfit for use. This includes scenarios such as bulge in tyre, bursting of tyre and damage/cut to the tyre.

vi) Passenger Cover This cover ensures the protection of your family and loved ones. For, god forbid, you meet with an accident where you and your near and dear are injured, this cover will ensure that, apart from you, your beloved are covered too and will receive all the necessary financial support till they recuperate.

And finally don’t wait till last date of the due date. Because if You miss the due date, then inspection of the vehicle is mandatory. But if due to any unforeseen situation, you were unable to renew your policy on time then make sure to renew it within 90 days of its expiry to take advantage of your accumulated NCB. Beyond 90 days of expiry,NCB will lapse.

Always Pay attention in case of ownership transfer cases: If you have bought a used car/vehicle from someone than make sure to get the insurance policy transferred on the new policy owners name as soon as the RTO formalities are over and new ownership has been created in Registration Certificate. Failing to change the ownership in insurance policy will result in rejection of claims.

Know about compulsory & Voluntary Deductibles: Compulsory Deductible is also known as Compulsory Excess in motor insurance. It is the part of the claim amount which you will have to bear out of your pocket. For cars not exceeding 1500 cc, the amount is fixed as Rs. 1,000. If the engine potential is more than 1500 cc, the compulsory deduction is Rs. 2000

You can also reduce the premium if you opt for an additional voluntary deductible.

Scope of financial planning and awareness about personal finance have gone up considerably in last one decade or so with well traveled average Indian and increasing earning/savings capacity. But the challenge that remains both for clients and planners is that we all prefer to plan something which we can foresee for our future or something which comes out of compulsion like planning for buying a car or house, savings for kid's higher education and marriage or even planning for a vacation abroad. Distribution of wealth is as important as creating of wealth and that is why despite complexity involved, one can not ignore the most important aspect of 'Estate Planning'.

Estate Planning is nothing but legal arrangement for transfer/distribution of one's assets when he/she is not around or simply to protect or preserve assets during their lives. Common misperception among individuals is that estate planning is only for rich people but this is not true. It is a fact that importance increases manifold for rich and successful people, but even for a common individual the need for estate planning can not be ignored. In fact I would like to put it in a way that if large corporate houses like Tatas, Birlas or Mahindras of the world require a well defined estate planning then a common individual who has limited wealth to distribute must have a well defined estate plan in place in order to avoid any conflict among his/her family members. Regardless of the amount of wealth you have generated, it is important to understand and prepare a estate plan in order to make sure that your financial & philanthropic goals are met even when you are not alive.

It is an accepted fact that the need and importance of estate planning depends on life stage and situation of every individual but it is also an accepted fact that this is something which should not be ignored.

The importance of 'Estate Planning' has gained momentum among corporates recently after much highlighted legal battle of Ambani brothers after the death of Reliance patriarch Shri Dhirubhai Ambani. Here we will try to understand how individual investor can benefit from estate planning.

Estate Planning For Everyone: Estate Planning is required for everyone who has estate and who wants this estate to be distributed as per his/her wish rather than simply getting passed as per succession laws. Estate is nothing but the difference between your assets and liabilities, irrespective of its size or value.

The most common idea that comes to our mind when we talk about estate planning matters related to property and preparing a Will. But estate planning in totality is much beyond just making a legal will and matters involved beyond just property. The fact of the matter is, detailed estate planning includes every asset that an individual owns from property, investments, business, jewelery, bank accounts or any other asset that an individual owns.

Mode of Estate Planning: Writing a Will: This is the most common way estate planning is done in India. A Will is a legal document in which an individual can mention the way he/she wants his/her estate to be distributed after his/her death. Thus a Will comes into effect only after the death of testator/creator of the Will.

The Indian Succession Act, 1925 defines a will as : A will is a legal declaration of the intention of the testator, with respect to his property which he desires to be carried into effect after his death.

A Will can be made by any person who is above 18 years of age and is of sound mind. Registration of a Will is optional but has to be attested by two or more witnesses, each one of them should have seen the testator signing the Will. However it is always advisable to register the Will. However registration does not affect validity of the Will. Whether registered or not , a Will must be proved as duly and validly executed as required by the Indian Succession Act.

Validity of Will : A Will becomes 'Void' , becomes not enforceable in following situation:

If a person making a Will is of unsound mind or not capable to contract (below 18 years of age) A Will, obtained by force, coercion or undue influence is void. A Will made under influence of intoxication or in such a state of mind is a void will. Traditionally creating a Will has been preferred way of estate planning in India. But a Will can be challenged on numerous grounds with more and more cases of Will being challenged in court or family disputes arising on validity/authenticity of Will, creating Trust is more preferred mode of estate planning.

Estate Planning through Trust: The basic objective of estate planning is to protect interest of family members or beneficiaries. Due to possibility of legal dispute among family members with regard to legality of will and to protect interest of minor family members, creation of trust can prove to be a better and smoother way of estate planning.

Any person who is a major and capable of entering into a contract can create trust. A trust is a contract in which property/estate is managed by one person or persons (trustees) on behalf of beneficiaries. The main objective of estate planning is to take care of interest of spouse, children and objective of philanthropy. This can be taken care of best by creating a private trust.

Advantages of doing Estate Planning by Creating Trust: In business there can be huge loss but assets that are put into trust remain safe because Trust is a bankruptcy remote structure.

The person who creates the Trust can put himself as one of the beneficiaries and hence can enjoy the benefits during his lifetime whereas a will comes into effect only after death of the creator. A person can avoid family dispute as trust does not require probate. The person can make provisions for philanthropic work or charitable purpose by creating charitable trust.

Administrator/Protector of the Trust can be appointed which ensures that activities of the trustee are conducted under supervision of administrator/protector.

The trustee has power and duty as assigned to him under trust deed for which he is accountable to perform his duty, manage Trust property as per the deed. There is a fiduciary relationship between trustees and beneficiaries. Best suited to protect interest of minor children in the family. Creation of Trust or Will, both have their own advantages and disadvantages. But Trust scores over Will in a sense that Trust does not require probate and an individual can remain in control of his assets even after transferring them to Trust. Estate planning is best controlled and executed through trust because a Will gets executed only after one's death.

Whether to do estate planning through creation of Will or Trust is an individual's choice but what is important is to put a plan in order to avoid any kind of family dispute and to protect the interest of your spouse and child/children. Also to be considered is to consult a legal expert who can guide you with legality of creation of Will or Trust.

Marriage, in financial context, sounds heavy, especially in case of young Turks just starting on their career paths and not yet considering themselves stable in their line of profession. More so, in the context of our country, where lavish marriages are a trend, involving expenses beyond the personal capacities of the individuals getting married. Personal financial situations may vary a lot from one individual to another. Yet, regardless of our financial situation, the steps to achieving a smooth financial life and a happy marriage can be generalized for everyone, beginning with the commutation of household environment. First, we begin with the differences marriage can bring to your financial environment and importance of stability in financial condition. The issues that you must pay heed to after marriage to adjust to the new environment are as follows:

Parent’s Indulgence Before marriage, many of us whether men or women, involve our family members, especially parents, in our own financial matters, mostly for old age wisdom and to minimize our own headache of managing money ourselves.

Post marriage, you will find that this habit of your spouse (where both of you are earning) a bit baffling. Remember though that it goes both ways, and first thing to do for you is to discuss with your spouse as well (even if only one is earning), even when you want to continue consulting your parents about your money management.

One is Two or Two is One Before marriage, our financial decisions are sometimes reckless, as there is no one to questions it and there’s no responsibility (esp. if there’s no responsibility). New influx of money and financial freedom is exciting enough to make everyday a celebration, and even if account balance goes to zero before the end of the month we don’t feel stressed about it, after all payday is just a couple of days ahead.

Post marriage, this scenario will require rethinking, as it may play a spoilsport with your plans and relationship (esp. for men). Post marriage, one must shun the old solo run habits and focus on life from the two point of views, this may slow you down a bit but ultimately will be paying off in the way of a peaceful and happy married life.

I am the Expert Some of us by experience and by knowledge, or even simply by interest, start to seriously indulge in our financial matters early on. Before marriage, that may seem like a perfect life and a series of robust decision making spree. This will build lot of confidence in you regarding your financial matters.

Post marriage, this confident can be deadly if your spouse is earning and looking for financial control. In such scenario there is generally one choice left, you both say, ‘I am the expert,’ and start managing your finances separately, but this can be upsetting, not just for you but for the kids (if your marriage lasts long enough), and for all future financial decisions, as the issue of who handles what will arise each time. So the experts must file for consensus on financial matters and manage everything jointly instead of keeping a curtain in between.

Utility or Fun Under current environment, singles are less willing to spend time and money on utilities like - washing, cooking and other household chores. It’s almost like returning to bed after a party; i.e. you don’t want to but you must, and therefore, priority to such needs is low in this phase, but changes dramatically after marriage.

Post marriage, utility takes the center-stage, while fun activities must also remain important consideration. A comfortable household is a position which should be a priority post marriage for both you and your spouse. Providing for all may not be possible at all times but, if some time is devoted towards planning fun activities along with fulfilling initial family expenditures, it is easy to overcome this hurdle, while keeping the enthusiasm up and running.

Planning for emergencies Our risk taking capacity is high while running solo and perhaps some of us have already tasted success or failure in risky ventures before getting married. Before marriage, only emergency planning required is for self, additionally parents are also there for support. At maximum you require a Personal Accident Policy, a Health Insurance and some amount as your emergency fund. After marriage, with the addition of another individual in your life, requirement of such emergency measures and more reaches a new zenith. If the other partner is not working this responsibility falls completely on the earning member, and proper emergency planning is essential for a stable financial future.

Planning for Future This is something which should start even before you start to plan for marriage, as money is going to be your constant partner, savior and friend whether you marry sooner or later. Only difference is, before marriage our concern is mostly with our own needs and we may not worry much about our long term goal. Though, some of the goals must be acted on early, while marriage will add some more whenever it happens.

Initial liquidity needs are important, and must be taken care of while saving for the long term goals. Even financing marriage expenses can be a goal for single individuals. After marriage, goals merge for the couple and that’s where the challenge will be for newlyweds.

Motivations for Prioritizing Personal Finances I understand that in order to undertake any venture you need to find right motivation to accompany you on the way, and thus given below are few reasons why setting your personal financial priorities after marriage could be important:

If you are the sole earning member: Financial Stability will take some time, your professional growth is important Remember that you must plan for yourself and your spouse Well prioritized finances will allow you space to pursue your profession without worries of financial stress

Keep the mental stress away, which may build quickly in current work environments Finally keep your family safe from financial worries in case of emergencies and untoward incidences In case of your disability spouse will know how to take care of financial matters

If both of you are earning: Making decisions together will save the family from blame game, as financial loss of one can affect the other as well.

Savings is easy but combining your money can be even more rewarding Planning together can be fun.

Iron out differences of opinions and de-stress over future financial goals Involving your spouse in your financial planning will make both of you feel more inclined towards family’s future.

It’s easier to plan for increasing the family too.

In case of emergency your spouse will know what to do to pull additional resources Personal Finance Priorities for Newlyweds Now that we are rightly motivated and clear about what we want out of such exercise, let us have a look at what all should we account for while setting up family finances in place? Discussed below is a comprehensive list that you may consider for your new family:

Talking Money Matters Money talks are as important for newly married couples as the talks for expensive vacations and getaways; after all it’s the money which will provide for all of it in the end. The least expensive and most productive ways to spend your weekend together is by putting your finances in place, deciding on future course of action and building credibility and sense of responsibility between the partners over money.

Benefits of monetary transparency are enormous between couples, for example: it instills a sense of relief in the other that their partner trusts them, and in return they will feel open to undertake responsible position in case of money matters.

If your spouse is working, it is more important to open up about financial matters especially for the one earning more. The simple reason being, the higher earning spouse will consider himself to be more capable of handling financial matters. This sense of superiority leads to the temptation of hijacking the process and dictate terms to the lower income partner. This may lead to discord, and it is advisable for a smooth sailing marriage that equal representation is given to both the partners. Discussing them over your free time will allow you to experience free flowing of creative ideas to finance not just your goals but your aspirations while strengthening your relationship further.

To Become One or Remain Two This is one of the most contentious of issues between partners, especially when both of them are earning. Usually when parents are involved with both spouses in their personal money management, their suggestion is to keep the finances separate, but as partners in life you are expected to handle your lives together, and so the financial matters.

If not complete some level of transparency pays in not just keeping your finances in place but also ensuring peaceful and healthy environment in the house.

For single income couples the earning member must strive to make arrangements for his/her spouse to become financially independent in future, it benefits in two ways:

Increase income and tax savings within the family
Be financially safe under emergencies
For double income couple as well, saving taxes can be a great advantage of joining their finances together, and planning for their combined financial future.
Update Financial Documents
Financial documents are most important piece of records, holding the key to access most of your resources. After marriage it becomes the foremost responsibility of the couple to update their new status in their financial records, for smooth functioning of financial transactions.
These records include:
Bank Accounts
Provident Fund Accounts
Insurance Policies
Mutual Funds holdings
De-mat Account etc.

Especially for women it is imperative that they update their information in all such places to avoid any hassles in receiving or making payments due to change in their name. Also remember that for some financial instrument spouse takes precedence in nomination over all other relatives, i.e. EPF, health policies, life insurance policies etc.

Deciding on Lifestyle Expenses Planning does not mean you should live an ascetic life devoid of enjoyment, instead both of you should be able to enjoy your money together as well, this brings us to the lifestyle expenses. Cutting on lifestyle for future goals is advisable only when there is practically no other option. Though, it is advisable that you remain within your pockets, you should work on maintaining a lifestyle which is healthy, both from physical as well as financial point of view.

Typically in the initial years it is difficult to hold on to the line, but slowly with some efforts discipline must be inculcated in financial matters within the family to increase savings. Once again, this step will involve both husband and wife whether both are earning or any one of them. Gear up for Emergencies

Financial emergency preparation involves following two aspects: Insurance Policies Emergency Funds

While insurance policies are easier to purchase, one should be careful with the benefits available in Health Insurance, Personal Accident and other policies. For example, checking whether your health insurer will only provide ‘cashless hospitalization benefits’ or also ‘reimburse your doctor visits or regular health checkup bills’ can be a good point to start with.

For life policies ensure they cost less and the claim procedure is simple. A qualified financial advisor or wealth planner can be engaged to decide the correct amount of insurance cover required. Inadequate insurance may make financial life of your spouse difficult after you in case you are the sole earning member.

For emergency funds, it is advisable to take expert help, but to start with you can target at least ‘three months’ of total household expenses. This pool comes in handy and keeps your financial worries at bay in situations of job loss or disability.

Planning for Goals Imagining your future financial goals may not be a difficult task, but structuring them into attainable and scientifically defined objectives may require more than casual imagination. It is advisable that you involve a professional wealth manager / financial planner to plan all your goals along with your emergency planning. Here is a list of some common goals which hold their importance for almost every family, especially the ones just starting:

Self-Education
Household appliances, Furniture etc.
Vacation
Retirement
Home Purchase
Car/Vehicle purchase
Before you start to plan for kids, these are the foremost goals you should pay attention to. In brief planning for these goals will require you to define the following for each of them:

Time to achieve the goal
Amount required to provide for the goal
Amount you can invest now to attain the amount in point ‘B’
Defining some of the goals may be tricky, for example the retirement goal where it will be difficult to imagine an amount that will be able to provide for your post retirement expenses. The trick is to start with something, and go for expert assistance as soon as possible.
Budgeting the Household Expenses
The old but effective method of disciplining your expenses is by budgeting them in advance. Though detailed budget preparation may not be possible for everyone, a simpler method can be followed by dividing the expenses in two parts: Fixed expenses Variable expenses Fixed expenses are those outflows which are least controllable, for example: House rent, car / home loan EMIs, etc. While variable expenses are those which are mostly in your control, for example: weekend splurge, clothing, furnishing, and other lifestyle expenses. This should provide you ample scope for modification and creatively adjusting those expenses which are somewhat in your hands, by either postponing them or reducing them. A budget in the end provides a direction and framework for your money to flow and not simply be lost in the daily commotion.

There is something about women and money that doesn't seem to quite fit together in minds of most of us. We all generally have a tendency to stereotype people and make generalisations about a person,community, geography and gender. When it comes to finances too, we hold may notions and myths. In this article, we would be revisiting few of the long-held myths about women and money or finances. Going beyond the title, the article also attempts to look at the bigger picture behind these myths and the need for us all to change...

The myths about women and money...

Myth: Women are impulsive spenders and they spend a lot Fact: Women are wise & careful spenders We believe that those who purchase something on impulse do not have the self control to follow a budget and spend in an organised way. We also generalise women as more like to indulge in shopping on impulse.

The fact is women have regular spendings on small inexpensive things, mostly for utility or purpose. There is logic to assume that small impulsive spending within the overall budget means a person lacks discipline & control on financial matters. On spendings, a US Bureau of Labor Statistics report concluded that there is equal spending by both genders and the main difference is that single men spend more on electronics, entertainment, while single women spend more on apparel and services.

The clear this myth further, there are also studies that concludes that women share more feedback on 'what' and 'where' to shop within their circle. We also know that they more loyal and bank on trusted shopkeepers & portals and demonstrate eagerness to search for discounts & deals and also bargain harder than men. One interesting study found that 72% of women had reduced their retail spending in the recession compared to only 62% of men*1. All these observations and opinions point to the direction contrary to our myth...

Myth: Women are too emotional for financial decisions
Fact: Women have the 'right' emotions needed for financial decisions

Studies have found that emotions of men generally tend to be around 'greed', 'fear', 'chance' and 'certainty'. The emotions of women generally revolves around 'security' of investments, and some 'uncertainty' of their own decision as being unwise or risky. Hence, women are more likely to seek financial advice just like they are more likely to seek road directions compared to men. Men, in comparison, feel and act more confident in financial matters, whatever may be the reality! Being careful and seeking opinion is much better than being confident & not seeking advice when needed.

Myth: Women want men to manage finances while they focus non-financial household roles Fact: Women are capable & want to participate & contribute in all household matters This myth has roots in the ancient premise of the division of household responsibilities in a patriarchal society, which we are even today. We expect women to manage the household while men are to earn and provide for the necessities & safety of all. Well, the times have changed a lot and today more women are equally educated to their male spouses and are often also earning independently. The fact is, whether earning or not, women do have substantial responsibility for family finances. Most of the consumption decisions are driven and influenced by women. As household managers they have to handle the expenses to the budgeted money and needless to say, there is a very long list of expenses in any normal family. They are much more aware of inflation and market prices then men are.

Being more informed & educated, more women today desire to participate actively and contribute in financial matters of the family. If women can participate in financial decisions, it more likely that the outcomes would be more balanced and informed. It can also be very crucial at challenging times.

Myth: Women are not good with maths & financial skills Fact: Women and men have equal ability to learn and apply maths & financial skills Let me begin by recalling the most famous name in mathematics in recent history. Shakuntala Devi, was known as 'human computer' and was famous for mental calculations. She made to the The Guinness Book of World Records in 1982. The MD at International Monetary Fund (IMF) today is Christine Lagarde, a women. In India too, women hold top positions in many financial institutions like Chanda Kochhar - MD & CEO at ICICI Bank, Shikha Sharma – MD & CEO of Axis Bank, Vinita Bali – MD of Britani Industries, Naina Lal Kidwai - Group General Manager and Country Head of HSBC India, Renu Karnad – Director at HDFC, Chitra Ramkrishna – MD & CEO of National Stock Exchange (NSE), Roopa Kudva - MD and CEO and CRISIL and so on.

The list is unending and we can easily see that women hold key positions in some of the biggest names in the financial industry alone. Even in area of financial planning there is growing number of women advisers. As per the U.S. Bureau of Labor, in 2010 that over 30% of personal financial advisers were women. There are more than enough examples to dispel this myth. A study by University of California researchers, on two rural tribes (one with equal land & education & one male dominated) in India and concluded that environment, not gender, determines a person's math abilities*4. But on a different thought, we can even question the need for financial skills or maths in financial decisions. Isn't successful investing more about common sense and managing emotions rather than display of any technical expertise?

Looking at the bigger picture: State of women in India Despite rapid economic growth, women have not been able to play a larger role in the Indian economy and the inequalities & prejudices remain as deep as ever. The 2011 United Nations Gender Inequality Index (GII), which considered factors like labour force participation, reproductive health and education, ranked India a depressing 134th out of 187 countries, behind countries like Saudi Arabia, Iran and Iraq.

There are strong cultural prejudices in India for women empowerment and financial independence. Women in India have always worked but there is undervalued. However, things have started changing and today more girls are getting higher education and we can see more women working in cities away from home. The government of India has also worked towards women rights and empowerment through various programmes & legislations.

Need for change in us: The women in our lives are very special – mother, sister, daughter and wife. Unfortunately, these special persons do not often enjoy the same importance & participation in decision making, be it financial or otherwise. We all need to get out of our stereotyped image of women and work towards their financial literacy, empowerment and freedom. We need to shed our prejudices, and bust our myths. By opening our minds, we will not only bring a change in our lives but a change in the entire family, community and also for the entire country. Women are half of India's demographic dividend. If they are given the financial independence and the respect they deserve, it could boost the growth engines of our country.

You will be tempted to eat all the laddoos if they are lying in your plate in front of you. Likewise the extra money or year end bonus in our pocket will prick you until you spend it. Right isn't it?

The financial year has come to an end and we have got our annual bonuses. The same question of 'what to do with the bonus' arises every year. Should I buy a car? Should I go for a vacation? Should I pay off my huge credit card debt? Should I repay my home loan? Should I buy that new mobile? And the list goes on...

Bonus, like laddoos, tempts us to do something about it which might not be the right thing to do, especially if you are diabetic or in financial sense, not doing well enough. Take a pause; remember that you have earned that bonus through hard work not luck and hence it shouldn't be ruined for fun and luxury. Proper planning is strongly recommended for your bonus and one should be careful to not get carried away by emotions. Else, pretty soon we may realize that the bonus is gone and then regret.

What Not To Do?

Before going on to what we should do with our bonus, let's discuss the things which we should not do with our bonus...

Keeping in the Bank Account: Often we find the bonus keeps lying into your bank account for long and you do nothing about them. Slowly, it gets eaten up by card payments and regular expenses... what a waste! We say “don't keep your bonus in the bank account”. A grace of say 10 days can be given before you can plan and deploy your funds elsewhere.

Investing before clearing high interest loans: Do not rush into making investments before paying off obligations like credit card debt or a personal loan. They should ideally be repaid before investing the money, since the cost of such debt might be higher than the return on investments. Be careful though in not rushing to repay your home loan as it has some income tax benefits also to be factored before deciding to invest or repay.

Big Purchases or Vacations: You will not achieve anything by blowing up your bonus in a vacation or a big TV. You'll cherish such things in the short run. But you have to secure yourself financially for long term pleasure. But at end of the day, it is also a question of personal affordability for such expenses and you need approval for the same, not from you, but preferably from your financial advisor...

What To Do?

Now, we know what we shouldn't be doing with our bonus. The question of what we should do with the bonus is answered below:

Liquid Mutual Funds: As an immediate first step, you might want to put your money to good use without any risk and with adequate liquidity … look no further than liquid mutual fund schemes. Instead of keeping your money in bank, you might not want to plan /research before properly investing. Liquid funds can also be of great advantage when you decide on equity mutual fund schemes to invest as you can then request a STP or Systematic Transfer Plan or a switch to any other schemes. An STP from a liquid fund to an equity fund is like an SIP in the equity fund where you lower the risk of lumpsum investing while generating returns on investments lying in liquid funds.

Invest, Invest and Invest: Ideally, more than 50% of your bonus should be invested. Keep your expense list down. Make a list of the investment avenues, where you will put your money. However, you should prioritize a few expenses like high interest bearing debt or some other important personal or family commitments. Depending on your asset allocation or your financial goals, you must invest some part of your bonus into equity funds.

Contribute to Retirement & Emergency Funds: You don't receive large sums of money everyday. Hence, one should be extra careful to allocate some part of your bonus to your yearly retirement fund. Remember that retirement is the biggest financial goal that you have for yourself. Small contributions made early in your life will give compounded returns to fill your retirement fund gap. The retirement savings will also help you as well as save taxes for the year, depending on your product choice. In addition, some money can also be parked as an emergency fund (preferably in liquid /short term debt funds) in case you do not already have one...

Start tax saving ELSS investments: This is the best time of the year to invest money in ELSS and other tax saving schemes. You have the time to plan, you can foresee your incomes and obligations and you have your bonus. So it's best to shift your tax burden from end of the year, when you might take wrong decisions because of lack of time or money, to now when you have both.

Relax: Since It's your bonus, you have the right to savor and enjoy it just like laddoos. The same should however be at a moderate level which is affordable, justified and which does not compromise your financial situation. At the end of the day, the positives or benefits from using your bonus must out weight the negatives or spendings you do. As a rule, you can keep maximum of 20% of net bonus received or 10% of your net annual income (whichever lower) as your upper limit of spending.

Life long Lessons for Investors Successful investors have a lot to share from their experiences which goes beyond just numbers. Almost every such person would agree that investment success is linked much more to investor behaviour and investment approach more than anything else in investing. It practically has nothing to do with choosing best performing products or market timing but everything to do with how you see and manage things over time. The following are a few of the priceless lessons that successful investors often share with others.

Big picture:

You don’t want to look at one little piece of the pie. As an investor, you should always have a big picture in your mind whenever you are assessing your investments. The big picture is looking at your entire net-worth and cash flows. This takes into consideration all your assets and liabilities in mind, plus all your incomes and expenses. It should also take into consideration the risks that you are facing, both physical & monetary, and the protection (or insurance) you have to mitigate such risks. Any big financial decision should be contextual of this big picture.

Self Investment: Self-investment or steps to improve your skills, knowledge and capabilities should always be a life-long pursuit for most of us. Whether you are an entrepreneur, professional or a salaried individual, such an approach and self-development initiatives will enhance your opportunities for the future. Self-development should be on top of your agenda as technology and rapid changes are impacting almost every industry today and will impact your today or tomorrow. If one is ready and takes action keeping such things in mind, the financial future will likely be much more secure.

Investment style /strategy: Every good investor tends to develop his style and strategy over the years. Such a time-tested approach to investment brings more discipline, certainty in investments while removing bias and emotional reactions from decision making. If you are a new investor, we would urge you to learn from the experience of successful investors, personal experience and from financial experts to develop your style and strategy. It is also important that you remain flexible enough to change your ways based on new learnings and guidance from experts. Such an approach to your financials will hold you in good stead in your life.

Keep good habits: Developing good money habits is you should adopt very early on in life. There is a solid reason to develop basic habits of savings, avoiding excessive spending, have patience in financial decisions, living within a budget, avoiding bad debt and so on. The good habits go a very long way in strengthening the roots of your financial well-being over time. Good financial habits are directly responsible for your financial situation today and also for tomorrow.

Avoiding big mistakes: Just as important is to develop good financial habits, it is also important to avoid big financial mistakes in life. Even a single big financial decision gone wrong can ruin a lifetime of wealth created from good decisions and good habits. Hence, big financial decisions must be taken with care, patience and proper assessment. Needless to say, avoiding insurance or under-insurance is one of the big mistakes that people do. Another important mistake would be w.r.t. investments in unregulated investment firms like chit-funds, etc. Real estate investments is another area where decision making has to be proper to avoid long-term net negative impact on your portfolio, keeping in mind the other opportunities available in the market.

Be decisive: A lot many investors lose precious opportunities and time by avoiding decision making in time. Time is of great essence when it comes to investing. Being laid back or delaying your decisions carry a delay-cost for any new investment or even otherwise. Money anywhere is either earning or costing interest/capital gains or is at risk in some form. Being decisive means that you do not let things get delayed and cost you directly or indirectly.

Take calculated risks: Taking risks is one of the virtues appreciated today. There is a change in culture which is encouraging many to take risks in entrepreneurship. As investors, we too should be open to explore ideas and asset classes that offer better risk-return trade-offs in the long-term. Investors should not be too cautious to not take any risks in the portfolio and settle for interest income from traditional investments. Investors could do much better if they focus on real, inflation-adjusted, post-tax returns from their investment choices. A bit of risk for better returns in long-run is essential for wealth creation.

True Happiness: The most important thing in life would be peace and happiness. However, this is not something which is beyond the reach of us and is independent of your financial situation. If you are unhappy with one crore of net-worth, you will still be unhappy with even a hundred crore of net-worth. One has no reason to be unhappy on the financial front if life's basic requirements like home, livelihood and financial goals like retirement, education & marriage for a child, etc have been adequately addressed /planned for with reasonable expectations. True happiness, beyond this level, is thus a state of mind and very subjective. Happiness beyond this would come from things like a loving family, good health, sharing, charity and having a good social standing. Focus on these things too to enjoy peace and true happiness beyond money.

Investing Obstacles to Conquer: The beauty lies in the eyes of the beholder. The measure of anyone's personal or financial success is also a very subjective term. Similarly, the obstacles on the journey to financial success also differ from person to person. What may be challenging for one person may not seem so for the other person. In this article, we will talk about the common obstacles that keep you away from being a successful investor and from fully realising your financial goals.

Getting driven by emotions:

There are many emotions at play when it comes to money. The most prominent and commonly observed emotions are greed, herd mentality, fear, overconfidence, biases and ego. Each of these emotions may play a role in decision making and force you subconsciously to make bad financial decisions. Let us see how.

Greed drives a person to make decisions anticipating quick money. Unfortunately, such things often end up burning your money. Herd mentality is where you follow the market or others even though logic may point you to go in another direction. Fear is where you are trapped in a negative mindset and believe that the worst is yet to come when the markets are going through a bad phase. You will likely give up when things are going bad when in fact, an opposite action may be required. Overconfidence is where you believe that your understanding or knowledge is superior to others and you are 'right'. With overconfidence, you may not listen to sane advice or be open to contradictory info. Biasness is where you establish an emotional bond with any particular investment or product either positively or negatively. This positive or negative emotion will not let you evaluate any investment objectively and you may end up taking biased decisions. Ego is where you take a stand to protect your word and not accept any mistake or failure on your part. Ego in financial matters may even force you to take decisions which are clearly risky.

Over-monitoring your equity investments:

Financial assets and investments are perhaps the only long term investment which we tend to measure almost on a daily basis. We never measure the value of our property or the second home we bought. We never evaluate the value of jewellery or gold we have saved for our daughter. We even do not care to see the value of almost every traditional investment product like bank fixed deposit, ULIP policy, PPF, NSC, NPS, etc. The only thing we are interested in knowing on a daily basis is the value of your equity portfolio, irrespective of how much share it has in your total portfolio. Why are we doing that?

Your equity investments, especially those in mutual fund equity schemes are your long term investment assets. It would be just ok if you looked at their value – say on a monthly frequency. The evaluation of the portfolio should be done on a yearly basis or half-yearly basis at most. Over monitoring your portfolio will force you to see short term performance which may not be the right thing to do. It will also only increase your anxiety and give needless stress to you.

Being unclear about your goals:

For any target to be achieved, you need a plan. Without a plan, a goal, nothing worthwhile can be achieved. An average person's life can be seen as a long list of personal and financial goals. On this list are things like the purchase of a car, home, child's tuition and education fees, marriage planning, holidays, second home, retirement kitty, starting a business, and so on. However, we have limited resources in our hands in the form of our salary or business income.

The need to define goals can never be underestimated. The big mistake that people do is to not really plan for their financial goals and the primary obstacle to achieving the same.

Ignoring real financial problems:

There are many around us who are earning well but often find very little money to save. There are also many others who have loan EMIs almost equal to their income. We often find that people in their early career having much more expensive mobile phones compared to their bosses! But there are also others who may not look to be rich but still have quietly built properties and amassed wealth slowly over time. The conclusion is that it is not really about how much you earn but about how you manage your finances that will decide how much you will save. Spending behaviour, your lifestyle, tax and insurance planning, investment planning, debt management, etc will together decide how much wealth you will create. Ignoring the fact that you are not going through any financial challenges is an obstacle to achieving investing success.

Over-emphasising certain risks:

Many investors see only one type of risk – the risk of investing in equity asset class. True, an equity asset class does carry some risks. However, there is a risk in virtually everything. The biggest risk is of inflation – the risk of losing the real value of money. If we are too careful with our money for far too long, that is a perfect recipe for wealth destruction. Compare between two child – one who is allowed to play, go out, take risks and make mistakes and one who is overprotected and not allowed to even go out. Which child do you think will be more successful? Similarly, with wealth too, we need to give it some space, diversification and risks in order to grow. We must realise that the traditional saving avenues, bank deposits, etc. do carry some unseen risks, especially in the long term. This may perhaps far out-weigh the visible risks of investing in equities through mutual funds.

Conclusion:

The obstacles to successful investing and enjoying financial well-being has a lot to do with how we think, feel, react and behave with our money. Self-introspection within ourselves will perhaps unravel much more insights and challenges or obstacles than we could ever imagine. Realising and accepting these obstacles would be the first step towards ensuring investing success and also financial well-being in our lives.

The best lessons we can learn is from the experience and lives of successful people. Words of wisdom from those who have achieved great heights of success, starting from nothing, must be heard with full reverence. In this article, we share the life lessons and advice from one of the most respected businessman from Asia – Hong Kong billionaire Li Ka-shing.

Sir Li Ka-shing is a Hong Kong investor, business magnate and philanthropist. Li, aged 91, though retired from active business, still features in the Forbes richest people in the world and was once the richest man in Asia. Li has an incredible rags-to-riches story. From being forced to drop out of school as a child to support his family, he has achieved what few have ever dreamed of. Today, we share his life's lessons and words of wisdom...

Li Ka-Shing money advice: The five sets of funds

Li was a strong believer in making the best use of the resources you have. He proposed the famous five-set of funds method to creating a successful and fuller life. Li suggested that we split your earnings into five sets of funds as given below. Please note that we do not expect everyone to follow the exact proportion for funds allocation in real life. It may change from person to person and situation to situation. What is more important though is that we follow the idea / spirit of the message in our lives...

1] 30% - Living expenses:

The most important things in life have to be entertained. However, what constitutes living expenses? Have we segregated 'needs' from 'wants'? Li suggests that we do a strict budgeting exercise living expenses to the minimum sustainable level. If your budget for living expenses exceeds 30%, you have a red flag. Try considering your expenses, be ruthless in removing unwanted things in life. Li shares that when he was poor, he used to have haircuts only once in three months. Hopefully, you don't have to go to that extreme but some strict action is surely required.

For those at the bottom of the pyramid, even this may seem to be difficult. Understand that if you are not even making such minimum income (matching 30% of living expenses) from the present job or business, it is a red flag in what you are doing. You need to work harder and smarter in life. If you have already spent good time, say at least couple of years, and you still aren't making more than this, then you need to reconsider what you are doing and have only yourself to blame. Li suggests that we move on and find more profitable avenues to put our time and mind. You may also look for other ways of earning income or having multiple streams of income.

2] 25% - Investing:

Li has been a strong advocate of continuous investing. He suggests that we invest in a diversified portfolio of assets. Investing has to be followed like a habit, a discipline. The more you cut on your unnecessary expenses, the more will you be able to save. 25% is the minimum savings required. The rest of the things can later follow. What is also important is that you know that is important in life and spend money on only those things, as we will talk later.

Buying too many clothes, eating our frequently, spending on luxury, etc must be avoided at all costs if you are serious about being wealthy one day. The amount of investments you have will ensure that you never run out of money and your quality of life never goes down drastically. Of course, it goes without saying that you have to spend less.

Li also suggests that we share our dreams and goals with the people around us. It is also okay to spend few times on those you love but it is also important to share to them why you are being thrifty and spending less money. Share with them what you plan to achieve doing so and what your dreams and goals are. One sure that people will then see you differently and appreciate what you trying to do, perhaps even support you.

3] 20% - Networking:

Jim Rohn once said that 'You are the average of the five people you spend the most time with.” The most successful, rich and powerful people are almost always those who are well-connected and have a very good network. Network yourself with the right people, those who have bigger dreams than you, who are more successful than you, are more ambitious than you and more richer than you or the people who have helped you in your career or from who you can learn a lot.

Networking is not cost-free. Even if you have to spend sometimes on such persons, it is all justified. You can spend by forwarding greetings, gifts or fitting the bill when dining out, etc. You may also spend money in joining clubs, associations, etc where such persons can be met and befriended. Spending money for networking is like investing in relationships, ones which teach you, help you, guide you or be of use when required. The valuable lessons and relationships that you earn are the returns which will be useful in life, making you a better person.

4] 15% - Learning:

Learning is a life long activity. Li suggests that you have to set aside some part of your funds to learn something. Use say 5% of your funds to buy books and learning resources. Spend about 10% of funds in attending seminars, conferences and training which will help you to develop and skill yourself and expand your knowledge and understanding. Apart from learning, meeting the right people at these forums is also a part of your investment.

GoodGood learning is that which is not easily forgotten. You have to learn with all seriousness and eternalise the lessons and strategies. You have to materialise your learnings into actions and share them with others. In short, learnings have to be put to action and used, else they will be soon forgotten.

5] 10% - Travelling:

This may be a bit of surprise for many. However, Li believed that one should travel and see the outside world. The big idea here is to rejuvenate yourself. During these 'off'' mode, you can take a break and relax. One cannot always keep performing at the highest levels at all the time. Use this time wisely to recharge yourself, build on your passion and more importantly also think. Travelling perhaps is the most rewarding and popular way to unwind and also offers other advantages. Meeting new people, exploring new worlds can also open up your imagination and can even open up new opportunities. A holiday at least once a year should charge you for the rest of the year to continue following your dreams with even more passion.

It is not mandatory that you travel or always travel far and wide. You may even choose to pursue any other passion or hobby that you may have. Travelling also need not be expensive. You can stay in budget hotels, plan your holidays much in advance, in off seasons or to places which are not hot on the tourist circuits.

Conclusion:

Continuous self-improvement is an important ingredient for one's success. You have to always seek ways to grow yourself. If you are stuck and not growing as a person, in Li's words, 'you should be ashamed of yourself'. In today's dramatically changing world, every job and every business is subject to disruption by technology. You have to invest in yourself if you wish to be successful. Once you are rich and successful, you have to stay at home more than yourself and keep a low profile i.e., don't show off and don't let other people make use of you. Just keep spending money on yourself as many others are doing just the opposite.

What Is an Annual Financial Plan? An annual financial plan is a way to determine where you are financially at this particular moment. That means taking into consideration all your assets (how much you get paid, what's in your savings and checking accounts, how much is in your retirement fund), as well as your liabilities, including loans, credit cards, and other personal debts. Don't forget to include things like your mortgage or rent, plus any of your utility bills and other monthly expenses. This snapshot should also factor in what your goals are and what you'll need to accomplish in order to get there. This can include things like retirement planning, tax planning, and investment strategies.

Annual Financial Plan Check-Up Now that you know what an annual financial plan is and how to make one, let’s recap the most important steps in the process. Check off each step that you've considered, even if your response was, "No, I don't want to refinance my mortgage," or "My credit cards are already paid off." The idea is to make sure you've looked at the issue. But you do need to cover every item in our first section so that you have a full financial inventory.

Create Your Personal Financial Inventory

Your personal financial inventory is important because it gives you a snapshot of the health of your bottom line. This annual self-check should include:

A list of assets, including items like your emergency fund, retirement accounts, other investment and savings accounts, real estate equity, education savings, etc. (any valuable jewelry, such as an engagement ring, belongs here, too).

A list of debts, including your mortgage, student loans, credit cards, and other loans.

A calculation of your credit utilization ratio, which is the amount of debt you have versus your total credit limit.

Your credit report and score.

A review of the fees you’re paying to a financial advisor if any,and the services he or she provides.

Set Financial Goals

Once you have a personal financial inventory completed, you can move on to setting goals for the remainder of the year, or even for the next 12 months. Your goals will be short-term, mid-term and long-term.

Among your short-term goals might be to:

Establish a budget.

Create an emergency fund or increase your emergency fund savings.

Pay off credit cards.

Your mid-term goals might include:

Get life insurance and disability income insurance.

Think about your dreams, such as buying a first home or vacation home, renovating, moving – or saving so that you'll have money to have a family or to send children or grandchildren to college.

Then, review your long-term goals, including:

Determine how much of a nest egg you’ll need to save for a comfortable retirement.

Figure out how to increase your retirement savings.

Focus on Family

If you’re married, there are certain things that you and your spouse should be thinking about on the financial front. These are some of the items that may be on your punch list:

If you have children, determine how much you’ll need to save for future college expenses.

Choose the right college saving account.

If you are caring for elderly parents, investigate whether long-term care insurance or life insurance can help.

Purchase life innnsurace for yourself and your spouse.

Start to plan how you and your spouse will time your retirement, including your Social Security claiming strategy.

Review Your Investments

It’s important for investors to take stock of where their investments are during the annual financial planning process. This is especially true when the economy undergoes a shift, as is happening now.

Check your asset allocation. If stocks are taking a dive, for example, you may consider adding real estate investments into yourportfolio mix to offset some of the volatility.

Then figure out which investments will do the best job of meeting your asset allocation goals – and whether your current investments still fit that profile.

Rebalance Your Portfolio

Periodically rebalance your portfolio ensures that you’re not carrying too much risk or wasting your investment dollars on securities that aren't generating a decent rate of return. It also makes sure that your current portfolio reflects your investment strategy (changes in the market often cause a shift that needs to be corrected to maintain the diversification you originally planned).

Look at which asset classes you have in your portfolio and where the gaps are. If necessary, refocus your investments to even things out.

Consider the costs of managing your portfolio .

Plan on Addressing Tax Planning for Investments

While you’re looking over your portfolio and rebalancing, don’t forget to factor in how selling off assets may affect your tax liability. If you’re selling investments at a profit, you’ll be responsible for paying short- or long-term capital gain tax, depending on how long you held the assets.This step can wait until the end of the year. When you get to that point in time, you'll want to consider these strategies:

Harvest tax losses by replacing losing investment with different ones to offset a potentially higher tax bill.

Look into whether you should offset capital gains and losses.

Investigate whether it makes sense to use appreciated securities to make charitable donation or support lower-income family members.

Update Your Financial Emergency Plan

A sizable emergency fund is helpful if you run into a financial rainy day; be sure you have socked away adequate resources. While you’re at it, look at your broader emergency plan as a whole.

If you don’t have three to six months’ worth of expenses tucked away, building your emergency savings should be a top priority.

Invest in insurance: Are you covered for a temporary disability, for example?

Make sure you have a financial and medical power of attorney in place.

Look Ahead to Future Savings

As you move into the fall, think about where else you could be saving money to fully fund your emergency savings and put aside more for the future. Consider whether you should:

Refinance your mortgage.

Rethink your car insurance.

Lower your food bill.

Utilize Flex spending or health saving accounts.

Cut the cable TV cord.

Curb your energy bill.

Divert your paycheck to savings, by contributing more to retirement accounts or funneling money directly from your paycheck to an emergency savings account.

The Bottom Line

An annual financial plan is an exceptionally valuable tool for your life (and peace of mind) today and for your future. Best-case scenario: you've checked off all the items on this punch list by now. If not, don’t hesitate to pencil in time on your calendar to do so.

In one of our recent articles we talked about how the individual investors are investing in India and the changing pattern of the investments over the years. As we saw, there was a visible change in the individual preferences for different asset classes and investment avenues with the trend clearly towards more of financial assets away from physical assets. Mutual funds, although still small, is making an impressive progress in gaining increasing share of the wallet.

The mutual fund industry today appears to have emerged stronger after going through challenging times of high volatility in equity markets and the fallout of the credit events in the debt market in recent years. One of the biggest positives for the mutual fund industry has been the huge surge in the retail investor participation in the equity markets especially through the systematic investment plan (SIP) route, primarily in equity-oriented funds.

In just about 3 years, the SIP accounts (not individual investors) have increased in the industry to approximately 2.84 crore from just 1 crore. In September 2019, the monthly SIP contribution to the industry was at Rs.8,263 crores, up from about Rs.3,700 crores exactly 3 years ago. The average SIP size stood at Rs.2,900 per SIP last month. The industry has been making quite a effort in promoting mutual funds and the "mutual fund sahi hai" campaign also has made a visible impact in spreading awareness.

The interesting part though is that the SIP registrations and the inflows have been steady inspite of the recent volatility in the markets. This shows that the investors are now increasingly looking at SIPs with a long-term view and are over-coming their behavioural instincts to react to less pleasant numbers /returns in short term. This is indeed a welcome thing in the industry and investors need to be appreciated and congratulated for this. The growing size of SIPs and the number of SIP investors showcases the habit of disciplined investing.

What is a SIP? If you are wondering what an SIP is and what are it's advantages, read on... "Little drops of water make the mighty ocean" – this line holds very true for SIP. As the name suggests, Systematic Investment Plan or SIP, is an investment plan (methodology) offered by mutual funds wherein one could invest a fixed amount in a mutual fund scheme periodically at fixed intervals - say once a month instead of making a lump-sum investment. SIP is similar to a recurring deposit where you deposit a small /fixed amount every month.

Advantages of SIPs: SIPs are often spoken by experts as the ideal way to invest in the equities. Here are a few basic advantages of investing in SIPs. Note that these advantages of only of the SIP methodology and we are not talking of the advantages of mutual funds here, which is something we would like to talk about someday later.

Convenience: SIP is a very convenient method of investing in mutual funds through standing instructions to debit your bank account every month, without the hassle of having to write out a cheque or making payment each time. One can also start (or stop) a SIP online at the comfort of your home at any time with any of the distributors offering the online service.

Flexibility: The SIPs are opened for a fixed tenure. However, one is free to stop, pause or register the SIP again at any point of time. One is also free to withdraw (redeem), in full or partial, your investments and take back money whenever you need it, even during the SIP tenor. Further, one can select any frequency for the SIP – from daily SIPs to even once every quarter to suit your need. One can also choose any particular date available for the monthly debit to your bank account. One can also choose to periodically and automatically increase the SIP instalment amount to match your contribution with your growing income /salary over many years.

Suitability: The SIP instalment amount could be as small as ₹500 per month. There is however practically no upper limit on the amount of instalment or the number of SIPs or the number of funds to have SIP into. You can also choose to have an SIP in debt mutual fund schemes not just equity funds. Thus, needless to say, it can match up to the investment objective, needs and the pocket size of virtually every investor.

Rupee Cost Averaging: Perhaps the most commonly quoted advantage of SIP is the Rupee Cost Averaging. Since the investors are investing in a disciplined manner they need not worry about market volatility and timing the market. With market volatility, there comes times when underlying stocks are either expensive or cheap. Since, one is investing regularly, automatically one buys more mutual fund units when there is a market correction. When the unit price goes up, he tends to gain. Over time, a SIP investor, while investing every month would end up buying more units when markets go down and buying less units when market goes up. Thus, his/her average cost of purchase of a unit would be relatively lower – this is phenomenon of rupee cost averaging.

Long-Term Wealth Creation: The key to building wealth is to start investing early and to keep investing regularly. A small amount of money invested regularly can grow to a large sum. With SIP, one can potentially create a substantial amount of wealth with returns compounded over the years. When we look at the corpus accumulated at the end of the tenor, the wealth accumulation is at its best in the long run. As the time given to investment increases, the wealth builds at an accelerated pace because of compounding effect.

How to make best use of SIP: Few things in short. First, have a SIP which is long-term in its tenor. The minimum horizon should be at least 5 years. One can have it for even 10 /20 /30 years. Relax, there is no commitment and one can switch scheme or stop SIP at any time. Second, one can have a Step-up / growing SIP which keeps adjusting itself to match your growth in income. Next, it is always preferable that you map or link or just consider your SIP to any life goal like child education or retirement and think on lines of goal achievement instead of just SIP.

Lastly, do not put all your eggs in one basket. It is advised that you have mutiple SIPs in different types of schemes if you are investing a sizable amount – say Rs.30,000 can be spread into 3 schemes of Rs.10,000 each. If all this sounds a bit too much, we strong advise you to contact a financial planner / mutual fund distributor to plan for your life goals and advice you on your wealth creation journey. If you still haven't started your SIP, what are you waiting for?

History has shown us that equities have been the most rewarding investment, asset class over long-term horizons. It has potentially generated tremendous wealth for investors. As more and more investors realise the potential and need for equities in their portfolio, they are faced with the choice of either investing directly into equities or investing through equity mutual funds. Which is better? What should I do? This article answers that question.

What do you need for direct stock investment?

Time to research stocks: Studying the share markets is a full-time activity and requires a lot of time and energy on part of the investor. You would also need to analyse economic numbers and macro-economic factors like government policy changes, global impact, currency, etc. You should probably leave your day time job /business to do that.

Market Expertise: One needs adequate skills and expertise in managing investments. Since too much information is readily available, true skill is to know what is important and to analyse the same and assess the impact on the stock prices. This is not which you can learn easily but comes only with experience, involvement and intelligence.

Research affordability: There are a cost and time factor involved in research and study. The time is something which carries huge costs but is unfortunately not often measures by small investors. Such costs are justified if your investment capital is small or if you are a small-time investor. Unbiased and emotional control: It is a fact that a very large majority of equity investors haven't created much wealth from stock investing. Faulty investor behaviour is the culprit when it comes to less than optimum returns from markets even though the markets have performed very well in long-term. Can you claim to be unbiased to your stocks, remain unaffected from daily news and stock movement and not be carried away?

What you will not get with Mutual Funds investments?

Excitement and thrill (or worry) of stock movement: Let's admit it. Direct stock investment is exciting and thrilling. It is like T20 and if you wish to be always preoccupied with markets, like the excitement of uncertainty, direct stock investments may be your preference. Mutual fund investment would be like a test-match, it is boring and not exciting enough for you. Full control over investments/stock selection: In mutual funds, there is someone else who is taking the stock investment decisions within the ambit of the scheme objective. You have no control if you want HDFC bank instead of a Yes Bank in your portfolio.

Ownership rights: With direct stock investing you become a part-owner of the company and get ownership rights. In a mutual fund, you do not get that sense of ownership since underlying stocks are 'indirectly' held by investors through the fund house. But what you will get with mutual funds investments?

Professional management: In mutual funds, the investor leaves this task to the fund managers who are professionals in their field and manage the investment on behalf of the investors. Portfolio diversification: With mutual funds, you have very good diversification. Even if a stock goes bust, you are not much affected. As opposed to this, if you had been invested in that stock directly, you would have likely suffered a huge loss.

Diversification at affordable cost: With just a few hundred rupees, one can invest in over 20-30 companies. This is because MF units have are priced at affordable NAVs derived from the entire portfolio. You may be owning highly priced stocks which may not be possible In direct equity investing, Also, such level diversification will not be easy to achieve in direct investments with low capital.

Economies of scale: Mutual funds enjoy great economies of scale for their entire research, fund management and administration costs. These are passed on the investors as the fund size or AUM grows in the form of lower expense ratios. Expense ratios are the only cost which the investors pay and it is clearly known in advance.

Investment management tools: Mutual funds offer many tools like SIP, growing SIP, STP, SWP, dividend payout, dividend reinvestments, insta cash, etc which can be smartly used by investors to manage their portfolio and cash-flows. Such multiple tools are not available at the disposal of direct stock investors.

Tax benefit: Of course, equity mutual funds enjoy similar tax treatment as direct stocks. However, equity-linked savings schemes or ELSS gets counted in your 80C investments. This benefit is not available in direct stocks.

Budget-friendly: For most of us, we are concerned with the investible surplus we have. With mutual funds, you can however relax and start saving with as little as Rs.500. There is no upper limit though.

Ready portfolios as per strategy: There is a huge choice of funds which follow different objectives and strategies in their preferred universe of stocks. There are ready portfolios like large-cap /mid-cap /blend /value /contra /sectoral or thematic fund, etc to suit one's risk appetite and strategy. Choices for asset allocation: Moving beyond equity funds, there are funds offering every possible combination of equity and debt assets. Thus, even while you may be investing in a single fund, you may have a matching asset-allocation to your risk appetite. This is something you will have to manage separately in your portfolio.

To be fair, both mutual funds and direct equity have their pros and cons. What is more important is to know what you are looking for, what you are capable of and how much time and efforts you can put to it? Obviously, most of us are preoccupied in our lives, job, business, etc to devote quality time regularly only to investments, even assuming you have the necessary skills & knowledge. Investment in stocks is thus recommended only to those investors who not only are great researchers having expertise in markets but also willing to go put in the efforts. For the majority of us, mutual funds offer a much better trade-off where you can hire such proven experts in the industry for a small fee. When we look at the benefits offered, obviously we can safely say that equity mutual funds are the ideal vehicles for investing in stocks.

The biggest financial challenge most of us facing is retirement. Unfortunately, retirement planning has not received the same level of importance and urgency which other life goals have traditionally received in India. The result, most of us are under-prepared for our retirement.

There are many things virtually wrong with the way Indians approach their retirement planning. Here are a few things which you find most common in the name of retirement planning for Indians...

1. Some X amount of pension drawn from a pension fund

2. Property rentals to support expenses

3. Hoping kids would take care of you...

However, there are things that one must be aware of regarding retirement.

What would be your expenses at the time of retirement and even later years?

How much nominal returns and 'real' returns should you expect from your retirement kitty?

What will be my retirement kitty based on my present savings?

How long will your retirement kitty last?

The most important question to ask is, how much retirement kitty do I really need?

Again, for all these very critical questions, we rarely do have an answer. So let us directly jump to answering these questions. Please note that we are only attempting to show you a broad picture and you have to take it in that spirit.

What would be your expenses at the time of retirement and even later years?

Let us assume that you have present expenses of Rs.50,000 and the inflation rate is 6%. Can you guess the amount of expenses required in future? Here is the table.

As you can see, a person of the age of 30 today would be needing Rs.3.8 lakhs monthly at the age of 60 and an astounding Rs.14.7 lakhs at the age of 80 to maintain the same standard of living. These figures are truly an eye-opener for many.

Your expenses will keep on growing due to inflation. It will not see if you are retired, earning or not. The scary thing is, most of us thing only expenses at the time of retirement. However, the expenses will continue to grow every year after retirement too, sometimes these years can stretch to 20-30 years easily with growing life expectancy.

How much nominal returns and 'real' returns should you expect from your retirement kitty?

For any retirement planning, this is the real deal here. Most Indians believe in risk-free returns after retirement. But why? Because everyone says so.

Agree that you need to worry about preserving the money you have left. But does it mean that you will be happy if it is all spent in just a few years due to rising expenses? Is it smart? Risk-free returns should only be expected to be sufficient to fund your retirement if the kitty is huge! Given that is not the case most often, you will be advised to also look for 'real returns' and invest in growth assets like equity.

We all know that the risk and volatility of returns reduce with time and since your retirement may stretch over 20-30 years, surely there is a strong case to invest some portion of your wealth in equities and make sure your kitty doesn't dry up earlier.

How much retirement kitty do I really need?

Let us just jump to the most important question. Based on assumptions, we have derived the following estimated retirement kitty amounts. The kitty makes sure that your growing expenses are taken care of from your conservative investments till the time you live. We assume that life expectancy is 85 Yrs, inflation is a constant 6% and returns on retirement kitty is 7%. Since few of us would like to retire early, we have given 3 age options as your retirement age.

What should be the required savings needed?

Well, assuming returns on investments of 12%, we have derived the mutual fund SIP amount required to be saved till retirement. As you delay the savings, the SIP input value will increase more and more. Better to start as early as possible.

Everybody likes to be in control. And to do the things they like. Almost every second person today dreams to have his/her own business/venture. But are these dreams mere dreams? There is a famous quote - “goals are dreams seen with open eyes”. While our dreams may or may not fructify soon – the answer largely depends on one thing and one thing alone – money or wealth.

Carl Sandburg, Pulitzer prize-winning writer once remarked, “money is power, freedom, a cushion, the root of all evil... and the sum of all blessings”. True, there is a lot we can achieve with our wealth. However what comprises our wealth? To different people, wealth may mean many things. However, to summarise it well, it would be the ability to do things you desire to do.

The ability is a very wide concept and goes beyond just numbers. Coco Chanel, French fashion designer once said that “there are people who have money and then there are people who are rich.”. Thus, what you do with your money is more important. You may feel insecure and not rich even if you are a millionaire and there is an actual study done to prove this. Understand this – if your wish is to travel after becoming rich and you are not travelling today, you will never travel even after you get crores in your bank. What is stopping you today?

The truth is that wealth means different things to different people. Some are in the game for the joy or excitement of it and some are in it just to survive. The ability can also mean cover things like physical health, social network or standing giving you the power to do things which others can't. However, for most ability would mean one thing – freedom.

Johnny Carson, an American television host said that “the only thing that money gives you is the freedom of not having to worry about money.” The freedom will free you from the financial worries of day-to-day life which most of us aren't privileged to have. However, it is not impossible. The number behind this 'freedom' will change from person to person and place to place. But whatever may be this figure, the truth is that it will be only possible to achieve if you have this as your goal. You can be in control even today, you can be a CEO even today. You have an opportunity to do that – be your own CEO and get in control of your wealth.

The CEO Hat:

Now that you have your understanding of 'wealth' and a fair idea of the price of your 'freedom', let's us begin the day as a CEO. So how would you start your new journey – the journey of your wealth?

Have a vision/plan:

Having a vision of the journey, the path you want to reach is the starting point. Having a clear idea of your destination would be great. But as many new businessmen experience, either they overestimate their goal or underestimate it completely. The fact is, once you carry on the journey, the destination will also change. So you may start with say a target wealth of 10 crores. However, a few years down the line you may realise this is no longer feasible and revise it downwards to say 5 crores. Fortunately, if you are reading and implementing this article in the true spirit, you may even realise that you can even reach 20 crores !! You get the idea...

The path here is more important. There has to be a plan for everything in your life. Your wealth is perhaps the first thing in the list and something which is greatly in your control. How about a proper detailed 'Financial Plan' which covers all your financial goals, your assets, liabilities, your risk protections?

Invest in yourself:

Every business invests in itself – be it a shopkeeper or a big business conglomerate. But as a person are you investing in yourself? Times are changing and there is no guarantee today that any business or profession today will stay relevant after even say 5 years. It is a new reality of a highly competitive business environment challenged by disruptions daily. Your only way out – invest in yourself. It can be either learning or building a network or marketing yourself in a positive light, creating a social standing, and so on. There are enough opportunities around you to learn and build your network. Remember, if you are skilled and knowledgeable, have a good network, you may never fail in life.

Watch your budget and cash-flows

As the CEO of your wealth, you need to have a budget for everything you do. Have a budget for your living expenses, for your entertainment, for learning and most importantly – your saving or investments. Perhaps you can start managing your budget by allocating funds to living expenses and savings to start with. Ideally, your savings must be at least 25% of your post-tax income. The higher it is the better. Work out the other figures in relation to this. Many people do make a budget but fail when it comes to implementation. One idea on effective implementation of your budget is to have a very close watch on your cashflows. Spend some time to track these cashflows to stay on top of your budget. You may take some bold decision like – STOP the use of credit cards altogether. This is one advice which Warren Buffet (google if you don't know) gave when asked what advice he has for youngsters. It may apply to you too.

Hire /associate with good people:

A successful business is not built by one person alone. It takes a team. To be successful, you too will need to have a good team. The team will include people like your gym or yoga instructor, your spiritual guru, your doctor, lawyer, accountant and when it comes to money – your financial advisor. Everyone you consult has a role to play in your life, irrespective of how many times you are interacting with them. We would suggest that you have good people with you and invest in building this network. On a financial front, having a good financial advisor will take care of a lot of things when it comes to wealth creation, preservation and distribution. We would strongly suggest that you outsource these things and not do this dedicated, expert activities yourself.

Conclusion:

John Rockefeller, America's first billionaire once said that “if your goal is to become rich, you'll never achieve it”. Your focus should be pursuing the thing you like doing the most. Try and navigate your life's journey into doing so. A lot many people have changed professions careers in life to settle at things they love the most. The most successful in life are those who have done it. However, running merely after the idea of getting more money doesn't work for many. To create wealth or happiness or even a life, being in control and thinking like a CEO is perhaps the way to go.

We as investors are mostly interested to know what returns I am going to get from my investments. It is seldom asked what is the real rate of return I am going to get.

It is very important to understand the real rate of return that is expected to come from one's investment rather than the absolute return which generally an investor ask for. To understand what you actually mean by the real rate of return and how it really helps in Wealth Creation you need to spare a few minutes to read through the article.

What is Real Rate of Return?

In simple terms, it is the return you earn above the inflation rate – which is the rate at which the prices, in general, are rising. To exemplify, if you invest in a fixed deposit which is today giving you a return of say 8% and the inflation is 6% then the real rate of return that you are generating would be 2%, ie., actual return (less) inflation for the period. The logic is simple – Rs.100 one or say 10 years ago does not carry the same value today because things have become costly due to inflation. Generally, consumer price Index growth (CPI) or wholesale price index growth (WPI) is taken as inflation indicators.

Having understood whats the real rate of return is, the question is how it is related to wealth creation. Let's understand what actually wealth creation means. Putting jargons aside wealth creation in simple terms is the increase in one's ability to purchase more things. If one feels his ability to purchase things have increased substantially over a period of time, one can simply say he has created wealth.

How can one increase its ability to purchase more through prudently investing?

That's a very right question to be answered. Let's go back to our example of one investing into fixed deposit with 8% absolute return and 2% real rate of Return. Say the investor had Rs 1,000 to invest in a fixed deposit. At 8% of interest rate, the value after one year of the amount invested would be Rs.1,080. Now assume that with Rs.1,000 he could have bought 50 packets of milk priced at Rs.20. Now with 6% inflation (assumed price increase of milk), the price of milk packet would be Rs 21.3 after one year.

At Rs 1080 available with the investor from his investment he now would be able to buy 51 packets of milk. The purchasing power of the investor has increased by one packet of milk thanks to the positive real rate of return. Had his return on investment been equal to the inflation he would still be able to buy only 50 packets of milk. And had his investment return lesser than the inflation, negative real rate, his capacity to buy milk packets would get reduced. That is the explanation why for creating wealth it is important to look at the real rate of returns and not the absolute returns on your investment.

Now interestingly let us look at the table below highlighting the approximate real rate of return across different asset class in India from 1981 – 2019. The question to ask is how it has increased the purchasing power similar to our example above over the period?

Why are my returns low? Should I continue investing in current markets? What should I do to get higher returns?

These are some of the most common questions that we hear on the streets whenever the markets take a dip. Many investors who are new to the game are not really sure what is happening to the markets and to their investments. Are you having these questions? Have you been asked these questions? If yes, please read on...

What do I need to know?

Take a pause, clear your mind and go back to understanding the nature of the markets and the basic tenants of investing.

It is the nature of equities: So what makes equity exciting and rewarding as compared to a bank FD? It's because it is volatile in the short run with the potential to deliver superior returns in the long run. That is the basic nature of equities. It carries a risk which is not there in guaranteed investments. If you thought that equities deliver returns in a straight line, you are sadly mistaken. If you are investing in equities, you have to be mentally and financially prepared to take hits on your portfolio and digest even negative returns in short to medium term. If you cannot, I am sorry that you made a mistake of investing in equities. Please go back to guaranteed investments.

Why volatility is your friend: So it is clear that volatility is inherent in the markets due to many reasons. And it is because of this volatility that investors get opportunities to enter the markets, build on your portfolio and make strategic investment decisions (we will talk about it later). Without volatility, all the stocks will be fully valued to their (earnings) growth expectations at all times. In such a hypothetic and predictable market, everyone will invest in stocks and the advantage of equities over debt investments will no longer exist. It is only volatility that gives opportunities to investors and fund managers (mutual funds!!) to identify opportunities in the market to deliver 'alpha returns'. Alpha returns are the extra returns generated due to fund management expertise over and above market /benchmark returns.

Market timing is futile: Many studies have shown that equity market returns over the long term are fairly insulated from the short-term market volatility. In other words, your returns over say 10-15 years do not matter much whether you invest at Sensex 37,000 or 39,000. What would matter most is how long have you stayed investments. This is a fact and you can very well put your excel skills to good use finding out the extra returns you will get. In the end, the extra returns from market timing fall awfully short of the efforts, mental pressure and repeated transaction costs it carries. And this is only assuming that you are an excellent fortune teller who can predict how the markets will move. If you believe you can do that consistently over several years, you would be the first person in the world to do so and should be awarded a noble prize. No joking.

Asset Allocation strategy helps: So what should we do? Always remember that in investments, as in life too, often the simplest answer is the right answer. It is always the right time to go back to the basic tenant of investing – asset allocation. Yes. It is the time when you should do a proper relook at your asset allocation. It may be possible that your equity portion has reduced in size against your target. So realignment by moving some surplus funds from debt assets to equity to get back to the targeted asset allocation is what you can do. No rocket science here.

Investing in bear markets helps: Didn't we earlier say that falling markets provide an opportunity for investors to enter markets or invest more? Well, if you are a SIP investor, the news gets even better. All your SIP instalments being made in bear markets are surely getting you the much-desired boost to your portfolio. So do NOT stop your SIPs just because they may be delivering lower returns for now. Have patience and you will be suitably rewarded. Warren Buffet, the great investor once said that he will have absolutely no problems if the markets closed down for the next 10 years since his investment horizon is beyond 10 years. Take some time to ponder on this great idea.

Think discounts: Are you not excited every time Amazon or Flipkart offers great discounts? Don't you often end up buying new things which you do not even need just to benefit from these discounts? So why then do you think differently when it comes to dips in the market? Why can't you see that these are like discounts offered in the equity markets from time to time? Care to invest more now?

Losses are notional unless you make them real: Lets' get a bit philosophical here. No one can hurt you unless you allow them to hurt you. It's all how you think and feel from within that dictates your level of happiness and peace in life. The same philosophy holds very true for your investments as well. Your losses are notional and temporary. If you give them adequate time, they will recover and deliver decent returns over time. The market history tells us that the possibility of you generating negative returns from equity markets over say 10 years and above is almost nil, irrespective of all ups and downs during the journey. So just chill. Unless of course, you want to kick the axe yourself and enjoy losses by selling in panic.

Let us again reiterate some facts. Equities are risky in the short-term. They hold the promise of good real returns (above inflation and post-tax), more than any asset class in long-run. Short term volatility offers opportunities and is not necessarily bad. Stick to the basic idea of discipline, asset allocation, regular investing and time in the markets to enjoy better returns in the long run. Do not stop SIPs rather see if you can increase them. In case you still need help, just call your advisor for more gyan and assurance on the subject.

1. When Buying Insurance, focus on sum assured Don't fall for policies giving you 10 times insurance cover. They are all expensive investment products in the garb of insurance. Check the Sum Assured Amount whenever you buy a policy. Prefer a term plan in Insurance. The approx cost of 1 Cr term plan for 30 year old is approx Rs. 7000 only.

2. Increase your sum assured Increase your insurance coverage. Ideally your insurance amount should be Equal to 10 times of your annual income. Calculate your total sum assured from all your current policies and buy the difference amount before your birthday this year (it will save you some cost). Buy a term plan.

3. Pay a fee to get good advice, be it for taxes, insurance or investments Nothing comes for free in the world. A good advisor knows his job and financial products better than you. Pay fee to get good advice, though it might pinch you now, but it will be definitely much cheaper in the long run. When you pay a fee for a good doctor, a good interior designer or a good lawyer simply to get best service and right advice, apply the same logic to your financial transactions too.

4. Mediclaim – increase your cover by 10% every year Many of us are still stuck with old health insurance policies where we haven't increased the cover for many years. Go for minimum health insurance coverage of Rs. 10 Lac, ensure all your family members are covered (cost is going to be highest for your old parents, but that's where the chances of claims are also high). Think of your premium as 10 year investment. Even if you have to go through one big medical emergency in next 10 years, god forbid, it will still be worth it.

5. Check your nomination in investments and insurance Do you know, post your death what will happen to your bank accounts, investments, who will get the insurance amount ?? If you have not filled up a simple nomination form, your family will be running from pillar to post to get the paper work completed just to prove that they are your legal heirs. To avoid all the hassles, just ensure that all your bank accounts, investments, bank deposits, insurance etc have proper nomination done.

6. Pay Credit Card bills on time Never delay your Credit Card Payments. Never withdraw cash from your credit cards. You are charged upto 3.5% interest per month on it, which 42% annual rate of interest. If you are short of money or need funds for short term, better to go for Loan Against Securities (against your MF/Shares) which is available at 11-12% interest or go for personal loan at 14-15%.

7. Restart your SIP closed last year If you had closed your SIP last year fearing market volatility or by looking into negative returns, time to restart it again. If possible, try to invest the amount of missed instalments together. Market down turns are the best times for SIP's to accumulate units. Do your SIP for 10-15 years, invest in it and forget it.

8. Increase your SIP With your next salary hike, increase your SIP amount. Larger the SIP investments now, higher will be the wealth created in future. Higher SIP amount brings you closer to your goals. Make it a habit of increasing SIP amount every year.

9. Don't check your MF portfolio daily If you have invested for long term, there is no point in checking your portfolio daily. All the gains/losses which you see daily are on paper. They will turn real only when you exit your investments. If your time horizon is for 5-10-15 years, what's the value of your portfolio in 2020 or in 2021 really doesn't matter.

10. Write down all your investment details at one place. Share with your spouse. You might have different investments done though different advisors, or some insurance policies bought through banks, some tax saving investments made many years back or 5 different bank accounts. Write it all down at one place with bank a/c number, policy number, folio number, investment amount and all other relevant details. Put name of contact person for each investment. Just think of a scenario, that if something happens to you, ypur family won't even be aware how much money they are going to get.

11. Make your will Just take a plain paper. Write down details of all your assets and liabilities and share a copy of that with your spouse or any other trusted family member/friend. WILL is not something which we make only when we grow old. Remember, all of us know our birth date, but none knows their death date. A WILL will ensure your assets are distributed to your family members in the way you wish with minimum fuss during legal procedures.

12. Stop worrying about your MF returns Your Mutual Funds are giving low returns?? you are worried, want to switch your investments ?? A simple way to get over this is stop worrying. Let the investments be. Equity Mutual Funds, deliver superior returns over long term periods of 10-15 years. Just stay invested and keep patience. Chopping and churning will only dilute your returns and you might lose the opportunity when markets jump back.

13. Make your Financial Plan Sit with your advisor. Make your Financial Plan. Will give you clarity, what amount is needed by you when in the future and how can you invest in the right way to reach it. Make your plan and stick to it. Consult the advisor once/twice a year to update the status of the plan.

14. No need to own more than 1 residential property Investing in property is a big NO. Buy 1 for yourself where you will be living. For additional money, invest in Financial Products like Mutual Funds, they give you more transparency of valuation, with high liquidity your money is available to you in 3 days (whatever be the amount, whatever). Even if you need regular income, you can get it through the SWP option. No need of lengthy paperwork of real estate, taking care of maintenance expense of the property, searching for a good quality lessee etc. And its highly tax efficient too!

15. Complete your tax related investments/insurance in Jan Don't wait for last week of March for completing your tax investments. Do it in Jan for this year and for next year try to complete by June 2020 rather than waiting till end of the year.

16. 0 Cost EMI Deal with it carefully. Buy only the products which you need at 0 cost EMI. If you can afford to buy by paying full amount always better to get benefit of 0 cost EMI. If not, don't fall into the trap of 0 cost EMI. Ultimately you have to pay it off and you may end up with not much needed expensive products, just because it was available at 0 cost EMI.

17. Open bank account for your kids and pay them pocket money in that Teach your kids about finances. What better way than having their own bank account, their own ATM card. Give them freedom to use money (to the extent of their pocket money). Wise lessons are learnt only by practising.

18. Go Cashless Use less cash this year. With wallets and UPI BHIM QR codes being accepted all across you can easily afford to go cashless. Saves you from lot of hassles of cash handling and visits to ATM. Also its absolutely safe, secure and easy.

19. Pay off your loans Make it your first priority to pay off your outstanding loans. If you are having both loans and investments together, it's always better to pay off the loans and feel the relief rather than leveraging yourself.

20. No share trading Stay away from share trading. Remember that the person who makes most money in share trading is the broker. If you want fun and excitement in life go visit a casino or a theme park like Imagica or Universal or Disneyland. Money making is not so easy as it looks like in share trading. If it was so rewarding, share traders would be world's richest people.

Being successful at your investments is not a numbers game. It is a mind game. Successful investing is a play of some basic things which can be practised and followed by anyone. Today, we bring these basic principles together in the form of 7 commandments of investments for our readers.

1. Asset Allocation is the key:

Studies have shown that asset allocation is the primary factor, the biggest determinant of how much returns your portfolio will generate. This is very simple to understand. For eg., if your equity portfolio is just, say 10% of your entire portfolio, inclusive of real estate, gold, bank deposits, insurance policies, etc., then it would not matter how well your equity portfolio performs. Having the right asset allocation is most important in the wealth creation journey over the long-term. And it begins by your understanding and having a proper look over your entire portfolio, not just that part which you can track daily.

2. Investing is simple but not easy:

Many investors often believe that to succeed and make money in the market, one has to be an expert, have inside information, try to best time the markets, predict what is going to happen tomorrow and so on. However, the most important fact to realise is that investing is very simple and based on some principles which do not need an expert to follow. Things like - being patient, starting early, saving regularly, following a right asset allocation, not making too many investment mistakes and staying invested for long or doing nothing are perhaps the most important factors for the success of your investment. Although these things are simple and easy to follow, in reality, they are not easy to follow at all.

3. Investing without goals is meaningless:

Often we invest without any goal or target. Most of our investment is also lying around without any purpose or target or any objective. On the other side, most of our traditional investments are kept aside for say retirement or marriage of daughter without ever planning or knowing the exact requirement for fulfilling those goals. Thus, most of us do not have goals and even if the goals are there in mind, they are rarely properly planned. Proper planning requires very little time or even expertise, however, it can prove to be very critical. Proper goal planning will ensure that your goals are never compromised and you fulfil them. Goal setting can be event specific and even general like wealth creation of say XX amount at YY date in future. Without goals, there is no direction and investments will be at the mercy of many different and less important things.

4. Investor behaviour is the reason for underperformance:

Many studies have shown the markets to deliver good returns but the investors are found to be under-performers by a great margin. The average market returns are always higher than the average investor returns. The gap between the two returns is attributed largely to investor behaviour. Investor behaviour, as per many studies, is found to be illogical and often based on emotion which is not good/wise for long-term investing decisions. An average investor typically buys when the markets are high, over-reacts to situations or short-term market events and sells when the markets are low. We are instantly reminded of the famous cycle of fear, greed and hope which follows every time.

5. A good financial advisor can contribution great value:

There is no doubt that a good advisor/ expert can deliver great value to your portfolio. An advisor's primary role is to manage investor's behaviour or emotions apart from everything else he does. An advisor will make sure that you do not sell or buy at the wrong time. This in itself has the potential to add great value to your portfolio. Further, an advisor is likely to suggest you the right, optimum asset allocation as per your needs, something most of us do not follow. Apart from these things, an advisor normally helps us to make our financial plan, save towards our goals, push us to save more, take proper insurance coverage, help ongoing management of the portfolio, operational support, and so on.

6. Equity is the best asset class in the long term:

From the past equity market experience, this is evident. Long term investment in equities will likely exceed returns from every other asset class. BSE Sensex returns since inception (1st April 2979) till today is nearly 15.8%. Just staying invested in the index would have multiplied your wealth by over 370 times in the past 40 years. However, there have been also many times that in one year the returns have been in negative 50-60%. The instances of negative returns steadily decrease as the duration increases and perhaps over say 10-15 years, the negative return instances (for investment at any point of time) is very rare to see.

7. Mutual funds are the ideal vehicle for investment:

One does expect you to perform like Warren Buffet who had the skills and the patience to identify and hold on to good businesses to become wealthy. Most of us do not have adequate time, resources, skills and information to go and find the winners. That is a full-time task of investment professionals. The next best thing for every one of us is to make use of the fund management team of mutual funds. Mutual funds, in essence, are vehicles for investment and the underlying can be any asset class or products. Mutual funds offer investors the widest choice of investment and many other advantages over traditional investments, including tax benefits and operational convenience and much greater transparency.

We are now well into the new financial year. Most of us would have now got their salaries revised, business plans worked out and bonuses received. It is now then time for revisiting your own personal finances. The start of the year is the best time to do a thorough analysis and reworking our financial plans. In this article, we will take a look at the things that you need to do in order to reset all your finances and plans for the new year.

Assess Your Finances: As an important exercise, we have to work out all our finances in the new year. Things like school fees, salary to your driver, society dues, fees to your CA, etc. would have all changed in addition to changes in your and your spouse's salary. It is thus high time that you sketch out the estimated monthly cash inflow and cash outflow to know your budget. It is also time to take stock of your investments, especially those lying in bank and small savings. Try and arrive of a proper balance sheet of all your assets and liabilities at this moment. Keeping ready with the cash-flows and your balance sheet would give the knowledge of your net-worth and your financial capabilities for making the upcoming decisions.

Make a Budget: After an assessment of your financial situation, it is time to take the first step of reconstructing your finances by planning your budget. Most of us do not have fixed budgets defined for our expenses and do not consider them as important. However, this is far from truth. Having a budget not only helps you in better knowing and planning your finances, it also helps you to save more and control the unwanted expenses. At a more philosophical level, it helps us become more organised and thoughtful in spending our money. Put together all these things, repeated over the years, can make a considerable impact on your wealth. One may not realise this impact today but it can only be experienced when applied in its' true sense over time.

Review your financial plan: In layman terms, financial plan is nothing but a statement of your financial goals and the investment plans to achieve them. It is mandatory that you prepare a financial plan for yourself at the first possible instance with the help of the experts. And if you already have one, its' time to revisit the same, given the financial changes that may have already happened. You may consider making the following changes in your plans...

Adding of any new financial goals Removing any financial goals which are no longer needed Adjusting the financial goals by changing the amount required and/or the period remaining Accounting and allocating the existing investments already made towards goals Lastly, making changes in the planned investments towards achieving different goals

Though these exercises are not simple and assistance may be needed to do them, a basic level of reworking of finances is not an impossible task. Engaging yourself in this exercise will also help you to understand your financial plan better and make you more committed to your plans.

Rebalance your Portfolio: Once your financial plans are reworked, as a next step, you would be required to rebalance and/or make changes in your investment plans. This would mean understanding your present asset allocation (share of different asset classes like equity, debt, cash, etc. in the portfolio) and changing same by shifting money and/or making new investments. It is also recommended that you make changes (read increase) in your monthly investments (SIPs) with the given increase in your inflows. Your advisors would help you effectively rebalance your portfolio in accordance with your financial plans and your risk appetite.

Review your insurance policies: This is something we don't often do. As a matter of fact, insurance is not a one time thing but an evolving need. With changes in your finances, family and your life stages, your insurance needs would also change and it is important that we reflect these changes in the insurance cover that we take. Note here that while a typical life insurance policy would be for a long-term period, general insurance policies are generally of a one year period. Thus, your personal accident, critical illness, health insurance, motor insurance and home insurance, all would be up for renewal /reconsideration. At this moment you would do well to assess all your and your family member's insurance needs – both in terms of the risks and the amount of coverage, and make the right decisions to comprehensively account for them.

Plan for next year's tax savings: After planning for your budget, financial goals, insurance policies and portfolio, it is now time for the tax planning to be done. Your tax planning would consider your assessment of your tax slabs, the estimated income in different heads and the amount of tax savings already committed. These committed tax savings would be related to your provident fund, insurance policies, home loan, etc. After considering these expenses, you can arrive at some figure that you may need to save for tax saving purpose. Knowing this figure at the year beginning would be a great thing to know since now you can smartly plan your savings in the year ahead.

Implementing Your Plans: After all the planning, comes the crucial implementation part. Doing this without any procrastination or delay would be no less than some feat. To ensure this, let us put on paper all the decisions that we have taken till now and also put a target date to these decisions. Remember that with every day of delay, there is some monetary cost attached to it which you cannot see. Also there is the risk of your plan itself loosing relevance with you forgetting and/or later avoiding any commitments. Your financial plans are like packed foods that come with a manufacturing and an expiry date. It is best for use (read implementation) only for a limited time and a delayed plan is like a stale plan which will need to be revised later.

Get ready to file Income Tax returns: After completion of the financial year, it is important that you file your returns, if required, within the due date. Just to point out, there is no restriction on filling returns before this date. We can thus file the returns, properly and at our leisure, while avoiding the last minute rush. Other than you, there will be one more person who would be happy when you do this – your accountant.

Conclusion: Well, there is a very thin dividing line between financial well-being and financial stress. The reason it is thin is that we can easily walk away and wander from the right path. If you are not on top of your finances and are doing things, making financial decisions without proper awareness of your goals and limits, you are most likely to fall to the wrong side of that dividing line. And as Suze Orman once said “The only way you will ever permanently take control of your financial life is to dig deep and fix the root problem.” The beginning of the financial year is an opportunity for you to get back onto this thin line and get in control of your finances. Let us not miss this opportunity. Its just an first quarter completed.

The last budget presented by the government was widely welcomed by everyone. There were many key measures taken for the benefit of taxpayers. Now that the new financial year: 2019-2020, has dawned upon us, let us look at these changes already in effect.

1. Key Tax Changes:

The important thing here to note is that the tax slabs have not changed and the earlier tax slabs will continue. However, there does exist a few benefits and concessions to the taxpayers.

Tax rebate: The tax rebate available earlier for individuals earning annual income up to Rs 3.5 lakh has been now increased. The total income threshold is now Rs.5 lakh which means an increase in the tax rebate from Rs 2,500 to Rs 12,500. However, this rebate is available only to persons having net taxable income up to Rs.5 lakhs and for others with higher net income, this benefit will not be applicable.

Standard Deduction: The Standard Deduction available to salaried employees has been increased from Rs.40,00 to Rs.50,000. With this change, there is an additional tax saving of up to Rs 3,120 for individual taxpayers earning between Rs.10 to 50 lakhs.

2. TDS Limits:

The Tax Deducted at Source (TDS) limits has been changed significantly for the current financial year. The important thing to note is that while the applicable tax does not change on the income, TDS limit extension does benefit small investors as it will reduce the hassles of claiming a refund where the annual income is below exemption limit.

Interest Income: The threshold for deduction of tax at source on interest earned from banks and post office deposits has been increased from Rs 10,000 to Rs 40,000.

Rental Income: The Rent Limit for deduction of tax has been increased to 2,40,000 from 1,80,000 in the previous year.

3. Real Estate:

Some pretty important changes were made related to real estate taxation norms. This will surely benefit a lot of owners and the real estate markets as well.

Notional Rent: From this year, you will not be required to pay income tax on notional rent from your 'second' house lying vacant. Effectively, 'self-occupied' definition is extended to two houses if the other is not let out. Earlier if an individual had more than one house property, he was required to treat anyone as 'self-occupied' and was required to calculate notional rent and pay tax on the other properties accordingly, irrespective of whether the property was on rent or not.

Capital Gains: This year onwards, a taxpayer can claim exemption from capital gains on the sale of house property if the sale proceeds are invested to purchase/construct up to 'two' house properties. This benefit was available to only one property earlier subject to conditions. This benefit shall only be applicable if (a) the long-term capital gains shall not exceed Rs 2 crore and (b) the benefit is claimed only once in the taxpayer’s lifetime.

New GST Rates: The GST is an important component for the housing sector and effective this year, the rates have been further rationalised. For on-going under-construction projects, there is now an option either to charge the GST at 12% with an input tax credit (ITC) or at the new rate of 5% without ITC. In the case of affordable housing, these rates will be 8% with ITC or 1% without ITC.

Popular tax saving avenues:

An important element of income tax rules and also tax planning process for investors is the tax saving provisions available to them. For the new financial year FY 2019-2020, let us have a look at the various options and limits available to us, most of which is a continuation of the previous year.

Apart from the above popular tax saving avenues, there are also some important deductions available for rebate /eligible expenditure made which may not be applicable to all but is still widely used.

It is a fact that the equity markets have not been performing well in recent times. This is not at all surprising as history shows us that the markets are and will be volatile in the short-term. However, there are likely many new investors who have entered equity markets only in the recent past, especially through the mutual fund SIP route. It may not come as a surprise that some of these investors may be feeling a bit worried about the short term performance of their equity funds. In this piece, we will talk about some basic investing principles which would help calm the nerves a bit.

Should you look at short-term SIP returns and worry?

Since you have invested in an equity mutual fund scheme, we assume that your investment horizon would have been long term or related to any long term financial goal. In personal finance parlance, long term is considered a minimum of five years.

It is important to understand that nothing is wrong with your choice of investment for the time horizon you have chosen. You just need to understand that the markets will go up and down, especially in the short term. That is their basic characteristic. It is only in the long run that you will see an increasingly consistent rising graph or upward movement. On the positive side, you may even be happy that the markets have not rallied, as you are now buying stocks at relatively lower price consistently through SIP. That is, in fact, one of the primary advantages of investing through SIP.

Almost every expert knows that the equity returns tends to follow the nominal GDP growth rates (i.e, the real GDP growth rate + inflation figures) in the long-term. With the Indian economy expected to grow at 7% + (real GDP) over the next few years, markets will eventually catch up and deliver positive returns. Hence, investors should not worry about lower or even negative returns in the short-term and continue their SIPs confidently.

Should I look to change my schemes?

Again, the performance of any fund or a fund manager can only be made over time. One year or less is too short a time to comment on the quality of fund management. If one particular scheme is not doing well today, shifting to another well-performing scheme will not guarantee you high returns. All returns and performance are historical in nature and hence will not matter much. Also, shifting between schemes with similar investment objective and investing in the same category/nature of stocks will not improve your portfolio much as the underlying universe of stocks will likely be similar.

What is more important in any portfolio composition is whether there is proper asset allocation and diversification. You should check whether your asset allocation is right for your investment horizon or risk appetite. Next, you could also see if your equity investment is appropriately spread into large, mid or small-cap investments – again as your profile and need. Frankly, we would strongly advise you to consult a proper financial advisor /distributor to construct your portfolio appropriately.

How long should you continue your SIP investments?

The best way to look at a SIP is by mapping or allocating your SIP to some life event or financial goal. For eg., higher education for your child, retirement plans for self, purchase of a second home, and so on. Even if these goals are over 10, 20, 30 years afar, an SIP route will deliver the best likely returns from amongst all asset classes. Given the importance of your financial goal, you should not stop any SIP linked to it as it will directly compromise the success of your goal.

If you do not wish to link your SIP to any goal, we would suggest that the life of any SIP should be at least 5-7 years for it to deliver good returns. Having said so, an SIP can be closed at any point of time – whenever you may need money. A new SIP today must be at least 5 years long.

Should I invest more money in equity funds?

This brings us back to basic questions – what is your investment objective, time horizon, risk appetite for this investment? And also most importantly, what is your present asset allocation? Once, these facts are known, you will have your answer. Broadly speaking you should invest if, your asset allocation in equity is low or your investment objective is to create wealth, the time horizon is long term and your risk appetite is aggressive.

Independent of above things, one is always advised to invest in markets which are not performing well or in other words, the valuations are relatively low. If you have an SIP you should consider increasing the SIP amount periodically – say half-yearly or yearly. Step-up SIPs are now available in the market which automatically increases your SIP amount at a set frequency. This is a more logical thing to do and also ensures that your savings grow along with your income over the years. Perhaps one should approach a good financial advisor to guide you on your fresh investments.

As smart investors, we also need to understand that fall in markets do give an opportunity for new investors to enter the market. Unfortunately, in India experience has shown that most investors enter markets when the returns are 30%-40% over the past year hoping that they too will make easy money.

In the end, we would suggest that a new investor should seek the help of a good financial advisor /planner to guide him/her in his investing journey. If you are investing directly on your own and are worried today, we would strongly suggest that you gain more knowledge and understanding on how the markets and investments work and even seek guidance, if felt required.

One single person cannot be an expert at many things. One may be good at quite a few things but can one call himself as an expert on multiple subject matters? Probably not. Thus, a normal person would need different experts and consultants at different points in time. These experts can be in the form of say, your teachers, gym /yoga instructors, doctors, lawyers, accountants and even your spiritual guide or guru. One such important expert in your life would be your financial advisor but the importance of whom most of us do not fully appreciate.

The financial advisor may come in many different names or designations, irrespective of which their primary concern would be your financial well-being and ensuring that you are financially successful. Thus, choosing and having the right financial advisor is very important as it will have an impact on one thing you value most – your money.

Who is a Financial Advisor:

A financial advisor is one who would be interested in your overall financial well-being. A good advisor would be one who is competent and committed to ensuring financial success for you. The financial advisor should be one who could provide you with advice and access to different financial products as you may need. He should be the one able to not only create and manage portfolios of different financial products but also handle you as a person. The financial advisor would play the critical role of managing your expectations, your emotions, help you build the right habits, attitude and appetite for investments and also help you become more aware of your finances.

Why should he/she be right?

Since we are strictly dealing with your financial well-being here, there is very little scope for compromise. At stake is a huge impact on your wealth – the difference between what a good / decent advisor and the right advisor can make for you. Small decisions, choices of products, timely actions, managing emotions, expectations, etc, everything potentially can end up making a huge difference to your finances especially when we project that over many years or long term.

Why do we need an advisor?

To start with, financial advisory is a huge field in itself. It encompasses different aspects of finance, including financial planning, investment & portfolio management, insurance or risk management, tax planning, retirement planning, cash-flow management, and loan /debt management. I am not sure how many of us would be competent /knowledgeable in each of this aspect. Bringing together all these pieces together is just one part of financial advisor. The real impact a financial advisor would bring would be in effectively managing your emotions and expectations and saying no to you where needed. There is a risk that financial decisions taken by us get affected by > emotions, biases, prejudice, knowledge, understanding, delays and so on. The advisor would help us by bringing professionalism, logic, emotional control, discipline in decision making and bringing all aspects of financial management under one umbrella of strategy or approach.

Who is probably not the right advisor?

Traditional Agents/ Brokers /Accountants:

The role and expertise of a proper financial advisor is an established field in itself. One should not expect a comprehensive assessment and solution to your financial needs from persons handling only specific aspects of your life. This is true for you, unless he/she is also a financial advisor, accountant, banking executive. insurance agent and stock broker. There are many traditional agents in the market who are really not looking at solving your problems or needs but are only interested in pushing the most profitable products to you. One should be more careful of their bank executive selling new ideas, the stock broker frequently churning portfolio and giving tips, and the insurance agent in neighbourhood selling only traditional plans.

Personal relationships:

Having a relationship with an incompetent advisor is not recommended even if you have other reasons for maintaining that relationship. At the end of the day, there is always a chance that you are not satisfied with the advisory part and then that may even ruin the other relationship you are having with that person. It would be advisable to differentiate a personal relationship and a professional relationship and deal / hire the right advisor to manage your finances.

Who is the right advisor for you?

Competence: Your financial advisor has to be competent. Being competent can be seen as a combination of essentially two things -

Knowledge: Knowledge is all about knowing everything you expect the advisor to know, including knowledge about assets, products, taxation, etc and also keeping oneself updated on markets and economy.

Skills: Skills can be seen in two parts – (a) financial advisory skills (c) soft skills. The advisor should be smart enough to your prepare financial plans, do portfolio restructuring, decide upon the right products suitable for you, prepare reports /insights, evaluate products, make decisions based on right inputs, execute plans /transactions and so on. Soft skills would be largely about effective communication and relationship management with you.

Infrastructure: Knowledge and skills have to be supported by adequate infrastructure. The existing infrastructure should be adequate enough for you to be serviced. The advisor has to be empowered by suitable product basket, technology platform, services, manpower and physical infrastructure. All this will access to the required products, ensure ease of operations, service quality and technology comfort for you too.

Commitment: The financial advisor should be committed to you. We can interpret this commitment and see it as a combination of the following

Acceptance: the advisor accepts you as a valuable client and is dedicated to serving you. The impact of this acceptance & dedication would reflect on the entire relationship you have with the advisor. Absence of this aspect of relationship would not help you no matter how competent your advisor is.

Understanding: another aspect of commitment would be reflected in the extent to which the advisor takes the effort to understand you as a person and your finances. Without a proper understanding of your profile, background, financial status, needs and expectations, it would be difficult for him to give the right advice to you.

Intent: The last part of commitment is the intent of the advisor. There are many people in the industry, say bank executives or insurance agents promoting traditional plans only, whose true intentions and/or product biases to be understood. The advisor has to act in your best interests only and not be biased for any particular products or services. A good advisor will not be transaction or product oriented but will talk more in terms of problems or needs and solutions for them.

Time for Tax Planning

In life, two things are certain – death and taxes! 31st March is less than Four months away and you surely now have adequate time to focus on one very important task for the financial year. Tax Planning! You have just about enough time to assess your financial records and plan investments for tax saving purposes. But don't get too comfortable just yet. Time is of the essence when it comes to tax planning and the remaining months will fly away soon. We don't want to end up in the middle of a lot of unfinished work, forced to make last-minute investments in sub-optimal instruments just to save tax. You may end up saving tax but will this investment align with your overall investment goals?

Let us not wait for March month and be done with all tax planning as early as possible. Last minute tax planning decisions, taken in haste often are not the ones most suitable for you. We would suggest it is time to start tax planning right away. The question now is how do we start?

Step one: Assessment of gross income

The IT department has identified five specific heads of income under which all income is classified. These are (a) Income from Salary (b) Income from House Property (c) Profits & gains from Business/Profession (d) Capital Gains & (e) Income from Other sources.

The first step is a fair assessment of the gross income for the financial year. You already have crossed over nine months and we believe you will have a fair bit of idea for income accruing in the remaining months. There is no need to arrive at an exact figure. An approximate figure is enough to know the income for the fiscal year. While arriving at the gross income, please do consider all incomes including things like interest on bank savings, interest earnings from investments made, rental income, etc.

Step two: Assessment of taxable liability

The next step is the computation of the net taxable income. For this, we will be taking into account the exemptions /deductions provided by the government for the above-mentioned income source. We will be also considering the tax saving avenues already used /invested in by us during this financial year. Just to highlight, the following things will have to be considered, subject to the taxation rules,

Investments made in tax saving instruments u/s 80C

Rent paid for residence

Insurance premiums paid

Home loan – interest and the capital amount repaid

Medical expenses for disease treatments

Expenditure on handicapped relatives

Other allowed deductions like tuition fees, donations, etc.

After arriving the net taxable income, depending on our income level and our personal profile (age + gender + tax entity type) a particular taxation slab will be applicable to us. This will help us arrive at the tax liability for the year.

Step three: Planning for tax saving

You now have a fair idea of the amount of taxable income and tax liability applicable as per tax slab to you. The next step starts with you deciding how much tax savings you want to do? The idea is to reduce your taxable income so that the tax liability decreases. Thus you will have to work out the right amount of investments to be made in approved instruments which are allowed as deductions...

Note that not every decision is driven by tax saving purpose. For example, taking insurance in itself is very crucial and the decision on it should be taken independently, irrespective of tax saving benefit available or not. Tax saving in insurance products must always be a secondary consideration, as a by-product. As such insurance requirements have to be discussed with your advisor, the sooner the better. Certain insurance premiums are allowed for deduction u/s 80D, 80DD and 80DDB.

We have finally arrived at the stage where we have to select the investment product(s) with the primary objective of tax saving. The most important section here is of 80C which has many approved investment avenues which collectively allow deduction of up to Rs.1,50,000/- from taxable income. The most popular investment instruments available here are...

Mutual Fund Equity Linked Savings Scheme (ELSS)

Contribution to Public Provident Fund (PPF) and Employee Provident Fund (EPF)

Tax saving Fixed Deposits (5 years & above)

National Savings Certificate (NSC)

Pension Plans

Others Investments like Sukanya Samriddhi Yojana (SSY), ULIPs, Senior Citizens' Savings Schemes (SCSS).

There are also some payments eligible for tax saving deductions u/s 80C which have to be considered, if any.

Life Insurance premiums

Home loan repayment (principal amount)

Children's tuition fees

Further, there is also an additional deduction of Rs.50,000 available for investments made into NPS u/s 80CCD which is over and above the 80C limits.

The question now is what you will choose?

To decide we must see the advantages and disadvantages of our preferred products and also our own financial objectives. Parameters like liquidity (lock-in period), risks, returns potential and your existing investment asset allocation, can be considered to decide on the right investment instrument. Please note that even interest rates on government saving instruments are revised from time to time. How much net real returns over inflation can I expect from my returns? is something that you must question yourself.

We don't wanna push you towards any particular product, though we believe in ELSS as the ideal tax saving instrument u/s 80C. However, overall tax planning is a wide subject and we would suggest that you take the opportunity to sit with your financial advisor and make a fair assessment of the needs and then select the right instruments. It is also an opportunity to take an independent look at your insurance coverage, just in time before the end of the year.

You must have recently read news about Boris Becker actioning his trophies and other memorabilia. It was indeed sad that one of the greatest stars of tennis had to sell his most prized possessions to fund his bankruptcy and pay money to creditors. Back home too we often see well-off persons falling into financial crisis. Today, even Mr Anil Ambani is facing a financial crisis in his business group and was even at the verge of being arrested.

No one can guarantee that a financial crisis can never come in one's life. It may be due to wrong financial decisions, setbacks or unseen developments affecting your industry, loss of a job, any unexpected medical costs at home or even falling victim to any fraud. It is quite possible that even a single mistake or event can wipe out your years of hand work and the wealth that you have created. Not making big financial mistakes or blunders is at the cornerstone of your wealth creation journey.

What is also important that you are always careful to avoid any such scenario in future. Prevention is better than cure – this has to be practised. Being always prepared to avoid and even to deal with any financial crisis in important. Here are a few ways in which you can be prepared...

Separate business from personal finances: One of the most prudent decisions is to separate your business /profession with your personal finances if you are into any business. It is also important that you do not put at stake your personal wealth to meet your business needs and vice versa. Doing this may leave you without any financial backup in future. If the business is not doing good, it is better to find solutions within the resources available for business. Once personal assets are put at stake and business fails, you are left nowhere to go.

Prepare to be frugal: Being frugal does not mean compromising on your quality of life. Being frugal is all about avoiding unnecessary things in life and making the most of the resources already available. Whether be it business or personal life, being frugal helps in keeping your expenses down, reducing risks of any crisis and also making you better prepared for any crisis should it occur.

Do not leverage too much: Leveraging would mean taking too much credit or loan to finance anything. Leveraging to create assets which will increase in value in future is always better than investing in assets that depreciate. Even while taking credit to finance investments in income or wealth-creating assets or business, one should never go over-board.

Do not spread yourself thin: Quite often we have seen that people commit or deploy all their funds in business or different assets. A reserve or an emergency fund is what you must first aim for to create to finance any temporary setbacks or dull periods of business or profession. A good backup goes a long way in avoiding any crisis.

Do not put all eggs in one basket: Be it investing or in business or profession, it is always better to not risk everyone on one venture or investment. One of the most common things found in millionaires is that they have multiple sources of income so even if one is compromised, they are not likely to be affected much.

Take only justified risks: While taking risks is a part of business, it is not justified that any undue risk is taken, especially when it comes to unknown persons or any unexplored opportunity. Any risk, whether be it business or investment or any income opportunity has to be well-researched. If there is a promise of huge returns by someone, an offer too good to be true, it is not going to be true. Being in control, listening to your instincts, consulting your advisors and not falling prey to greed are some of the things you must practice.

Be adequately insured: It would be foolish if you are at a big financial loss which could have been avoided had you taken adequate insurance for a small cost. That small cost is the cost of peace of mind that you must pay but unfortunately, even that is seen as big till the time tragedy strikes. At a personal level, health, personal accident, critical illness, life, travel and home are some of the insurance policies available to you to avoid any likely financial risks arising from any unfortunate event. For your business/profession too there are many policies available to avoid damages by theft, accident, fire, legal claims, etc.

Being big in life:

There are many things that a person can create without huge financial investments. And these things will surely make you better prepared than anything else in life which can be counted. So what are these things?

A strong team: Building in a strong team in your business or profession can make you very grounded and stable in business. Being a good leader and investing in good people and helping them develop will always make you win as a team. At a personal level, having a team of a good banker, accountant or even a lawyer will help you in avoiding and managing your crisis better.

A strong brand: A strong goodwill and brand for your business or at a personal level also go a long way. Even at a personal level, if you are seen as a trustworthy and dependable person in your family and friend circle, it should help you a lot. This though comes over time when you also are helpful and supportive of those around you.

A strong network: A well-networked man is much more likely to be successful. Again, one of the most common things among millionaires is the strong network that they enjoy. A good social or business network brings opportunities and solutions too to the problems you may have. Do actively spend your time and resources in building a proper network in life.

Do you ever imagine why few people appear to get rich easily while most of the others live their entire life full of financial struggles? Have you wondered what is that difference which makes few people rich – is it education, hard work, intelligence, luck, family background or is it about their choice of work, job, business and investment?

You will be surprised that the answer to the above is No, according to one of the hugely popular books on personal finance “Secrets of the Millionaire Mind” by T. Harv Eker. Eker says that though few of the things mentioned may contribute to financial success, the underlying reason for success itself is quite different. goes. In this piece, we will attempt to go deeper and unravel what makes the real difference between the rich and the poor.

It's very much about how you think:

It can be said that poverty begins and is rather allowed to continue in one's imagination first. One's actual material life then becomes a self-fulfilling prophecy of this image. You ultimately become what you think of yourself. If you are always thinking about problems, are small minded, keep finding faults in everything and worse, think low of yourself, then that is what you may end up living your life with. The need for self-admiration, thinking big, thinking about possibilities and opportunities cannot be underestimated.

But, everything else remaining same, why do we think the way we do? The answer to this question is given below.

Your subconscious mind plays a critical role:

Right from childhood we are subjected to subconscious learning from our families, friends, schools, events happening around us and so on. This is the main reason people with different family backgrounds and cultures tend to think differently. Imagine a typical Gujarati /Punjabi /Sindhi business family and compare that to any well-educated South Indian family. You can almost predict how the lives of children will shape up in such families and what will they do in their lives. The risk-taking ability, money management skills, attitude to wealth, etc. are ingrained in our subconscious minds to a greater extent than you think. This plays a very crucial role in shaping who we are and who we will be in our lives. If your subconscious mind is not set for a high level of success then probably you will never have a lot of money. The good news is that you can change this subconscious mind with your conscious and continuous rethinking on these aspects of life.

How the rich think and act differently?

Now that we have established that your thinking mind and your subconscious mind plays a very important role in financial success, let us get back to the starting point – the difference rich and poor. It would be really interesting to see how a financially successful guy is thinking differently from a financially deprived person.

Rich people believe in creating their own future and destiny. Poor people let life happen to them and accept their destiny.

Rich people make it their game to win and make more money. Poor people tend to play the money game safe so as to not loose.

Rich people live their lives as if they have a commitment to being rich. Poor people live life as if they want to be rich and are more eager to showcase being rich rather than being actually rich.

Rich people think big, think about possibilities and opportunities. Poor people think small, think more of obstacles and difficulties in anything they do or think of doing.

Rich people focus more and spend more time exploring and exploiting opportunities. Poor people spend more time talking about obstacles and focus on solving problems in life.

Rich people admire, learn from and aspire to be like other rich and successful people. Poor people normally resent, find faults and crib about rich and successful people but never learn.

Rich people tend to associate and network with most other rich, positive and successful people. Poor people tend to associate with their likes or other negative or unsuccessful people and do not network.

Rich people are willing to promote themselves and their value and tend to create a personal brand for themselves. Poor people do not like personal selling or promotion and do not indulge in making a personal brand or value.

Rich people often think of problems as smaller than themselves and something which can be resolved easily. Poor people often think of their problems as bigger than their capability and something which would need tremendous efforts.

Rich people are very good at observing and learning what they need to from virtually anything or any person. Poor people are poor at observing and learning and often tend to only believe that they know.

Rich people tend to work smart for results or profits based on their intelligence and enterprise. Poor people tend to work hard and choose to get paid based on time and work done.

Rich people think of getting the maximum advantage of any situation or deal and not loosing. Poor people think more of a win-win situation and choose either among options available to them.

Rich people know, keep track of and focus on building their net worth. Poor people focus more on their working income rather than their actual net worth.

Rich people are good at managing and growing their investments /wealth. Poor people often mismanage their wealth and tend to make sub-optimal investments.

Rich people put their money to good use and make it work hard for them. Poor people focus on working hard for earning their money but do no put their money to work.

Rich people are more courageous and tend to act in spite of fear by taking calculated risks. Poor people are overwhelmed by fear and tend to not take any risks.

Rich people are committed to learning and they constantly learn and grow themselves. Poor people are laid back thinking that they already have enough knowledge and do not learn actively.

As Eker says, “The size of the problem is never the issue—what matters is the size of you!”. Understanding the above differences in thinking and changing our own thought process should be our goal. These changes, when put to practice in real life, will act as the steps or blueprint to dramatically improve our financial success factor.

We all talk about it, know about it but rarely do we find anyone who is all set and ready for a peaceful and happy retirement. Retirement planning is one goal which is often at the bottom of our priority list. We often make excuses to avoid it. In this article, we will see the most common excuses made by people around us to avoid saving / planning for retirement.

1. It's too soon This is an excuse which is often given by those who are in their 20s and 30s. At this stage of life, they are primarily concerned about creating assets and enjoying life. For them, 'retirement' is very far away to even start thinking. However, the reality is that the sooner you plan, the better chance you have for having a retirement you want. When it comes to retirement planning, it is frankly, never too soon.

2. It's too late Retirement planning is a broad subject and is applicable to everyone. Even if you are near retirement or have already retired, it does not make any difference. The planning piece will surely take into consideration your existing age and status to make appropriate plans. Retirement planning is not just limited to saving for retirement but is also concerned with your post retirement planning.

3. My family will care for me Do we really want to become as dependents on our family / children? No matter how faithful and caring your family members, especially children, are; you should let them worry about their own lives and their own children. Social and family structures are changing today and often children do not stay with parents. It would be strongly advised to not think of yourself living at the mercy of others.

4. I do not have enough money No one ever has enough money. The important thing here is to make a start. Every rupee will count towards your retirement kitty. Initiating the process will mean that you are serious about retirement planning and you will be more likely to increase your savings in future.

5. I am in a bad financial situation In a situation where you feel that your finances are in a mess, we would recommend that you get in touch with your financial advisor / planner. You need to sort out your mess and find ways to clear all debts / liabilities first. This though may also be a case of exaggeration. You need to really check if you are truly in trouble or choosing to believe so, so as to avoid saving.

6. I am not aware of retirement planning This is another excuse people often make. However today, seldom can anyone claim that the awareness was absent. We must be at least aware that we may have to live about 20-30 years of our lives without regular income – post retirement. This simple knowledge is good enough to evoke a sense of urgency and the importance of retirement planning.

7. My advisor did not ask me about it Those who make this excuse must be asked – do you never put forward any question or requirement to your advisor? Have you ever asked your advisor to plan for your life goals? Are you serious about getting the right advice from your advisor? A good advisor will always ensure that he/she discusses and plans for all your life goals with you. However, the onus of ensuring that your advisor covers all your needs and does not miss anything lies on you.

Why is retirement planning 'important' and 'urgent'?

Among all your life goals, retirement planning is perhaps the most critical life goal. It is much more important than children education or marriage goals. Once secured admission, your child can always find education loans. With an evolving society, traditional marriage expenses may not be applicable today. Also earning children can always save something for their own marriages. Also marriage is something which can be planned or delayed for few years if required. Hence, the only key goal left out is retirement which cannot be compromised.

Here are the reasons why it is very important and urgent.

1. Lack of social security in India forcing everyone to save for retirement

2. Question of living at least 15-20 years without income in old age, with potential health issues & expenses

3. Need to be self dependent for all expenses – for self respect and freedom

4. Can't rely on family members or children for sure

5. Retirement planning is one of the most neglected life goals – other goals get higher preference

6. The amount of savings needed is huge compared to any other goal, especially at later ages

7. You and your spouse deserve a good, peaceful, happy life in your golden ages

Conclusion:

Retirement planning deserves your immediate attention. If you have been delaying retirement planning or making excuses to avoid it, we would suggest that you do so at your own peril. Retirement planning is the most important thing that you need to do for yourself. You deserve a life of comfort and care without worries after spending a lifetime working hard and living for others. Rest of the things will happen at their own pace but retirement is something more personal which only you have to think about.

WHY DO BUDGETS FAIL?: Budgeting. It is one thing that every business and even every household should do. We all must have read much on budgeting and I would be surprised if anyone did not know about the importance of budgeting in personal finance. Yet, it is very rare to find an individual who is committed and consistent in preparing and following budgets for his/her household expenses. In this article, we will talk about budgeting try to find reasons as to why budgets and the budgeting exercises fail?

What is budgeting? Let us start with the understanding of budgeting. Simply put, 'budgeting' is the process of creating a plan to spend your money during a particular period. This spending plan, along with the limits on different types or heads of expenses, is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do. Budgeting is simply balancing your expenses with your income.

Typically, the budgeting exercise for a household would be done on a monthly frequency. It would include all your net income cashflows and also your net outflows and expenses. As such, you will have a clear idea where your money is coming from and going into.

Purpose of budgeting:

The purpose of budgeting is basically to ensure the following things:

you are never over-spending in any area

ensure that you never run out of money

you want to save some money to invest

you have control over your spending habits / behaviour

plan expenses so as to avoid discretionary expenses

The 50/20/30 Rule: It is important here to talk of this very popular thumb rule for budgeting called as the 50/20/30 budget rule. The idea here is to divide after-tax, net income into different baskets with limits. The first basket of 50% would be your 'needs'. The second basket of 20% will be allocated towards your savings. The remaining 30% will be on for your wants or discretionary spending. The proportions of this thumb rule are very generic in nature and you will be advised to fix a proportion that is more suited to you.

Note that the 'needs' here are mandatory expenses that you cannot ignore or push forward. These will include things like house rent, utility payments, school fees, maid salaries and grocery bills. The savings component gets a higher priority over optional / voluntary spendings.

Wrong Plans /Inadequate Limits: Quite often, in the initial zeal of preparing a budget, you may likely go more strict. Inadequate limits on a certain type of expenses may feel very restrictive and thus may lead to a breach. A wrong plan may also mean that you entirely underestimated the expenses or over-estimated the income. There may also be a possibility of any expense head missed out. To be successful, every plan has to be properly prepared in light of your historical spending habits so that there is a sense of continuity.

Lack of self-control: Too many people spend money they earned, to buy things they don't want, to impress people that they don't like. This popular is so true for so many of us. Lack of control on what you need to buy or on what things you need to spend are the biggest reason for the breach of budgets. Having self-control on your spendings will go a long way in securing your finances and meeting your budgets.

Lack of discipline: Lack of discipline in preparing and following a budget is often the next culprit for failure of budgeting. We often get tired very easily in the process such that we lose track of our progress. For the success of the entire budgeting exercise, one has to be very disciplined to record and track your progress. Over time, one is also likely to lose interest in this exercise believing it to be boring and uninspiring.

Lack of appreciation: Most of us may begin the budgeting exercise without an adequate level of conviction or commitment to follow the same. This may be due to the person not really understanding and appreciating the full benefits of budgeting. Keeping yourself half committed is never going to work.

Lack of team work: Budgeting for a household is a team effort. Your spouse, children and even parents would be expected to agree to and follow the budget. Even your children would be given fixed pocket money or budget limit for managing their affairs. If any family member does not

You missed out emergencies: It is very likely that one misses out for accommodating any emergencies since these emergencies do not occur very often. We are not even talking of big emergencies here since we believe you would be having an emergency fund to look after the big ones. What we are talking here is about the small, unexpected emergencies like, loss of your mobile phone, a car repair expense, your child falling sick for few days, unexpected medical checkups for parents, and so on. It would be advisable to keep a small portion of your budget, say 5% only for unexpected small emergencies for the month.

Give it time: Rome was not built in a day and neither can you hope to build a perfect budgeting culture in your home from day one. Budgeting may require a behavioural and even a lifestyle change. It may take some time for the people to adjust their spending habits as per budgets. Be patience and be considerate enough when you start the journey. Perhaps the first few months will be more of learning for everyone but one should not lose hope and keep committed to this over the long term.

Fortification of your finances:

The term fortification essentially means creating a defence or reinforcement that gives you strength against any attack or in other words – risk. True financial fortification would mean that your defence or support has to be very strong and all protective against any kind of risk of financial loss or expense. Essentially it would mean that you and your family is financially ready to deal with any unpleasant, unexpected developments.

Typically any person or family always is faced with some financial risks which may follow any unpleasant event like death of earning member or hospitalisation or accident or illness of any person. There are also many other type of financial risks, but we will ignore them for this article. Without adequate protection against death, disease, disability, etc., the long term financial goals of a family like education for children, purchase of home, marriage plans, etc. too are put on high risk.

Life insurance, health insurance, critical illness insurance and accidental insurance are tailor made products that help you in fortification of your finances. They protect by minimising the cash demands on your existing savings or wealth earmarked for your financial goals. By providing you with additional capital, the insurance plans should take care of your financial needs at such times. However, it has to be noted that the insurance protection cover has to be adequate to ensure that you remain in safe waters.

Here are some of our thoughts on your fortification of finances.

Emergency fund: The emergency fund is your first source of support should any unexpected development take place. There is no product for emergency fund however, it is very important that such money be kept in liquid assets. Mutual fund liquid schemes can be good avenues for keeping your emergency fund. The fund should be kept secured and whenever any withdrawals are done, it should be replenished back. Typically at least three to six months of your total household expenses should be kept in emergency funds. How much to save will depend on case to case basis and typically those with volatile income streams should have higher targets.

Life Insurance: While many of us have life insurance, typically the underlying product is a traditional insurance plan sold by your friendly insurance agent. Unfortunately, such plans normally have very low insurance cover which will prove to be inadequate for your family for sustain themselves for the future. So how much should be the cover for?

The life insurance cover should be able to

(a) repay all your existing liabilities,
(b) provide for all pending financial goals like education, marriage, etc., and
(c) provide for regular household expenses (inflation adjusted) for foreseeable future.

You may realise that your existing life cover will be very inadequate to meet all the above. Traditional plans will come at a very high cost for such cover and will be unaffordable. The only product that can meet your need is the – pure term insurance product which provides at the highest cover at the lowest cost. However, there is also an upper limit on same. We would recommend that you should sit with your financial advisor to really understand the cover you should take. Typically for a middle class family with four/five dependents should have term insurance of at least Rs. 1 to 2 crore.

Health Insurance: Health insurance is indispensable today and a must for everyone. There are many products available in the market that will help you smartly plan for health expenses of you and your family. Products like floater policies, top up and super top up products are popular and a good mix of right products will truly help you manage your financial risks in this regards.

The question here too is how much cover will be adequate? With fast rising medical health costs, the health cover amount should be regularly assessed. Typically a family should have at least 5 to 10 lakhs of family cover depending on your financial status and city. Buying a health insurance at early age when everyone is healthy is highly recommended as you may find it difficult to get a policy in future post any medical condition arises.

Accident Insurance: The accident insurance is another basic product highly recommended. It is more of an advanced product and protect you against hospitalisation, treatment expenses for certain kind of accidents. It will also protect you against temporary or permanent – partial or full disability unlike any other product. It will also provide you with protection against temporary loss of income post accident. Being an inexpensive product, it is highly recommended. The cover amount should be at least upwards of Rs. 50 lakh and if possible should be even higher than term insurance as family expenses will be very high post any disability /accident. However, getting a higher cover is not easy and will depend a lot on your income and nature of job.

Critical Illness Insurance: The critical illness is a bit more advanced product which you should explore. It would provide you with financial support when any critical medical condition develops. The need for critical illness is subject and if you have a family history or likelihood that a critical medical condition may develop in future then it is more recommended. Also, it can be seen as an extra layer of protection which you may opt for to further fortify your finances if you can afford it along with the basic insurance products. A critical illness cover of about 20-25 lakhs would be adequate for most people.

Guaranteed ways to lose money We have discussed a lot of personal finance in our previous issues. But there also exist a lot of products or should we say things or habits that lead to wealth destruction. Every product and asset class has its unique features, but it is important to understand that every asset class is different from the other and is having its own peculiar risks. If you play with an asset class in the wrong way, it can destruct your wealth in a big way rather than creating it for you. Let's have a look at some of the practices, which help in losing money

Day Trading Day trading, simply put is the activity of buying and selling the shares on a single day without taking any deliveries with a purpose to gain from the daily volatility in the stock prices. Day trading is the most common practice followed by new entrants into Equity investing. This would also apply to people who buy on deliver but to hold it only for a few days or weeks to benefit from trend movement. There are many so-called experts and even coaching institutions teaching this skill to others.

It is the most exciting feature as the prospect of making lakhs by sitting in front of the screen and just guessing the right prices is a mouth-watering one. Always remember that fluctuations in share prices during the day does not truly represent the functioning of the company. The person who makes the most money through day trading is the broker. For an investor, the chances of making money in day trading are as good as winning a toss and true success stories are very rare and far in between. Even the people who claim to be experts earn more from teaching this to gullible persons than by earning through trading itself.

Investing in FD's over the long term

Investors are obsessed with the safety of their investments and jump on any product giving guaranteed returns. Fixed Deposits as an asset class are good for short term investments of say less than five years. Some part of your investment for long-term can also stay in debt products, including bank FDs. The key here is the asset allocation you are following.

However, there are a very large number of individuals who only save in bank FDs. They generally start an FD for a tenure of say 6/8 years and then keep renewing it. But by doing so, the investor does not realise that it losing money as the value of money also keeps on declining due to inflation. So, if you have got an attractive return of say 8.5% on your FD and the inflation during the period was 7%, your actual rate of return is 1.5%. To make matters worse, if you are into say 30% tax slab, your real earnings will be a negative of 1.05% (8.5% less 30% = 5.95% less inflation 7%). Thus, your post-tax real returns are declining by investing in bank FDs. So, if you are investing for so many years, you are losing money as well as the opportunity to create wealth by investing in other market-linked products /equities.

Derivative Trading Futures & Options are available in the stock market for the purpose of better price discovery and for hedging your investments. Unfortunately, these derivatives are used as tools for making quick money and they turn out to be more dangerous than day trading. In derivative trading, you can trade for 25 times more than the money you have.

So if you are having Rs. 100, you can trade for Rs. 500 through derivatives. So with the same investment, you can make 5 times more profit (and conversely 5 times more losses, wiping out your capital). There have been instances where people have lost their entire saings and even homes dabbling in derivatives. No wonder that they are called as 'weapons of mass destruction' by people like Warren Buffet. Derivatives are for use of professionals and playing in them without their guidance can be highly dangerous. Period.

Keeping cash Another Myth for keeping money safe is to keep it in cash. Cash not only has its own risks for storage but is also the only asset class which gives “0” returns. The value or the purchasing power of your cash goes down continuously due to inflation. This can be best understood if you list down the items which could have been bought in Rs. 100, 10 years back and the price of those items now. You should keep cash only to ensure your basic needs. With the increase in popularity of digital payments, namely say UPI and rise of applications like Amazon, Flipkart, Big Basket, Bookmyshow, Google Pay, Paytm, etc., most of your payments can be done online or by using the QR code even at retail shops. So cash is effectively not required unless you need it.

Going even a step beyond keeping cash, there is also this thought that too much money should not be kept in your savings account which is not earning anything from you. Keeping this money in products like mutual fund liquid funds which offer insta cash facility - immediate redemption and credit in 30 minutes at any time, subject to certain limitations, will provide a lot more earning opportunities for you.

Using your credit card as a free money instrument

Credit cards are the most widely used instruments these days in place of cash. It gives a lot of conveniences as you don't need to pay at the time of purchase. In fact, you enjoy an interest-free period of up to 45 / 60 days on your purchases. But many a time, people tend to overspend on the credit card. It is important to pay your dues back on time, else you can be subjected to interest rates as high as 3.5% compounding per month (which works out to an annual rate of 51% interest).

Never fall in the trap of skipping your credit card payments or paying “minimum amount due” as you start getting charged heftily on all transactions done then on. The interest rates are so high that if you default you might end up paying higher interest than the principal amount. Though, if you keep paying on time, there is no better option than a credit card. Besides you also keep earning reward points for the money spent by you.

It may take you a long time to create your wealth, but to lose it can be done in a matter of seconds. It is better to stay away from practices that can erode your wealth and make good use of every product available in the right way. That way, we will not only save wealth but also will be able to sleep peacefully.

The 7 Commandments of Investments Being successful at your investments is not a numbers game. It is a mind game. Successful investing is a play of some basic things which can be practised and followed by anyone. Today, we bring these basic principles together in the form of 7 commandments of investments for our readers.

Asset Allocation is the key: Studies have shown that asset allocation is the primary factor, the biggest determinant of how much returns your portfolio will generate. This is very simple to understand. For eg., if your equity portfolio is just, say 10% of your entire portfolio, inclusive of real estate, gold, bank deposits, insurance policies, etc., then it would not matter how well your equity portfolio performs. Having the right asset allocation is most important in the wealth creation journey over the long-term. And it begins by your understanding and having a proper look over your entire portfolio, not just that part which you can track daily.

Investing is simple but not easy: Many investors often believe that to succeed and make money in the market, one has to be an expert, have inside information, try to best time the markets, predict what is going to happen tomorrow and so on. However, the most important fact to realise is that investing is very simple and based on some principles which do not need an expert to follow. Things like - being patient, starting early, saving regularly, following a right asset allocation, not making too many investment mistakes and staying invested for long or doing nothing are perhaps the most important factors for the success of your investment. Although these things are simple and easy to follow, in reality, they are not easy to follow at all.

Investing without goals is meaningless: Often we invest without any goal or target. Most of our investment is also lying around without any purpose or target or any objective. On the other side, most of our traditional investments are kept aside for say retirement or marriage of daughter without ever planning or knowing the exact requirement for fulfilling those goals. Thus, most of us do not have goals and even if the goals are there in mind, they are rarely properly planned. Proper planning requires very little time or even expertise, however, it can prove to be very critical. Proper goal planning will ensure that your goals are never compromised and you fulfil them. Goal setting can be event specific and even general like wealth creation of say XX amount at YY date in future. Without goals, there is no direction and investments will be at the mercy of many different and less important things.

Investor behaviour is the reason for underperformance: Many studies have shown the markets to deliver good returns but the investors are found to be under-performers by a great margin. The average market returns are always higher than the average investor returns. The gap between the two returns is attributed largely to investor behaviour. Investor behaviour, as per many studies, is found to be illogical and often based on emotion which is not good/wise for long-term investing decisions. An average investor typically buys when the markets are high, over-reacts to situations or short-term market events and sells when the markets are low. We are instantly reminded of the famous cycle of fear, greed and hope which follows every time.

A good financial advisor can contribution great value: There is no doubt that a good advisor/ expert can deliver great value to your portfolio. An advisor's primary role is to manage investor's behaviour or emotions apart from everything else he does. An advisor will make sure that you do not sell or buy at the wrong time. This in itself has the potential to add great value to your portfolio. Further, an advisor is likely to suggest you the right, optimum asset allocation as per your needs, something most of us do not follow. Apart from these things, an advisor normally helps us to make our financial plan, save towards our goals, push us to save more, take proper insurance coverage, help ongoing management of the portfolio, operational support, and so on.

Equity is the best asset class in the long term: From the past equity market experience, this is evident. Long term investment in equities will likely exceed returns from every other asset class. BSE Sensex returns since inception (1st April 2979) till today is nearly 15.8%. Just staying invested in the index would have multiplied your wealth by over 370 times in the past 40 years. However, there have been also many times that in one year the returns have been in negative 50-60%. The instances of negative returns steadily decrease as the duration increases and perhaps over say 10-15 years, the negative return instances (for investment at any point of time) is very rare to see.

Mutual funds are the ideal vehicle for investment: One does expect you to perform like Warren Buffet who had the skills and the patience to identify and hold on to good businesses to become wealthy. Most of us do not have adequate time, resources, skills and information to go and find the winners. That is a full-time task of investment professionals. The next best thing for every one of us is to make use of the fund management team of mutual funds. Mutual funds, in essence, are vehicles for investment and the underlying can be any asset class or products. Mutual funds offer investors the widest choice of investment and many other advantages over traditional investments, including tax benefits and operational convenience and much greater transparency.

Newly married? Congratulations. After all the music and celebrations of marriage die down, a new life starts and it is time to get back to the business of living like others. For the couple, this is a precious time – time to know each other, understand the family cultures and habits and to commodate to each other's lives. The time spent together learning about each other would be cherished for the rest of their lives.

Marriage is a true partnership between two individuals. As is mostly the case today, both individuals are earning and financially independent. As a new partnership begins, there are certain things to be considered also on the financial front – mutually. An open, transparent and realistic financial assessment and subsequent actions also may be done at this important juncture of life. So what is this assessment and actions we are talking about?

Identifying your financial goals:

The first step is identifying your shared financial goals. What can be these goals? It can be anything like – higher studies, buying of own house, buying a car, vacation plans, repaying existing loans, starting a family and so on. After settling in life, identifying your financial goals is the first important thing to do. However, finalising your goals sounds easy and may rather be difficult to finalise the same. So here is what one can do...

Discuss each other's dreams and aspirations and also the priority for same. One should be reasonable in their dreams and also be considerate to the present financial situation.

Dig deeper into what exactly is the goal – buying a home may sound ok but it is not. One needs to identify what type of house, how big should be the house, which locality, what amenities, when exactly is it targeted, etc. Only then the real picture can be drawn for the goal.

Put out an approximate target value to each of the goals, considering the inflation for the targeted period.

After the goals are shortlisted and break down the goals into short – medium – long term goals.

Prepare the financial plans: After the goals along with time horizons are mutually agreed, the next step is to plan your finances. This starts with sharing the income and expenses budgets for the month between the couple. Estimated household expenses will have to be deducted from the combined income. The couple may mutually share some of the expenses between them. The balance savings will have to be directed towards the goals. You may also like to consolidate all your assets and liabilities to find the true financial picture for both. An expert can be consulted for doing this entire exercise.

Take Actions: Once the financial plans are ready and you have your savings plan also ready with you, it is time for action. Choose the right asset class and products to invest in. There are a few things you need to keep in mind here too especially beyond financial goals. Every newly married couple should explore the following popular products...

Life Insurance: Needless to say, life insurance is the most important thing you have to buy for the financial security of your new family. A pure term plan that gives the maximum financial security is a must-buy product. This will protect your spouse and also your family in case anything happens to either of you. Remember to buy the life insurance covers individually for both husband and wife.

The early you buy a life cover, the cheaper it is. Further, any medical condition developing at a later stage will also increase your premiums later. So it is better to buy term insurance of a good amount early in life.

Health Insurance: Protection against health insurance is also now a big priority for you. With escalating health and medical costs, it will become increasingly difficult to manage affairs in case of medical emergencies. Note that the cover provided by your employer may not be adequate for and/or cover both of you. It is recommended that you buy an independent health cover to cover your family. The amount of cover should be at least 10 lakhs considering medical inflation today.

It is also highly recommended that you cover your parents in some health plans, even if they are financially sound. Medical care for the elderly is becoming very costly and having insurance as a backup plan is highly recommended. Perhaps it may be the right time start health insurance as your parent's age may not be too high now and policies would be available. As they age further and medical conditions develop, the policies will be hard to get by and also may be very expensive.

Sharing /update of records: Another important activity a couple should do is to share the important financial records and documentation. Records should also be updated w.r.t. say nomination, company records for insurance, etc. Sharing of such financial information would make life easy for your partner to manage the state of affairs in case of any emergency or your absence.

Mutual Fund SIP: From the savings plan that you have drawn for yourself, a mutual fund SIP is today like a no brainer. Done with a long term investment horizon of say at least 7-10 years, this investment method promises to deliver decent, inflation-beating returns better than any asset class. A SIP is an ideal way to invest for your long term financial goals and also for wealth creation purpose. The sooner you start, the more you save, the better it is for you.

A SIP helps you the best by enabling you to save little amounts every one from your budget. This SIP amount can also be increased automatically at a set frequency (say every six months or yearly) to match with growth in your income. It is important to note, however, that equities are a risky asset class and investments should not be done for a short term.

Emergency Fund: It is also recommended that you create a small emergency fund for the family. This emergency fund can be an equivalent of say three to six months of your household expenses. The fund will keep you better prepared to manage and handle any financial emergency or temporary shocks you may come across in the short term.

Conclusion: A marriage is a beautiful creation of society and mutual love and trust can make it even more wonderful. With proper financial planning and timely actions, you would also lay strong financial foundations for the long journey ahead. These financial foundations are not to be ignored as they will prove themselves and make your relationship even stronger as you go out into the world creating our own space.

One of the most common financial goals today has become financial freedom. This is especially true for the young generation, the millennials who wish to not only become rich but become independent to enjoy life. Financial freedom to them is all about freedom from the need to work to earn a livelihood. It is today easier for the younger generation to accumulate enough wealth. Many other individuals are also 'financially independent' today without even realising so. The question for these individuals really is what next? This article is about the post-financial freedom stage...

Financial Freedom: Congrats! You are one of the very few, privileged individuals to be in such a financial position. You can be proud and happy about it. But there are also few other caveats you need to know or understand.

Its all about you & family: Do not wonder what your cousin or uncle or the person next door is thinking about you. You and your family should be comfortable with the important decisions taken and should support each other and happy to live a lifestyle you have planned to live.

Nothing is permanent: Remember, there have been many people who have been very rich and powerful in past but have lost it today. Nothing is permanent and there is no guarantee that you will be as financially strong as today forever. So be humble, grounded and careful in life.

You need to plan: Earning money is easy for most. However, financial freedom is not about earning money or how much money you have. One can be financially independent in very less finances than you. The real trick is in planning your finances post retirement such that you may continue to remain financially free. A backup plan, should you come in financial stress should also be planned.

Be Sure! The first and the last thing about financial freedom is to be sure that you can be so and also to ensure that nothing gets in between. The need for proper financial planning can never be overstated in such a scenario. You should also be sure that no possible event or scenario in future will be able to put you completely at risk.

What Next? You need purpose: Being wealthy without any purpose or direction is not really desirable. You will be the same person but probably more lazy, less healthy /fit and even less happy than you were before. Remember, having a motivation, a passion, a direction and purpose is life is most important. Without it, you may feel a sense of emptiness with no agenda for the day /week.

Making decisions: Being in a privileged position, you would probably be able to take decisions more freely. Since money or wealth is not a big factor anymore, you need some basis for making your future decisions. Thus, your future decisions can be based on your personal values or in support of your purpose / passion in life or any other form of context. Deciding this context is important to give a sense of direction to your decisions.

Choosing a quality of life: Choosing the right quality of life is essential for you. You cannot say YES to everything. You also need to create a boundary for you and your family and say NO to things which can potentially negatively impact your status. Remember, some spending can be done when you can afford it but remember it adds value only to a point. Too much spending will only clutter your life, will not any value and negatively impact you.

Fix yourself first: The first and the best thing to do is to fix what is not good or broken in your life. Start with finances – clear all debt, ensure proper investments, ensure adequate insurance for all possible risks, ensure earmarked investments for all financial goals, ensure regular income flow. Once the finances piece is done, you can move on to other things in life like getting fit, living a healthy lifestyle, building networks, building social presence, giving more time to children, building strong relationships with your friends and family and so on.

Work after wealth: Many people will be happy to continue working in some form even if you don't really need to. Some people choose to be semi-retired where they may need to work but they would also be free to choose what kind of work they need to do and what portion of time they need to give. Working after wealth is a great idea as it will give purpose, make up for idle time, give income support, give additional financial comfort and surety while keeping you skilled and relevant in the industry.

Make world a better place: Making the world a better place is a great idea and you can lend your hand in many ways. Dedicating some portion of your time and/or money to some social cause can be a great way to towards satisfaction and happiness. You could also use your skills and knowledge to guide and help others who otherwise would not have access to same like for eg, legal, medical, financial or business advice, etc.

Make a list: The end point of what next question is preparing that one list you would ever need to make. This is a list that defines who you are and what you want from your life. So what can we include in this list? Here are a few things you can answer and keep updating this from time to time.

What are your most important goals?

How would you like spend the next 5 years?

What are the key values and principles you wish to live life with?

How would you like to see yourself in next 5 years?

What are the skills and things you want to be good at?

How would you live if you knew you are going to die in say next six months?

What is your mission, purpose in life?

For many Indians, financial worries are a part of life. Being a developing economy with a very large population living without adequate financial resources, financial anxiety is like a part of life. The largely middle-class families of India have high aspirations and dreams but often feel frustrated and hope of breaking off from the vicious cycle of living hand to mouth.

Financial Stress? It is at the next level of the situation described above. It is an abnormal situation arising out of something unexpected or a situation which was foreseen but now has aggravated. Events like loss of a job, a medical emergency, loss from business, losing your investments, theft of property, etc, may give rise to your financial troubles. Further, situations like funding for child's education, marriage plans, etc for families without an adequate and stable source of income can also come as financial stress. These are only some of the instances/situations and there can be many more reasons for getting into financial stress/troubles.

The Way Out: Obviously, the one thing one desires with financial troubles is to get out of it as early as possible. However, being in stress, it is not easy. Perhaps a helping hand, a guide, a logical way out would be of great help to those who do not know where to start. Your financial awareness and discipline will be tested here. We present our own version of the step-by-step guide to find your way out of your financial troubles. We hope that readers can not only use it during stress but also during better times to avoid getting into any more trouble.

Get in the right frame of mind: The first thing one has to do is to get into the right mental frame for tackling the problem. This is not as easy as a lot of negative thoughts may be coming to your mind. However, remember that there may be people who have faced much more and have come out of it and nothing will stop you from coming out of this temporary situation. Only you have to believe that it is possible and would require your focus. You have to be positive, committed and focussed on resolving your troubles.

Identify stress points and root causes: You have to be honest about everything first. A lot of financial trouble happens when we ignore and reject early warning signs and do not take remedial actions before time. The more honest and realistic you are, the better are the chances of success. With this honesty, one would expect you to first list all your stress points and the root causes behind them. What were the decisions or habits or events that led to such problems? What were the mistakes you did in past? What are the key and immediate concerns/challenges before you? These are the questions you need to answer.

List out financial priorities and solutions: The next step is to think and list out the solutions you need that will resolve your troubles. This may take some time or no time at all. Your possible solutions would come from your own situation. The solutions will also give an idea of the decisions you need to take to get back control of your financial life. The list will also need to have priorities attached to every important decision or action plan. This blueprint of priority will be in line with the financial priorities you have.

Generally, getting out of debt should be the first priority and one should even consider extreme solutions to resolve the same. For eg., if you have an expensive car loan, can you not sell your car and repay the loan? If you have a loss-making business, can you not sell some equity/ bring in a new partner? Can you not sell/lease your the idle jewellery lying at home to get more finances? Be open-minded and explore all possible solutions at your hand.

Stay out of any more trouble: This is very obvious, isn't it? If things are not going your way, please do not take more risks. If possible, avoid creating more situations or bringing more complexity to your already stressed finances. Go very conservative on your risk appetite during such periods. If few decisions are unavoidable, try to delay/push the decisions further into the future.

Execute and review your plans: Having a plan is one thing but executing it diligently is another challenge altogether. One has to execute the plans ruthlessly, without compromise and within defined time, dates. Treat this as a business challenge or a game that you need to win at any cost. Make no delays, compromises to do what is required to be done. Once you overcome your temporary situation, you will have ample time to think about your priorities and make up for the hard decisions you took.

On preparing your action plan and solutions, remember that If you are serious about resolving your finances, you will not shy away from making hard decisions. Do not think what your family, friends or neighbours will think of your decisions. If your social stature is dictated only by your money power, it is the least you should care about.

Consult your financial advisor: The last piece of advice is to engage your financial advisor and ask him/her to help you out. If you do not have a financial advisor, we advise that you look out for a good one. The importance of a financial advisor cannot be over-estimated. He will bring in his valuable insights, experience, knowledge and a ready action plan to resolve your issues. Those with long-standing relationships with good financial advisors rarely fall into financial troubles.

All investors have one common goal – get better returns or performance out of their portfolio. While not all investors can be successful, all successful investors do display some characteristics which can be followed by other investors. Mind you, these characteristics are easier said than followed. In this article, we will talk about the most common characteristics and approaches to be successful at investing.

Set realistic goals and investment objectives: Having a fair and reasonable expectation from your investment is the first thing that investors should learn about. The investment objective should be aligned to the investment asset class, risk appetite and your expectations from the portfolio. Any imbalance in these key elements is bound to find friction and conflicts. If one is unreasonable, he/she will probably end up making the wrong decisions. While working with an advisor, it also becomes important that you share your expectations and investment objectives and then arrive at mutually acceptable details of the same. Having the right expectations from your advisor is also an important element of successful investing for investors.

Be disciplined and patient: As investors, we should understand that not doing anything in the markets is also counts as a decision or strategy. There have been many studies which have showcased that rather than attempting to time the markets, just spending time in the markets is much more beneficial to the investors. Making steady but low returns is much more preferred in the long run than making random high and low returns over the long term. This patience becomes very important if you consider yourself as a long term investor. Discipline in your investment approach or strategy is another very key success factor. If you are investing in a disciplined fashion, market movement and levels will no longer be important for you over time. Small investments, made regularly can deliver exemplary returns as compared to unplanned, random lumpsum investments. Being disciplined and patient also involves ignoring market distractions and noises.

Look at diversification and asset allocation Diversification and asset allocation are a couple of investment strategies which have proved themselves to be indispensable to the investors. Having the right asset allocation on your total portfolio is perhaps the most critical factor for deciding your portfolio performance. How would a 15% returns on your equity portfolio matter if it is only 10% of your portfolio? The right mix of asset allocation – say into equities, debt and real estate or other physical assets should be appropriately managed in accordance with your risk appetite. Similarly, diversification is also important but one should be careful as to not to over-diversify into too many asset classes, products or AMCs or schemes. Only a reasonable amount of diversification would be beneficial for your portfolio. An investor should periodically review his/her portfolio asset allocation and diversification with the advisor.

Minimise the number and intensity of your mistakes Warren Buffet strongly advocated making fewer investing mistakes to be successful at investing. While some of your investment decisions will surely help you reap good returns, it is often the mistakes that you do that destroy your returns. A good investment portfolio in quality mutual fund schemes will definitely help you create wealth. However, if you make some financial mistakes, that will surely eat up all your progress. Hence, it pays if you play it safe and not make mistakes. Also, the quantum of money put at stake for risky financial decisions bears huge significance. Make sure that any risk you are taking is only with money which you could afford to lose without any significant impact on your portfolio. By rule, know that any investment “guaranteeing” high returns is too good to be true and is not possible in the market. If you want high returns with risk, equities should be your go-to asset class.

Know your expertise and your limits The great Sachin Tendulkar once realised that his cover drive was not working against the Australians. He decided to not play that shot, a very common one, in his entire innings in that one match and ended up making a very good score. The point being, one has to know one's areas of expertise and your limits and work accordingly. If you are good in your profession, business and making money out of it, stay focussed and continue doing that with all passion. If you are not so good at identifying stocks, leave that work to the fund managers, don't try to become one. The idea is not to stretch ourselves and try and become experts at everything. Managing wealth or money requires a certain amount of time, knowledge, efforts, market awareness, product familiarity and freedom from personal bias. It would be great if you have everything, but it would not be so great if you are overconfident of your skills and expertise. You will only end up hurting your wealth.

Be responsible: Being responsible for your investments would mean a certain level of seriousness and commitment to your financial plans and investment strategies. It would also mean that you value your money and would not take undue risks or decisions which are not in line with your stated objectives or contrary to the advice from your advisor. Being responsible would also mean that you are professional and adopt an unbiased, ego-free, open attitude and approach to managing investments. Being responsible would also mean that you share the important things with your advisor that directly or indirectly may impact your finances. Lastly, being responsible would also mean that you listen and follow the mutually decided decisions with your financial advisor, in a time bound manner, giving it the priority it deserves.

Action Plan for Personal Finance An action plan is a road map for the achievement of some important goal. Most of us have some personal goals but we are often found falling short of the action plan to pursue them. With this article, we hope you make å smart action plan of your own and follow it.

Before we take about the key actions you should explore, let us ensure first ensure that the entire ritual does not fail and the actions we decide to undertake are successful. Here are the four steps that will go a long way in ensuring your success...

Consider only a maximum of three actions. Even one to two actions is good enough as too many actions are hard to cope up with and you may lose focus and passion with time.

Make sure that the chosen actions are worth your time, holds your interest and passion, is on top or requirement and is also practical and meaningful for you to implement.

Ensure that the actions are well-defined, measurable, time-bound and in numbers. This will give you a very definite idea of the target and will help success instead of having to live with vague, subjective interpretations. Note, we have given open-ended actions below which have to be well-defined by you.

Make yourself accountable by sharing your actions with others and also maybe asking others to keep track of the same. Your spouse, children, parents and even friends and bosses can be made asked to keep you on track and support you.

Its' time now to explore a few suggested personal finance actions we hope you will make and also follow through.

Invest __ % More:

If you are a regular investor and think that you do enough investments, this year do more than enough. Resolve to invest a certain extra percentage each month this year. For example, if you invest Rs 10,000 each month, invest 10% extra, which is just an additional Rs 1000, which you can manage. At the end of the year, you will have invested an extra Rs 12,000. If you are yet to start saving, this action should be also at the top of your list.

Know that while you can come up with 100 reasons to avoid investing more right now and plan to invest more in the future, you just need one reason to start investing more from now. And believe us, there would be many compelling reasons for you to start saving. However, investing in the right product is also crucial. Equities give us the magic of compounding over a long-term, and its something that you should also explore. Remember, even if you invest a higher amount later, you will not be able to beat the returns of compounding you will generate on the smaller amount over a long duration of time.

Be adequately insured for all risks

When was the last time you carefully looked over your insurance coverage in a comprehensive manner? It is important that you keep on checking on your insurance coverage and making adequate changes in same. Evaluation of comprehensive coverage will require you to assess insurance coverage for life, health, personal accident, critical illness and home insurance. The idea is to protect the financial well-being of your family in case of any death, disease, disability or damage to property. If you haven't explored insurance in depth, resolve that you will do so asap and get adequate coverage.

Keep an Emergency fund of __ months income:

Life is unpredictable. You never know what will happen next and you might need money for some reason. Medical emergencies, unforeseen expenses which are unavoidable, sudden cash crunch, an urgent requirement for working capital etc. Thus, it is important that you have some amount set aside for emergencies. If you don't already have an emergency fund, it's time to start building it and if you have one, add a little more money to it. Typically, an emergency fund of three to six months of your income or expenses should be adequate enough for you.

While we are strictly against money lying in your savings bank account earning nominal interest, we advise you to build an emergency fund nonetheless and keep this money in a liquid mutual fund or a savings account.

Cut expenses by __ %

The main culprit behind low savings and an unhealthy financial situation is often our spending habit. There is often a disproportionately high expenditure on discretionary expenses. Expenses on entertainment, shopping, purchase of gadgets, frequent mobile upgrades, etc play havoc on our finances beyond our imagination. One action that you can explore is to track these expenses on a monthly basis by recording it and then planning the same from next month onwards. We do not ask you to say 'no' to everything, just put a limit in place, relative to your income and your saving plans. With this action, we can easily cut about 10-20% of our expenses every month. Remember, a penny saved is a penny earned.

Cut your debt portfolio by __ %

An easy and hassle-free loan is both a boon and a curse. While the availability of easy loan helps one through difficult times, it might sometimes also lead to unnecessary consumption. This is one of the reasons why people should shy away from taking credit cards. What people actually need to do is be smarter with their consumption pattern. Should you take a high-interest personal loan for a vacation? No. But if needed, should you avail an education loan for your kids? absolutely Yes. This year, learn to make a differentiation between good and bad debts. Good debts help you build assets, improve stature (like home, education) and are of low costs. Bad debt is often towards depreciating assets or intangible experiences (like car, travel, gadgets, etc) and often are of high costs (like CC, personal loans). This year resolve to clear your debt portfolio of all the bad debts first and then good debts, if possible. Being debt free by the year end can be a great action.

Most of us are aware of what a will is and how it works. Most of us are also under the impression that the will is only for people who are of old age. Also, that a Will and estate planning is not important.

Before we explain why estate planning is important, let us look at what happens when you die without making a will. When an individual dies without making a will, then he/she is called to have died “Intestate”. Incase of death of an individual intestate, succession is then governed by personal laws of succession. When governed by personal laws, the division or transfer of estate may not take place as wished by the deceased.

For example, if a Hindu individual wishes to transfer some of his estate to his father or brother but doesn't make a Will, in succession by Hindu Succession Act, the father and brother will not get anything as they are not Class 1 legal heirs under the law.

Thus, as an individual, if you wish that your assets are distributed and divided not only according to your wish but also in a manner where it goes to the right beneficiary, estate planning becomes important.

Estate planning refers to the organized approach to managing the accumulated assets of a person that will be transferred to the intended beneficiaries. It covers the structural, financial, legal and tax aspects of managing wealth in the interest of the intended beneficiaries. The term estate includes all the money, assets, property owned by a person before death, and also all the liabilities the individual had before passing away. Estate also includes all the claims that the deceased was entitled to receive or pay.

Estate planning is important as without formal structures that ensure that these purposes are met, there could be disputes, conflicting claims, legal battles, avoidable taxes and unstructured pay-offs that may not be in the best interest of the beneficiaries. The estate of a deceased is generally passed on to the legal heirs of the individual, however, they can be transferred to any individual the deceased wishes to receive his estate or a part of the estate. The estate can also be passed on to a trust and be managed by trustees where the ownership is with a distinct entity.

One may argue that he/she has done nomination in financial assets. But one needs to understand that in case of nomination, someone has the right to just receive the investment or asset proceeds as an agent or trustee as per law and such a person is not a beneficiary of the same. The assets may be required to be transferred from the nominee to the legal heir as per the law.

Advantages of Estate Planning

1. Minimise delay, costs and legal hassles

After the demise, the legal formalities and transfers take time and the family generally has to wait a long time to get everything in order. With proper estate planning and a valid Will in place, you can avoid this delay for your family and they can get everything in order quickly and without legal hassles. A lot of money can also be saved which may go to lawyers and legal expenses in case of absence of an estate plan. An even higher amount of money is spent in case there are family disputes. One can avoid this hassle by simply creating a will and ensuring that a proper estate plan is in place.

2. Disclose all assets /investments Most of us may not know the full details of the assets belonging to our spouses and similarly they too would not know all of our assets. This becomes even more important if you are the bread earner of the family. Your dependents will not be even aware of your entire estate and investments that you must have made. A detailed Will helps them by disclosing all assets/investments properly and getting all the affairs in order.

3. Avoid Disputes Making a valid Will clearly states out your preferences in distribution of your estate. This will clearly help in avoiding any legal disputes in the family. In absence of any Will, disputes are most likely to breakout in distribution of properties and businesses. A valid Will signed by all beneficiaries /legal heirs will go a long way in keeping the family intact and together.

4. Plan for incapacity While most people are convinced that estate planning is for old age, that is not true. Life is unpredictable and anything can happen at anytime. It is possible that one becomes incapacitated because of some unfortunate accident or sudden medical condition which leaves them unable to manage their financial affairs.

While estate planning, one can create a power of attorney for both financial and healthcare decisions in case of incapacity. This can help you and your family in difficult times.

5. Support your favorite cause An individual can leave a fixed amount as donation or as charity to a cause he or she wishes. In often cases, where a proper will has not been made, these causes go unnoticed as the family is unaware of the deceased wishes.

6. Assign a legal guardian for your children /dependents In unfortunate cases where both the parent pass away and the children are still minors, the court decides who the legal guardian to the kids will be. However, with estate planning, you can assign a legal guardian in case of any unfortunate incidents and make sure that your kids and dependents, if any, go into safe and trusted hands.

We sometimes get sizable cash inflow as windfall gains or bonus for salaried employees. The first question arises in our mind whenever we have a big cash inflow is whether to invest that amount for future or pay off existing debt to reduce EMI burden. We always feel like being caught between the devil and the deep blue sea.

Paying off debt and investing for future, both are important financial aspects of life. Paying off debt will help to reduce EMI burden and therefore improve your cash flow condition, and investing for future is beneficial for obvious reasons. Any rational human being will think about getting rid of debt as soon as possible, being debt free leads to healthy financial life.

But not always. Two important things to consider is potential cost of your debt and expected earning from your investment.

Compare Earning Against Cost: One of the most common approaches to tackling the question of debt repayment versus investment, is to compare the interest rate of your debt to the returns on your investments. In general, high-interest loans that exceed your investment earnings should be paid off first. Likewise, if you have low-interest debt, greater benefit might come from making the minimum payments and putting more money into your investment accounts. Let me put it this way. e.g. If you have an outstanding loan on which you are paying 15% interest and you have an option to invest in a product which has the potential to generate 15% return, which one is better? Paying off debt will ensure you saving of 15% while investment has the possibility of generating 15% or even lower or higher return. There is an element of uncertainty here. This is something that you have to decide as an individual.

Consider the Type of Debt: All debt is not equal. The type of debt you have, can play a role in the decision as to whether to pay it off as soon as possible or put your money towards investments. High-interest loans that are not tax deductible, such as credit cards, car loans or personal loans, should be paid off as quickly as possible. Other type of loans like mortgage loan taken to buy house or education loan for which you get tax benefits are in fact good to carry on as typically they come with lower interest rates and real cost comes down even further after taking tax advantage into account. Typically, a 15 year home loan costs you around 9.5 to 10%, this rate further comes down after considering tax advantage on that.

Determine Your Goals: Everyone's financial situation is unique so it only stands to reason that your personal financial intentions will play a part in your decision. For many people, being debt-free offers a sense of relief that can't be quantified. For others, having an emergency fund that will cover eight months of expenses helps them to sleep at night. Emotions can sometimes overrule logic when it comes to financial decisions.

Depends on Human Psychology: Human psychology also plays an important role in financial decision making. Certain class of people who are typically risk takers prefer to continue with debt and like to utilize funds available for investment to generate better return, even if it comes with risk. e.g. entrepreneurs, businessmen. They will always love to put that money in their business or in an investment product, which has potential to generate return over and above the interest paid on outstanding debt.

Strike a Balance: You can also choose to make part payment of outstanding loan and bring the EMI down, as most loans are charged on reducing balance basis. So if you make part payment of outstanding loan, your EMI can come down to that extent. The remaining amount you can use to make investment.

e.g. You have 2 lakh outstanding in car loan and you get 2 lakh as some cash inflow. Should you use entire 2 lakh to pay off outstanding loan. Rather you can use 50% of the amount to pay off debt and bring down you car loan EMI and remaining 1 lakh can be invested for future.

The Bottom Line There is no 'one size fits all' solution to the question of whether it is more important to pay off debt or invest. Every individual has his/her unique financial situation, which needs to be considered before taking any decision. e.g. if you have not created any emergency funds, utilize available money to put aside in short term bank FD or money market mutual funds so that can be used anytime if emergency arises rather than paying off debt.

If you find it really confusing to decide, try tackling both at the same time by making part payment and part investment or put your focus on financial goal to gain peace of mind.

Your Investment Goal : The beginning point of any investment has to be you and your needs. Having a predefined goal or objective is crucial for shaping your portfolio and if you haven't given it a serious thought, we suggest that you do it as a mandatory exercise. A goal setting exercise can normally be anything from the following list and even beyond...

Saving for a life goal like retirement, child's
marriage, purchase of house, etc.
Creating X amount of wealth in future...
Arranging for regular income
Protection of wealth over time
Parking of funds for brief period of time
Tax savings coupled with wealth creation
Scheme Category/Style Universe :

After finalizing the investment goal and objective, the next task is to shortlist the mutual fund scheme category/style depending on the investment horizon and your risk appetite. The scheme risk classification, based on uniform standards in the industry, can be used as a reference point to match to your personal risk profile. There are many categories of mutual funds available with primary underlying asset classes of debt and equity and varying mixtures of both.

The allocation between equity and debt should match your risk appetite and time horizon. Investing across different schemes and asset classes is a good idea for diversification of risks as they have their own risk-return trade-offs and advantages /disadvantages. If you are planning for specific investment /financial goals, they are however likely to dictate the type of schemes you will have to invest in. Once the investment objective is defined, it is now important to select the schemes and the investment/ withdrawal options to match the needs.

Fund House Universe : There are around 40 fund houses in India offering their services. A fund house is at the heart of your mutual fund investing experience and performance of the schemes. When we invest in a scheme, we give a mandate to the fund house to manage the money on our behalf. There are fund houses specializing in different asset classes and also the scheme performance of the top and the bottom fund houses differs significantly. Knowing and selecting the right the fund house universe is thus important.

The fund selection focuses on the parentage, management quality, experience and investment philosophy. The quality of the team, investment processes, risk measures and operational efficiency are also important attributes that ensures good performance. While most of us may find it difficult to assess fund house on all these parameters, we can certainly get an idea of the fund house by visiting their websites, reading basic details in scheme documents or accessing on-line research articles /reports. We should try to shortlist fund houses that have a strong presence in the financial world and provide schemes that have a reasonably long and consistent track records.

Scheme Performance : The performance of the scheme is benchmarked against comparative indices and most schemes provide performance comparison against these benchmarks. However, they may not be appropriate for us and we should look at performance against similar/peer-set schemes to get a better idea of performance. This exercise will enable us to differentiate the good performing schemes from the laggards in our universe of fund houses.

Within performance, a fund delivering the highest return in a particular period or recently may not necessarily be the best. One has to look for consistency in good performance over different periods of time. By consistency we mean that the returns are not over volatile over different periods while giving good returns steadily. We should also keep in mind that the past performance is no guarantee of future results.

Scheme Objective & other attributes: At this final stage of selecting a mutual fund scheme, we are now evaluating between few schemes which we shortlisted in the previous step. Among the things we can check are...

Investment objective: which talks about the scheme's goal, investing rationale and asset class composition. We should check that the scheme matches our own financial objectives and needs.

Other attributes: Entry and exit loads, management fees /expenses, fund manager, size of the AUM, portfolio concentration, turnover ratio, are some of the other things can one can give attention to. These may not play as important role as the other factors but some of these attributes may carry significance depending upon one's needs /preferences. To know about the above information one may need to look into the scheme documents and other literature available.

Conclusion: For success of any investment goal, there are many factors that play a crucial role. Most important is that of setting the right goals and having a portfolio with the right asset allocation. This is where most of investors are more likely to go wrong. As we have many times in past reiterated, asset allocation is the primary determinant, almost 94%, of long term performance of a portfolio as opposed to product selection and timing. Though we have talked about scheme selection in this article, investors having good financial advisors can rely on their expertise to recommend and suggest schemes and on which they can further seek clarifications as discussed here. As educated investors though, we should all know what important things should be known before investing under any scheme.

Most of us have read the tale of “the rabbit and the turtle” in our schooldays. Let's recall the tale and refresh our childhood.

Once upon a time, there was a rabbit, who was overconfident because of his abilities. The rabbit used to boast about his skills and he used to make fun of a turtle since the latter was very slow. The turtle got really annoyed with the rabbit's behavior and one day, he challenged the rabbit for a race. The rabbit on hearing this, mocked the turtle believing that there is no chance that he can win, and they agreed to race.

The next morning, they reached the starting point and the rabbit pulled up his socks, still mocking at the turtle. They started and the rabbit instantly picked up pace, while the turtle started the race taking baby steps, the rabbit leaped high and left the turtle far behind in no time.

Midway, the rabbit saw a restaurant, and he was feeling hungry too, he looked around and the turtle reached nowhere near him, so he decided to stop by and eat something. After the meal, the turtle was still out of his sight, and he felt lazy after the meal, so he decided to take a nap. The nap turned into a long careless sleep, and he did not realize when did the turtle ran past him.

The rabbit suddenly woke up, alarmed, and started running as fast as he could to catch up in the race. But when he reached the finish line, he saw the turtle waiting for him. His head hung in embarrassment.

Moral of the story: Slow and steady wins the race

Let's try to relate this story to the life of an investor, how we manage our investments and understand its implications on our financial health. Let's see why the rabbit, in spite of being better positioned lost to the turtle.

The rabbit leaped very high initially, like the investors who have money and are pumped up to make more out of it. They do not think and start putting in their money, in order to reach the finish line earlier. You have a good start doesn't mean you'll experience same trend all throughout your investments in long term. Your strategy should have a balanced approach to meet your long term goals as per your risk profile. There should also be a differentiation between short-term and long-term goals and planning should be done accordingly of where you want to reach and when. Overconfidence: There is a thin line between confidence and overconfidence and once the line is crossed, it can cause only harm. There are investors, who are overconfident on their knowledge about the markets and products and often their views are biased between different asset classes. They go very aggressive in their preference of any particular asset class, often debt and equity, and then risk their money. One has to realise that both asset classes are for different time horizons and suitable as per differing risk profiles of the customers. Going overboard on any particular asset class will put your capital to risk, and this includes investments in Bank FDs which carry of risk of loosing 'real value' over time due to inflation.

The turtle was slow but was steady at the same time; our mutual fund SIP's are based on the same theme. SIP investments are most suitable for small investors who can regularly invest irrespective of worrying about market levels. The turtle investor will be disciplined and will invest his regular SIP amount, no matter what comes his way, he will not get carried away by a restaurant (another hot investment opportunity) or need for a nap (other personal aspirations like desire to travel, or buying a car, etc). He will meet his other aspirations only after providing for his investment commitment. While a rabbit investor gets carried away by the restaurants and the need for nap falling in his way. The rabbit should have been vigilant even if he wanted to take a break. He got so overwhelmed with his hunger and nap, that he forgot his ultimate goal, and when the clock struck 12, he tried his level best to meet his goal, but to his dismay, the turtle was already there. Similarly, the investor who keeps his life goals ahead and religiously follows his investment plan, will meet his goals in time, while others who lose track for other things that come their way, end up repenting. At times, there is no way the investor can make up for his losing vigil, that he can't achieve the goal, no matter how hard he tries.

The rabbit shouldn't have overlooked the power of patience that the turtle had. The rabbit investor invests and expect instant returns, he does not realize that it is not a magic wand, rather it is a seed which is just sown and will need time to turn into a tree and reap ripe fruits. The rabbit panics and sells at lower prices when the market falls and gets excited when the market rises, and buy more at higher prices. The turtle invests and then wait patiently, he too faces highs and lows but with patience, he keeps a control over his emotions and wins the race. The story throws light on issues that we face when we become the rabbit and how we should adopt the virtues of patience, discipline, confidence, vigilance and balance of the tortoise in order to win the financial race.

Have you ever heard of the term – Credit Score? If not, it is perhaps one most important thing you have to learn about.

What is it?

A simple definition is that a credit score is a numerical score which is calculated based on an analysis of your personal creditworthiness. It factors in your present financial situation and your past financial behaviour. The data used to calculated your credit score is procured from various financial institutions or credit bureaus who maintain such information. All your records with banks, lenders, depositories, credit card companies, etc. have a lot of data on your finances which are used in calculating the score. The agencies which calculated the credit scores are

How is it used?

Credit score is primarily used by lenders, such as banks, housing finance and credit card companies, to evaluate the potential risk posed by lending money to you and to mitigate losses due to bad debt. The credit scores are used to decide important things like

loan eligibility or qualification

interest rate to be levied

limits of credit

In other words, the lenders decide on the risk you pose and the revenue that can be made from you. As India gets data rich and more and more financial transactions are captured, such scoring mechanisms are bound to be used not just by lenders but also by others like insurance, land-lords, government departments, telecom companies and so on. Don't be surprised if few years down the line, your credit score is asked along with your Kundali /horoscope for marriage! And to think of it, there is a strong reason to ask for it.

You can get your Credit Score or a detailed Credit Report from the bureaus providing same, either free or for a cost.

Who has credit scores in India?

In India, there are four credit information companies licensed by the RBI who has jurisdiction on the same. These bureaus have their own methodology to calculate the credit scores. The Credit Information Bureau (India) Limited (CIBIL) is the most popular one who has developed the so called CIBIL Credit Score. There are three other bureaus namely, Experian, Equifax and Highmark who have been given licenses by RBI to operate as Credit Information Companies in India. These

Talking about CIBIL Score, it is a three-digit number that ranges from 300 to 900, with 900 being the best score but very rare. Typically a score of about 750 and above is considered very good. Individuals with no credit history will have a no-hit or NH. If the credit history is less than six months, the score will be 0. CIBIL credit score takes time to build up and usually it takes between 18 and 36 months or more of credit usage to obtain a satisfactory credit score. The higher the score, the better it is for you.

How can I improve my Credit Score:

There are many things that go into defining your credit score and there is no way to know how the bureaus calculate it. However, keeping the following things in mind will surely help you in keeping your credit score healthy:

Income: Have a good and regular income stream (cash dealings not counted here!). Try to channelise / deposit all your incomes through your bank accounts at regular intervals, especially if your a businessman.

Repayment: Do not let any payments get rejected due to lack of funds (the biggest spoiler!). Always make sure that your bills, especially EMIs and credit card bills are paid on time.

Investments: Have investments made in format investment avenues (physical gold/real estate won't help!). Have investments in relatively liquid avenues like mutual funds, shares, bank deposits, etc. helps your scores.

Debt: Do not have debt or too much of it (that's the counter weight to your assets!). It shows that you are credit hungry. Try to have less than 40% of your income going to all loan servicing. Also try not using the full limit on your credit cards. If possible, start paying off your loans, starting with the most expensive ones first.

Debt Mix: Have a fine balance between secured and unsecured loans. Unsecured loans have slightly less weight as new lenders prefer them against already secured loans.

Inquiries: Do not use / request credit score or report often (it means if you are upto something!). Regular inquiries or asking multiple lenders, who in turn request scores, for loan details means that you are desperate for same. Better is to research online before sharing your requirements with lenders.

If you have been investing in Stocks, Bonds, FD's, Real Estate, Mutual Funds, etc., so by now you must be having a sizable investment portfolio. This investment portfolio of yours, as you all know, is the key to living a peaceful financial future. And since it is such an important component of your life that it has the ability to control your future prosperity, so it must be of utmost quality and should fit well into your requirements at all times. Hence, it becomes imperative that you do a quality check of your Portfolio regularly.

Yours have some unique preferences and constraints, and the portfolio should take care of them besides generating returns. The investment portfolio must stand true to:

1. Your Risk Appetite, the risk associated with your overall Portfolio should not be more than you can digest and

2. Time Horizon as per your goals: The point of having an investment portfolio is, it should be able to provide for all your life goals, so it is important that your investments are in alignment with your goals.

The general trend of investing is random; a small FD in one bank, another one in another bank, some stocks, some mutual fund investments, a piece of land, few gold coins, a PPF investment, few SIP's, and the like. This approach results in having a haphazard array of investments. So, the first step is to recollect and write down all the investments, asset class wise. Once you have a clear view of the entire Portfolio, the next thing to do is to ensure that it adheres to the above two points. It'll be ideal to seek help from a financial advisor for the process.

Before re balancing the Portfolio to arrive at your ideal asset allocation, it's important that you do a performance check of all the investments in your Portfolio. It's important to analyze the overall portfolio performance as well as the performance of all the components that make up the Portfolio. Also, you must note that all the investment products are different, carrying different levels of risk and hence offering different returns. So, you must not just sell off an investment just because it is giving lesser returns than another. It's important to do an Apple to Apple comparison, for example if a Mutual Fund investment is to be analyzed, it must be compared against it's benchmark and with funds in the same category, and not with other funds or products within your Portfolio.

Another point to note here is, the investment must be analyzed on the basis of a relevant investment period. For example, if you are evaluating an equity investment, a one year or three year return analysis will not give you a clear picture, it can be way to high or it can be exceptionally low. You must consider a period of at least more than five years while evaluating equity.

Does your Portfolio contain investments which you don't understand? Sometimes, investors tend to fall for the traps laid by investment agents, and they end up accumulating stuff which firstly, they don't understand and secondly, they don't need. So, if you are one such victim, it's time to get rid of them.

Does your Portfolio contain a traditional Endowment plan as well as a modern term plan? If Yes, you must do away with the traditional endowment plan, because of low sum assured, so it doesn't fulfill it's primary purpose of providing protection, and also which is being taken care of by the term plan; and secondly because of the meager returns it offers.

Is your Portfolio Over diversified? Too many investments causes clutter. You don't have to buy every new product that's launched in the market. Over diversification can be as bad as Under diversification. So, if your Portfolio is loaded with products, there is need to simplify it.

The investments under each asset class must be linked to a goal and must match with the time left for the goal to arrive. You must note that your asset allocation is not an isolated activity, it is also dependent upon your goals. The distance to your goals and the amount required also influences your risk appetite and your portfolio composition.

Your financial advisor will be of immense help to you in analysing, reshuffling and cleaning up your Portfolio, so that it conforms to your Risk Profile, your Goals and your Investment Horizon. It is very important to have a professional guiding you in your overall financial planning process, who will ensure that you take informed investing decisions, who will take care that your Portfolio doesn't lose track. So sit with your advisor and quality check your Portfolio. Also, Portfolio cleaning is not a one time activity, so do not miss the regular portfolio reviews with the advisor. It's ideal to check your Portfolio at least once a year, or on the happening of certain events like selling a property from the Portfolio, marriage, divorce, child birth, etc. It's like checking the progress of your dreams accomplishment.

Asset Class is a often used word in finance, especially investment & portfolio management. We also used the term many times in our articles. In this article a take a academic look at the various asset classes.

Why know about different asset classes? Knowledge and understanding about asset classes is a very basic for any person thinks of self as an investor. Though it is not required that one be expert with every asset class, the bare minimum understanding of the nature of main asset classes, the risk profile, returns potential and the way of investing into such asset classes is a humble expectation. In brief, we can put the following reasons for knowing about asset classes:

Increased choices for informed decision making
Better investment management through asset allocation & diversification
Identifying emerging opportunities & risks for investing
Being rational, unbiased and confident in investment decisions

How do asset classes differ? Each asset class is different and there are many points of difference against other asset classes. These differences ultimately impact the investment objectives and performance. The asset classes may differ upon the following things...

Nature and characteristics
Correlation with other asset classes
Risk and Returns potential / trade-off
Ideal investment horizon
Behaviour w.r.t. markets, interest rates, economic environment, etc.
Rules, regulations and taxation
Definition and Types of asset classes:
An 'Asset Class' can be defined as a group of securities or investments that display similar characteristics or behave in similar fashion in markets or economic variables and are subject to similar rules & regulations.

There are broadly three basic asset classes considered by most investment experts: (i) Equity securities (ii) Fixed Income or Debt securities and (iii) Cash equivalents. In addition to this, (iv) Real Estate and (v) Commodities are also considered by many as important asset classes given their characteristics and penetration among investors.

The asset classes can be further broken down through ways, but such segregations are generally mixed together whenever we talk of asset classes at a broader level. For example, Equity can be further broken down as large-cap, mid-cap & small-cap but for the purpose of asset class discussions, we categories them all into equities, even though their risk-return behaviour may slightly differ from each other. Breakups can be effectively used for determining diversification within an asset class. But irrespective of any asset class line-up, each one is expected to reflect different risk and return investment characteristics, and will perform differently in any given market environment.

Equity: Our readers must be very familiar with Equity asset class by now. Most would also know that over long term equity as an asset class has outperformed other asset classes in India as well as in more developed economies. Equity basically enables efficient movement of funds from people having excess to businesses that need it to fund growth and business operations. The businesses in turn provide employment, goods & services to public and tax revenues to government and try to make the most productive use of the capital. Equity is a risky asset class and investments should be made for long term. The returns from such investments are in form of capital gains by price appreciation and/or dividend payments by companies.

In India, the equities are largely held directly through stock exchange or indirectly through mutual fund equity schemes. Exposure to equity can also be made through Exchange Traded Funds (ETFs) and Portfolio Management Schemes (PMS) and indirectly through pension schemes / plans that invest in equities. Insurance products, especially Unit Linked Plans (ULIPs) is an another route well known route. Equity can also be held in form of stakes or Private Equity in businesses. This option, however, is limited super HNI and corporate investors.

Debt: Debt is an another asset class which your would be very familiar with. Some of the popular avenues of debt investments are through Fixed Deposits of banks & corporates and bonds issued by governments, RBI and the likes. Small Saving schemes and pension plans by government is an another major avenue of investing. Mutual funds schemes are lately becoming popular with retail investors too. The mutual funds offer a wide variety of products to suit every need and risk profile of the customer. It is a relatively less risky asset class and returns are generally in form of interest payments and/or capital gains due to impact of interest rates changes over time.

Commodities: Commodities may be treated as a distinct asset class since their nature and behaviour differs from the other asset classes. Indians have been traditional investors in 'gold' as a commodity. Other commodities are now finding a favour with investors, albeit slowly. Precious metals like Gold & silver remain the biggest avenue for investment and awareness & exposure to other commodities is very low. The impressive performance of these metals over past few years have made them as asset class hard to be ignored by investors.

The commodity prices tend to follow the cyclical pattern of underlying commodities which is why it is important to understand the demand-supply factors. Needless to say, this is not an asset class for the less informed or the faint hearted, especially for agro-commodities & base metals. Investment is generally for short to medium term and the idea is to profit from price movements or hedge against actual exposure. As an asset class, commodities have been observed to have low correlation with the other asset classes and hence offer excellent potential for portfolio diversification. Investments into Gold specially has also become more convenient & practical for investors with the launch of Gold ETFs and mutual fund schemes.

Real Estate: Real estate is the original idea of creating assets before the other asset classes become popular among investors. Real estate, especially residential / commercial units, unlike other asset classes, except gold, gives the owners a sense of emotional satisfaction and confidence. Holding physical property has also its own share of social acknowledgment of your financial standing. Land is also treated more than an asset in the largely agrarian economy of India.

From an investor's perspective, the investment in physical real estate has its own share of challenges w.r.t. clear titles, transparency, transaction costs, etc. Emergence of new avenues for investments has, to some extend, made it feasible to get exposure to this asset class with less risks. The returns in this asset class is in form of rental/ lease payments and price appreciation. Real estate are the least liquid of all the asset classes and investment horizon is generally long-term to very long term in nature.

Cash: As an asset class, cash and cash equivalents is unlike any other asset class. The purpose of holding cash is either for transaction / payment reason or as a precaution for any eventuality or as a buffer for taking advantage of opportunities in other asset classes/ products. Cash is the least productive of all asset classes and delivers little or no returns and over time looses out its real value as well. Cash equivalent holdings are dictated by convenience, comfort and cash habits of people. As an investor, one should try to minimise cash equivalent holdings to an optimum level that strictly meets your needs. Mutual fund liquid funds is considered as the ideal avenue for putting aside money for short durations, giving advantages of superior post-tax returns, high liquidity, very low costs & convenience.

Other asset classes: Apart of the above major asset classes discussed, there are also some more asset classes considered by few investment experts. You may come across asset classes like currency, derivatives and collectibles. Currency, as an asset class is distinct in nature and it derives its existence because of the exchange rate fluctuations between countries. Currency is something of great interest to governments, banks, multinational corporates having business incomes arising in different countries, and even to individuals where source of income and consumption are in separate countries. Derivatives is an asset class that 'derives' its value from the actual underlying asset class. It is more of an hedging and trading tool and fraught with very high risks, something which is suited only for the experts. Collectibles is an emerging asset class where investments are made in art, antiques & other collectibles. This asset class is now finding more favour with HNI investors who are looking for some diversification & spice in their portfolio.

Using Asset Classes: Understanding of the asset classes leads us to the question - Whats' next?. The usage of different asset classes are basically two fold. First, the understanding is useful for purpose of diversification to optimise risk-return trade-off. This is because different asset classes perform differently in different markets and also differently from each other. Diversification only works when you combine assets that have opposite or low correlation with each other. The second idea is to decide and follow the 'asset allocation' strategy. The asset allocation strategy has been cited by investment managers & experts as the biggest deciding factor for long term wealth creation. Financial advisors have propagated asset allocation strategies of tactical, dynamic and strategic in nature to their investors keeping in mind their risk profile.

In brief: As markets grow and become mature, there would increasingly be arrivals of new asset classes or product options in existing asset classes. As of today, there already exists a wide variety of asset classes and product options within them, something which wasn't available a decade back. The increasing choices of asset classes and financial products brings complexity, confusion & challenges to any investor. An informed and wise investor would always try and understand & appreciating the nature and nuances of different asset classes. The awareness and comfort level can then be used for designing portfolios based on age old principles of asset allocation and diversification.

Schools will soon be closing for summer vacations, and we don't want our kids to kill their time and strain their eyes watching TV, or pestering their grandparents all day. So, most parents would be contemplating to send their kids for dance, music or painting classes, or may be enroll them for summer camps, or for vedic maths or abacus classes to advance their number skills. We want them to do something concrete, to keep them occupied, while they pursue a hobby or build their extra curricular skills or social skills. However seldom we would touch upon their financial management skills.

Vacations is a good time to introduce your kids to money skills and in fact setting the path for growing of a financially savvy individual. We have listed down some activities that may be helpful in putting the vacations to some constructive use.

Teach the money cycle: The rudiments of financial literacy lies in the money cycle: 1. Inflow of money 2. Spending 3. Saving. This summer, the first thing you can do is explain the concept and elements of the money cycle to your kids. To secure your child's interest, you can use various techniques for making learning more fun for the kids. You can engage them in a daily activity like cleaning their room, or watering the plants, or reading a book and attach an allowance on completion of the activity. You can also give them an allowance on special occasions like participating in a marathon, or helping mum in the kitchen if guests arrive, or for eating spinach in dinner, and the like. Also you must keep in mind, that you give them only as much allowance as you mutually agreed initially, stick to your policy, don't fall for those cute faces, 5 Rs for cleaning the room, so be it 5 only. Next ask them to write their goals, like what are they planning to buy from the money they get, at the end of the holidays. Guide them in developing their savings plan so that they can have enough money to fulfill their goal. You must continuously monitor their finances, and poke them if they are overspending. These activities are thrilling, kids will be motivated to work hard for more allowances and saving from their allowance since it is taking them closer to the their military gun, or a pair of skates, or whatever the goal is.

Make them your grocery shopping partners: Whenever you go for grocery shopping, take them along. Involve them in shopping, familiarize them with the information printed on the package and that it should be checked before buying the product, like MRP, expiry date, etc., let them check the price of each product you pick and also of the alternate products that you skip. They'll get an idea about the price of the products that are consumed in the house, the price difference between a Ferrero Rocher and a Dairy Milk chocolate, the effective cost of the product if you purchase combo packs, etc. At the end of the shopping, ask the kids to crosscheck the bill with the items purchased.

Keep them involved in the entire shopping process. This activity will give them practical exposure, it will teach them that things come for a price and will inculcate prudence from a young age.

Teach them entrepreneurial skills: Vacation is also an opportunity to let your kids taste business skills. The kids can set up a stall like a golgappa stall, or a sandwich stall, or a candle stall in any event that's happening around, like your society or a fete or a mall, etc. Let them do the purchase of the raw material, processing of the product, setting the price of the product, do sales, etc. The level of responsibility should depend upon the age of the kid. At the end of the day, if they manage to make a profit, it shall be deposited into their piggy bank or their saving account. This exercise will help them experience the thrill of business process, it'll be their first steps to learning business sense.

Money Games: There are a plethora of money games available for different age groups of kids in the market, on various subjects like stock exchange, piggy banks, business, saving, setting of goals and working towards them, etc. Kids have an appetite for games, a fun and engaging money game can be a good way to capture their interest and inculcate financial instinct among your young ones. You can research a bit and then buy few good money games for them in this vacation.

Gone are the days when kids were excluded from all financial discussions of the house, today parents make an effort to make their kids financially aware, so that when they enter into the mature world, they are not at point zero because the first thing they are going to face is money. So, this summer vacation, carve out some space for financial literacy from their activity schedule.

Saving money is one of the most important part of ­financial management for individuals and families. Our spendings have a direct impact on our savings but unfortunately, controlling spendings is a challenge for everyone. Many of us believe that saving money is a methodical, disciplined and largely a left brain process. But it is not entirely true and saving money does need a lot of thinking and creativity.

The real challenge with most of us is to be able to think long term, plan for it and ­finally put enough efforts to achieve it. Therefore, the task of deciding how much to spend directly falls on the head of the spender. Here are a few well known tips on how to save more by controlling spendings...

1. KEEPING A BUDGET

Yes, the same old budgeting technique has gained much more prominence today where credit cards often encourage useless spending. Try budgeting for savings instead of spendings, for a fresh perspective. It will automatically force you to limit budget for spending. Hopefully, you may limit spendthrift activities and impulsive buys as the ­first step.

A creative idea for managing spendings is by maintaining a separate bank account for only spendings. Monthly you may transfer a fixed amount for planned spendings to this account from your income account. One part from our income account will go to savings as planned. This will automatically enforce discipline in managing budget.

2. PROCRASTINATION

Usually, procrastination is found to a useless and typically unproductive habit. But, used at the right place it can be as useful as the methodical thinking, and that right place is the time of spending. When running on the budget above, it’s easy to ­find yourself depleting that ‘spendings account’ before the month ends and then ­finding yourself in the fray with the products you really wanted to buy nowhere to be seen in the order list.

The trick is to procrastinate the use of ‘spendthrift account’ till the ­final days of the month and soon you’ll ­find that your savings are increasing at an increasing rate, and your order-list is full of necessary items you always wanted to buy. Procrastination is a good habit when it comes to spending on things which are not important or urgent.

3. PAY BILLS AUTOMATICALLY

There are wonderful features now a days on your online bank accounts that can help you save a lot of money you end up paying in penalties for late payments (because most of the time the bank account goes empty before the due date). Auto payment of the bills; i.e. postpaid phone bill, electricity and credit card bills, can save you from frequently paying those unnecessary penalties on late payments. Also, it’ll reduce your account balance in time, allowing you to spend only as much as you should and create another barrier to spending.

4. MANAGE CREDIT CARDS

Now we come to the hard part, credit cards you so dearly love and use, not just to buy the favorite weekend dinner or movie tickets, give wings to your spending, and if spending gets the wings they are sooner or later bound to go out of control. Therefore, you are left with two options with credit cards:

A You can pull your socks up and start managing your cards meticulously, or

B You can go ahead and switch to Debit cards. (yes, it means surrendering your credit card)

So, which one should you follow? Depends completely on your personality. If you feel that you are one of those people who love discipline, planning and are patient with money, you can easily manage your credit. On the other hand, if you like to call yourself creative, love living in the moment and being spontaneous, credit cards are perhaps not a useful choice for you (though, there can be exceptions).

This step is important, because your credit card can easily make or break your credit score. Credit cards are best and perhaps the easiest way to build a good credit score, all you need to do is take care of the following:

Have a total credit limit no exceeding your annual income on all your credit cards combined,

Use only up to 70 - 75% of the total credit limit in any billing period, Ensure that you are always able to pay in time, and

Ensure the amount spend is always paid in full in the same billing period.

This may sound tough for the right brainers though, and if it does you may follow the tricks given below and still manage to keep a credit card.

Spend only as much you can repay at the end of the billing period.

Tally the credit card transactions and your bank balance regularly. Check past records to see how much you can actually spend through credit card.

To save miscalculations switch to bill payments for phone and electricity through credit card.

5. LET SOMEONE ELSE DECIDE This may sound strange but, it is a very useful and stress-free method of making your spending decision. There is one limitation however, you cannot bank on the stranger for each and every small expenditure, and neither would you like the control the stranger may exercise on your expenses. The way to solicit the stranger’s help in controlling your expenses is to get a comprehensive plan and let the stranger tell you how much you can spend in each of the months. That stranger, will usually be your ­financial planner or wealth manager, and will provide you a comprehensive roadmap for not just future but also the present. Knowing what is important and what is not, setting your priorities based on factual data and numbers and not on feelings and impulses will certainly allow you to achieve the self-discipline needed to control the spending.

If somehow you find accepting and applying any of the methods above, yet you still want to be able to control your spending there are more interesting and rejuvenating ways to do that:

A] Spend time prioritizing & planning: A weekend exercise each month or every two months will take you long way towards family bonding and spending your money in far more useful and satisfactory manner.

B] Think Long Term: Long term success requires short term sacrifice and the same is true for money as well. If you have bigger long term goals spending control in the short term is very important.

C] Use SIP Mode: SIP mode of investment, or Systematic Investment Plans can be useful in diverting your money towards savings each month before you can think of spending it. Plus, you have added advantage of performance if you are investing in Equity Mutual Funds.

D] Use Your Recording Skills: No need to be surprised here, recording skills mean recording transactions not the video recording skills. All you need is a notepad on your smart phone or a small notebook and a pen at the end of the day and less than 5 minutes of time to record every expenditure you incurred throughout the day. Best way is to use a spreadsheet on your cell phone or laptop, where you can enter the bank balance at the top (in negative) and then record the spending every day with a total being displayed at the bottom. This, will keep telling you about how close you are to the limit you have set for your expenses. Additionally, if you want to get creative, spreadsheets can be wonderful in reflecting your income-expense status. You may add pie charts (see ­gure: “Spending Chart”) and actually use the data to tally with your bank statement, giving you a comprehensive picture of where your money goes and where you can control its ow.

E] Make a List: Prepare a ‘Go Get It’ list before you go out to shop. It is an old but powerful tool to get hold of your purse each time you get attracted to a new arrival at the superstore, or the new advertisement for the same old non-useful product you already own. With these many weapons at your disposal, it shall be easy for you to conquer the spending territory. Additionally, you can try finding your very own creative ways to control your spending and credit yourself with successfully defending your money later.

It's that time of the year when most companies will be treating their employees with their annual bonus for their year long hard work. Some of you might have already got the big credit in your accounts, while others might be in the “guesswork” stage, trying to figure out the bonus amount and hoping your boss does not count the number of uninformed leaves you took, or the number of times you came in late.

So what are you going to do with this bonus?

Buy a Phone, throw a Party, buy Clothes, go for a Vacation, or are you going to do something prudent?

The worst you can do is squander away your bonus, the reward for a whole year of slogging is ruined. The company has paid to you, now it's your turn to pay to yourself. So, what should you ideally do? How do you bonus put your bonus to good use?

So the following passage will guide you about managing your bonus effectively so that you maintain a balance between gratifying your desires as well as contributing to your future.

Spend Prudently: We at times end up blowing our hard earned bonus on stuff which we might not have otherwise purchased/needed. Buying an I phone X worth Rs 1 Lac, while you bought a new One Plus 5 six months back, just because you got your bonus, doesn't make much sense. The bonus temporarily increases the size of our pocket, but you must remember that it is your hard earned money, buy something that you really need and afford. Spend your bonus wisely.

Reconsider Investing in Gold: Many people buy gold jewelery/coins from their bonus, as an investment for their future. But the fact is, buying a gold chain may not be a very good investment. Firstly, because the return stats of gold over the past few years aren't very promising, and the future prospects are also not clear. High making charges further accelerate the cost of the jewelry. And lastly, you will most likely never sell it in times of need, because of the emotional value attached. Hence, you must be careful about how much gold/gold jewelery you want to buy. If you are looking to invest, look for better options having a greater return potential and are easy to liquidate.

Don't let it be in your Saving Account: Bonus is a big thing, it is ideal that you give a good thought for deciding its outlay. Till the time you decide the outlay, you can park the money in a liquid fund or an arbitrage fund until you find peace with an investment option. The twin benefit of not lying in your saving account is: it won't vanish with your routine expenses, plus you'll get a better rate of return.

Consider Loan Repayment: Because you normally don't have such huge cash at your disposal, it's a good opportunity to lighten your shoulders by offloading your loans. Normally, when you pay your EMI's, a significant portion of the installment goes towards interest repayment and the remaining towards principal. However, if you make an early repayment, it will be a part of Principal repayment, thus reducing your interest burden over the long term.

Create/Add to an emergency fund: Your Emergency Fund needs to be reviewed and revised from time to time to incorporate your increased income and elevated lifestyle. So, your annual bonus also offers a good chance to upgrade your Emergency Fund.

Invest for your goals: A great option that you can consider for your bonus disbursement is invest your bonus for your goals and make your bonus work for your future betterment. Fix a meeting with your Financial Advisor and review your financial plan and allocate your bonus to different investment products in accordance with your financial plan.

To conclude, your bonus is the reward bestowed upon you for your year long hard work. Use it in a way that you appreciate your decision later. You can explore any or a blend of the above or any other option that you may deem fit. Also, do not forget to celebrate the arrival of the bonus, go for a dinner with your family or friends, or plan for a weekend getaway, rejuvenate yourself, because another year of challenging your capabilities has made its way.

"The biggest risk is not taking any risk.. In a world that's changing really quickly, the only strategy that is guaranteed to fail is not taking risks." - Mark Zuckerberg, Facebook

In order to grow, we need to take risks, in businesses and in our careers, we need to walk up the hill to see what's lying ahead, we need to explore ourselves to find our true strength. Before we take the risk of shifting from Content Department to Sales Department of our organization, how do we come to know what are we really good at. Risk and return go hand in hand, you want to become rich, you must take the necessary risks. Among the two major financial asset classes, Equity and Debt, Equity is generally associated with risk and Debt with safe and steady returns. Indian investors have been playing too safe with their investments, our investments are dominated by Debt, our portfolios are largely concentrated with FD's, PPF, RD's, traditional insurance policies (since we get a fixed amount on maturity), Post Office Schemes, etc. Even young investors in the early stages of their careers aren't assuming any risk.

As highlighted earlier, there is a direct correlation between Risk and Return. The problem with being too conservative is it leads to sub optimal returns over the long term, which is not a sustainable approach for realizing long term goals.

Many investors religiously invest in PPF for their Retirement. Let's understand the Risk Return paradox through an example in this direction. Let's say an investor (aged 35) invests Rs 10,000 every month in PPF for his Retirement goal. This guy would get Rs 91.48 Lacs when he retires (when he'll be 60). Had he invested in a product with a better return potential like an Equity Mutual Fund, if he would have been SIPing this Rs 10,000 in a diversified equity fund, he would have got Rs 1.7 Crores when he retires. And Rs. 1.7 Crores looks way more reasonable to fund ones post retirement life, (which may stretch upto 30 years) as compared to Rs 91.48 Lacs. An extra 4% return could have funded another decade of this investor's retirement.

On the other extreme end, there are some investors who understand the paradox and take supernormal risks to get extraordinary returns. There are investors who do commodity, future trading, intra-day trading, etc., but these are the ones who lose the most money.

So, the question that arises here is, how much risk should you take?

The risk you should take is dependent upon a number of factors, viz.

Your financial position: income, expenses, assets, liabilities; Family responsibilities;

Your age; The time you have in hand for your goal to arrive, etc. However, the risk quotient is always subjective, it varies from case to case. The Risk should be in conjunction with the returns you need. The real risk arises when the value of your investment is less than the value of your goal, what happens in between doesn't matter in the end.

The Golden Rule is Young Investors should take more Risk and the Old Ones should take less risk. But what if the retirement FD of the old investor is not enough to last him for the next 20 or 30 years. Will it be prudent for the investor to continue invested in the 8% FD providing safe and stable returns? Probably No. He needs better returns from his retirement corpus, to provide for his expenses till he's alive. For this, he must expose his corpus to some risk, to earn the return he requires to survive.

The bottomline is, if there is a difference between your risk appetite and the risk you require, you need to bridge the gap. Sometimes, it is ideal to take risk even at 60. We must understand that in order to create wealth/have the required money to actualize our dreams, we must take the necessary risk. Great things never come from being in your Comfort zone, because in the end, we only regret the chances we didn't take earlier.

So, are you taking enough risk?

More often than not any surplus money left in savings bank account either gets spent on discretionary expenses or may be because of tiny amount, we do not give much attention to utilizing that surplus, left in savings bank account in a more efficient manner. As experts say, it is equally important for money to work for us as hard as we work to earn it. But investors have very little clue about finding an alternative to savings bank account to deploy that surplus.

Financial planners also emphasize on the importance of maintaining emergency funds. Securing your insurance portfolio and creating contingency fund are the two basic pillars of financial planning process. As any contingency fund is created for any unknown emergency, which we do not know when and how will strike, we can not commit that fund to any long term investment purpose. Leaving that money idle in savings bank account also does not serve any purpose.

So what exactly is the alternative to savings bank account, which can be as liquid and safe as bank account and yet prove more financially prudent ? The answer is liquid funds.

As the name suggests, this is the category of mutual funds, which offers highest level of safety and liquidity. The basic objective of liquid fund is to provide highest level of liquidity to investors so that entry and exit from this fund do not cost anything to investors.

Lets Try to Understand the Concept of Liquid Funds: As individual investors we come across two scenarios at the end of every month. Either we end up having surplus money lying idle in bank account, which is left from monthly income after providing for all expenses, which is unintentional excess money or we consciously attempt to put aside or save some money to create contingency fund. In both the cases, if we leave this amount in bank account invariably we end up spending that amount on any discretionary expense or if we keep large amount idle in bank account that may not sound prudent financial decision. Sometimes you get lumpsum amount or unexpected largesse like winning a contest or selling any real estate or any other asset or receiving large sum of money in inheritance. It invariably takes few weeks to decide on how to deploy this large amount. Liquid funds can play an important role here. Liquid funds can work as an alternative to your bank account in all such cases.

Liquid funds invest in corporate deposits, inter bank call money market or any other debt instrument with less than 91 days maturity period. As it invests in very short term debt instruments, there is no interest rate risk involved.

Ease of Investing: As the name suggests, this category of funds are the most liquid in nature. Investors can enter or exit without any charges, as there is no entry and exit load. Redemption gets processed in 24 hours time. Better tax efficient returns.

Liquid Funds/Money Market funds help you utilize your savings in a better way. With changing times it's time to look beyond traditional products as modern times require acceptance of new solutions to your old needs.

More often than not any surplus money left in savings bank account either gets spent on discretionary expenses or may be because of tiny amount, we do not give much attention to utilizing that surplus, left in savings bank account in a more efficient manner. As experts say, it is equally important for money to work for us as hard as we work to earn it. But investors have very little clue about finding an alternative to savings bank account to deploy that surplus.

Financial planners also emphasize on the importance of maintaining emergency funds. Securing your insurance portfolio and creating contingency fund are the two basic pillars of financial planning process. As any contingency fund is created for any unknown emergency, which we do not know when and how will strike, we can not commit that fund to any long term investment purpose. Leaving that money idle in savings bank account also does not serve any purpose.

So what exactly is the alternative to savings bank account, which can be as liquid and safe as bank account and yet prove more financially prudent ? The answer is liquid funds.

As the name suggests, this is the category of mutual funds, which offers highest level of safety and liquidity. The basic objective of liquid fund is to provide highest level of liquidity to investors so that entry and exit from this fund do not cost anything to investors.

Lets Try to Understand the Concept of Liquid Funds: As individual investors we come across two scenarios at the end of every month. Either we end up having surplus money lying idle in bank account, which is left from monthly income after providing for all expenses, which is unintentional excess money or we consciously attempt to put aside or save some money to create contingency fund. In both the cases, if we leave this amount in bank account invariably we end up spending that amount on any discretionary expense or if we keep large amount idle in bank account that may not sound prudent financial decision. Sometimes you get lumpsum amount or unexpected largesse like winning a contest or selling any real estate or any other asset or receiving large sum of money in inheritance. It invariably takes few weeks to decide on how to deploy this large amount. Liquid funds can play an important role here. Liquid funds can work as an alternative to your bank account in all such cases.

Liquid funds invest in corporate deposits, inter bank call money market or any other debt instrument with less than 91 days maturity period. As it invests in very short term debt instruments, there is no interest rate risk involved.

Ease of Investing:

As the name suggests, this category of funds are the most liquid in nature. Investors can enter or exit without any charges, as there is no entry and exit load. Redemption gets processed in 24 hours time. Better tax efficient returns.

Ease of Transactions: As the basic objective of investing in this category of fund is parking additional savings, which may be required in any emergency. So ease of operation/transaction is another important factor for investors. With NJ Demat account platform you can hold units in demat format and transact online using multiple platforms of online transactions, investing through debit card as well as opt for call and transact facility. This allows investors error free, quick transactions where both investment and redemption can be done at the click of a button.

Liquid Funds/Money Market funds help you utilize your savings in a better way. With changing times it's time to look beyond traditional products as modern times require acceptance of new solutions to your old needs.

Today mutual fund SIPs have become very popular. With growing financial awareness, more and more persons are today investing in equity markets through the mutual fund SIP route. To those who do not know, SIP stands for Systematic Investment Plan which helps you to invest a fixed amount at periodic intervals (daily, monthly, quarterly) over a period of time in your chosen mutual fund scheme/fund.

However, it has been found that while investors open to starting SIPs, it becomes slightly difficult when it comes to increasing the SIP amount by cutting down on your expenses. That is something people are not really doing today. Another challenge after starting the SIP is to repeatedly increase the SIP amount. People tend to not increase this amount for many years altogether. We have to realise that due to inflation, the real value of money decreasing. This effectively means that you are saving less tomorrow than today with a stagnant SIP value where it should be increasing with your income levels. By not reviewing and increasing your SIP from time to time and investing below potential, you are loosing heavily on the wealth creation opportunity. We will see this lost opportunity later in the article.

As a solution to the problem of stagnant SIP amount is Top-up SIP. SIP Top-up is a facility wherein an investor who has enrolled for SIP, has an option to increase the amount of the SIP Instalment by a fixed amount at pre-defined intervals. Thus, this facility enhances the flexibility of the investor to invest higher amounts during the tenure of the SIP. The Top-Up SIP can be registered at the time of starting a SIP itself. Thus, you may choose to increase the SIP periodically, say half-yearly or yearly frequency, by any amount. This will automatically increase your SIP amount at the set frequency without you having to do anything further. The Top-up is like your commitment today for increased savings tomorrow which we as investors would be more comfortable promising today.

Let us now look at an example for the difference that SIP Top-Up makes in the wealth creation journey of an investor. Please note that this example is for illustration purpose only.

Scenario [A]

In this scenario, a normal SIP is taken with any Top-up facility. As we can see, the projected wealth is 3.08 Crores.

Scenario [B]

In this scenario, the investor increases his SIP amount by 10% every year over the previous year amount. We can see, the total amount saved is nearly Rs.8 crores, which is higher than original SIP corpus by over Rs.4.9 crores. The incremental benefit due to Top-up is in fact higher than the base SIP investment itself.

Why Top-up?

The reasons for having a SIP Top-up facility on your base SIP should be now very clear to everyone. Here are the key pointers to summarise the same.....

Increase your savings along with increase in the income levels Sustain/increase your 'real value' savings due to inflation Reduce unnecessary spendings due to income raise due to committed increase in savings Achieve challenging /big financial goals and/or reach financial goals faster Operationally easy and simple

Conclusion: We would highly recommend that you choose the SIP Top-up facility while starting any new SIP. If you already have an existing SIP, you are not too late and you can speak with your financial advisor to guide you in availing this facility.

Indian investors are typically well diversified when it comes to asset classes. A normal person can be found willing to invest in gold or fixed income or small saving instruments for his/her financial needs. He/she can now also be found trying his luck investing in direct equities. So can we say that the investor is doing the right thing here by investing directly into such different asset classes?

The answer is No. Traditional investment avenues are sub-optimal choices plagued by many drawbacks and challenges. Let us explore these traditional ways to hold assets more closely:

Gold: The traditional method is holding it in form of physical gold. The physical gold is typically in form of jewellery. Another way of holding it is through Gold bonds although it is still not a popular way to hold gold. Here are the drawbacks of holding gold in traditional /sub-optimal ways…

The first drawback of holding gold is first of purity. We are really not sure if we are getting the right quality of gold we are buying and often have to rely on the brand and/or the certification given/quoted by the seller.

Next drawback is the cost of making or making charges charged on jewellery. This cost is like a sunk cost and would not be realised when gold is resold back. Physical gold has the drawback of liquidity, both at the time of buying and selling. High initial purchase cost makes it difficult for everyone to buy gold. Selling also is not easy, especially with Gold bonds where there is a five year lock-in period.

The last and the most important drawback is of security with the risk of theft, loss always looming over you.

Debt: Indian investors have a great love for holding debt or fixed income products in their portfolio. This is typically in the form of bank fixed deposits or bonds or the popular small saving schemes of the government. Here are the general drawbacks of holding such assets, the traditional way...

The traditional debt products are not very liquid. Bank fixed deposits are locked away for at least few years of your choice. Small saving schemes of government, like PPF, KVP, NSC, etc, have high maturity years.

The next drawback is of penalty levied when a pre-mature withdrawal or closure is made. This penalty frankly does not make any sense and is like punishing the investor for any sudden requirement which cropped up.

The most important drawback is related to inefficient taxation, especially in the case of fixed deposits. Returns from bank fixed deposits are interest income and as such have to be added to your normal income every year and taxed at your income slab – which normally would be 30%. Banks also deduct TDS on interest income from fixed deposits.

Equity: With rising markets and growing awareness, investors are attracted towards investing in equities. Most investors typically are lured towards investing in direct equities through share brokers. Investing equities though is full of challenges and not an easy thing to do as a retail investor. Here are the drawbacks of directly investing in equities...

Stock selection is not easy. It requires lots of expertise and knowledge about the company and the industry. To develop this expertise and knowledge, one may need to put in years of time and effort. Monitoring your stocks and other opportunities in the market requires a lot of time and effort. It requires dedicated effort on your part.

Direct equity investing is highly risky as your portfolio would be concentrated in few stocks. The last drawback is in form of emotional challenge you would face on a daily basis while making the decision to hold, sell or buy with the increased volatility. This would add to your stress levels too. As we clearly understand now, traditional ways of investing in some our popular asset classes is really not appealing and has a lot of drawbacks. The real question now is - what would is the ideal /right way to invest?

While there is no right way for everyone, surely there is one option that removes the drawbacks as discussed above. And the answer is Mutual Funds.

How can Mutual Funds remove the drawbacks?

Mutual funds can be understood as an investment vehicle which pools money from many investors and invests into asset classes of choice. A fund manager and his team then manage the assets professionally as per the fund /scheme objectives. It is important to note that a mutual fund is not an asset class in itself as the underlying can be any asset class or product like gold, debt or equity. As an investment vehicle, we can see mutual funds offering many advantages or benefits to its' investors. These are...

Professional Management: There underlying investments of a mutual fund is managed by a qualified, experienced and skilled professional fund manager and team with lots of resources and information at their disposal.

Diversification: The investments in a mutual fund is spread across different issuers (for debt) and stocks (for equity). This reduces risk as the relative weight of any bad investment is small. No buying limits: One can effectively start making investment in any asset class with as low as Rs.500. There are no upper limits though.

High liquidity: Most schemes (open-ended) are available to buy or sell on a daily basis to its' investors. You can effectively sell anything and receive money in couple of days. No Lock-in: Mutual funds typically do not have any lock-in periods and you can invest for any duration and withdraw at any time.

Choices: Mutual funds offer a huge choice of products and underlying asset classes. You can choose your scheme as per your risk appetite and investment horizon. A person can choose to invest in say liquid debt funds for a few days or equity funds for long term horizon.

Tax efficient: Compared to fixed deposits, debt funds are much more tax efficient. First, there is no interest income but capital gains. If you hold the investment for least three years, you will benefit from long term capital gains of 20% with indexation benefit. There is no TDS as well. Having known the advantages of mutual funds over traditional investment routes, you should at least explore mutual funds further. Please note that mutuals are not risk-free and are subject to market volatility. On the other hand, they also have the potential to add deliver higher returns. We would recommend that you consult a mutual fund distributor or advisor for proper guidance for your investments.

There is a famous saying on shopping by Bo Derek that "whoever said money can't buy happiness simply didn't know where to go shopping". This pretty much sums up the change in the shopping mindset in the last decade or so. Most of us have seen a dramatic change in the spending behaviour and today most of us are buying a lot on impulse and desire rather than a rational, planned shopping. Well, this article takes about smart shopping and better still, on how to control the urge to spend. We are sure that you would enjoy reading this article (though not as much as you love shopping) and try to adopt some of the ideas shared here the next time you shop...

How have our spending habits changed?

The young earning generation today would easily remember that shopping for clothes & accessories was limited and often carried only at times of festivals when they were children. The things we bought were also limited in variety as compared to what we are buying today. Add to this the growing number of branded retail shops and shopping malls lined up at every few kilometers. Armed with the Credit Cards in our hands, it is now really out of fashion to think about bank balances and pre-plan shopping in advance. Even those in their 40s and 50s have been shopping much more for themselves and their children than what their parents shopped. The mantra today is that if you feel it, get it ! There are also many of of us who believe that they will feel better if they shop! This is what we can call as impulse or emotional buying which forms a major part of our spending today. On the extreme side, this has given rise to a new type of addiction and disease called as "compulsive shopping" where people suffer from 'shopoholism'” and they literally shop till they drop or run out of Credit Card balances.

Techniques to control spendings:

Well, no rewards for guessing why we need to control our spendings. There is a popular saying that 'A money saved is a money earned'.

Many times we get excited looking at new products and offers and make instant buying decisions only to later find that the purchase was really useless. Controlling emotions may be tough but you can easily do it if you genuinely desire to control your spending. There are many techniques which can help curb emotional spendings by you. I am listing a few here...

Avoid spending time, get-together, meetings or dining at shopping malls. Stay away & stay rich! Make it a rule to pay for all impulse buying using cash and by debit card, if you are buying online. Avoid going shopping with people who are wealthier than you. You might often end up buying more stuffs which are expensive and not needed by you as the tendency to compete / show off comes into picture. Be strict with kids and make planned list of items that you feel are important for them and also mention the purchase month /week & budget. Communicate this to your kids and make sure that your kids understand & agree to it.

Prepare a list of items that you feel are required & desired and decide a budget for same. Avoid going beyond this list in any of your shopping trips.

Before buying things that others (like relatives, neighbours, friends) have and you don't, think of all the things that they don't have and you currently have or will have once you save for future. Keep a limited monthly budget for impulse spending only as shopping can be a stress reliever. Decide the limits as a fraction, say 1/3rd, of the estimated impulse spendings done in last 6-12 months.

Steps for smart buying: Step 1: Check need: Before buying anything, define what you looking for and amount you are willing to spend. In case of any unplanned spending, think or consult others, like relatives, friends, etc. if you really need the item before you make the purchase decision. In case you are sure, you may move to the next step.

Step 2: Delay a while: Don't buy on same day when you have finalised the items in any store. Postpone the action for at least couple of days or a week, depending on what you intend to buy. In case of sale offers, it is better to go shopping at least 2/3 days before the offer ends.

Step 3: Research online: Always do an online search for the desired item in case you have just finalised but not yet purchased the item. There are many sites today that offer information & reviews for products/offers from insurance policies to shoes to laptops and holiday packages. Look for additional information or negative feedbacks / reviews to really make up your final decision to purchase. You may also better check out similar products or offers and compare that best suits your needs.

Step 4: Best deals: Check for offers / discounts from retail stores or online shops before buying. Ask for upcoming sales offers from your local stores and wait for same, if possible. You may also check for any interest free payment options through instalments.

Step 5: Bills & Warranty: Always ensure that you have the proper bill and warranty card dated & stamped. Keep these documents safe as you are like to need it some day. Try to get extended warranties for items, if on offer.

Step 6: Return/Replace Policy: Try to always buy with shops offering return &/or replace policy, even if they are a bit costly. Do not remove / destroy the packaging/ labels, etc. after you bring the items home. That way if you do not like the product, you always have the chance to return same and request refund or replace the item.

Strictly Not for Impulse Buying: There are some things that must 'never' be bought on impulse or emotions. Decisions in such cases must only be made after careful thought and study. Decisions on home, property, car, insurance or health policy, home renovations, etc. made on impulse can cost you dearly in long run.

Not Spending = Savings = Greater Wealth: You can easily save 5-15% of one's total monthly / yearly expenses if you stop spending on impulses and follow the tips given above. Thus, you can invest such savings for future. You will be surely guaranteed greater wealth & better financial health. A spending cut of just Rs.500 monthly when put in mutual fund SIP can potentially give you Rs.1.31 lacs in 10 years @ 15% returns. Savings made from foregone impulse purchases can also be directed to more fruitful / required spendings like better food habits, children study, quality holidays, etc.

Spending on impulse is very common in modern age, especially among the younger generation, including young parents. Controlling this urge to spend can help you save quality money which could be put to better use.

Spending on impulse is very common in modern age, especially among the younger generation, including young parents. Controlling this urge to spend can help you save quality money which could be put to better use.

Investing for children's education, marriage, etc. occupy a prominent position in most people's list of life goals. You have been saving and investing for these goals in order to ensure that your kid is not compromising because of lack of money and is getting prepared to lead a good quality of life. At the same time, you are also concerned about how your child will manage his finances, spend and save wisely, plan & work towards his financial goals independently.

Our children have not yet had any financial responsibility like paying for insurance, or managing family expenses, or paying for their own education, etc. Some parents try to inculcate the habit of savings in their children from early childhood but this is mostly limited to saving a rupee from their pocket money so that they can splurge their savings on crackers during Diwali, or because they will get a treat from their parents after they meet a goal of accumulating a certain sum of money.

Making your kids familiar with savings is important but the tricky part is introducing your growing children to reality, explaining investments and instilling the interest in them to learn about financial planning. Before explaining the concept of investing to your kids, you must brush up your basics so that you are able to communicate vital information clearly.

Following are a few key points which can help you in teaching your child the basics of investing and the importance of financial independence.

Start at the right age: Don’t talk about investment jargons with your kid while he’s struggling with his nursery rhymes. Wait until he is able to think relatively and comprehend the implications of simple and compound interest, percentages, profit and loss, etc. Talking too early will result in nothing but overhead transmission and create confusion in the mind of your child. Generally, a child is able to attain the maturity of thinking mathematically when he enters adolescent stage, yet it varies from one child to another.

Introduce the basics: Start with explaining the basic concepts, viz assets and liabilities. You can narrate the meaning and importance with the help of real examples like the house you live in is your asset and the loan on the house for which you pay monthly EMIs is your liability. Tell the meaning and importance of investing and various types of investments like stocks, bonds, mutual funds, etc., and how these investments can help in building assets and can enable you lead a happy and comfortable life.

Involve your kids: Discuss your family finances with your kids. They should have an idea about your income, assets, the debt you owe to others, how you manage your monthly expenses, budget, etc. Live events can help him understand investing better, like how the car got financed, how a medical emergency was met with the insurance policy you have, or how the vacation you went for was met with the Mutual Fund SIP. He/she should understand that happiness can be achieved by investing. You can also gain your child's attention by playing money games like business, risk, etc., as well as through mobile apps. Once he gets excited & involved in the games, he'll be able to relate it better when it comes to reality.

Meeting with your financial advisor: When you meet your financial advisor, you can ask your kids to sit with you in the meeting. They would get to know about goals and portfolio allocation, financial planning, etc. Even if they do not understand the details, it would give them a fair idea about investing. Further, you are there to guide them and answer their queries.

Invest their savings: Another way to expose your kids to investing is investing their small savings. Invest their money in a good investment product, and help them track its growth over time. You can also build a mock portfolio for them and let them track the profits and losses. Let them gauge the losses that can occur due to quick decisions and the benefits of patience & long term investing. They may not be gaining or loosing big money, but the excitement of profits and losses will help them comprehend investing.

Remember, there should not be information overload at any given point of time. You must break the information into smaller and simpler parts. Try to explain with the help of examples and the impact that investments have on our lives. Try to inculcate the habit of saving in your kids from the very beginning. They should know about the gains that they can achieve through investing as well as the basic, “investing for the long term will help in achieving the gains”.

Inflation in simple terms means general price rise of goods & services in a country. Inflation monster reduces purchasing power of money, rupee loses value with inflation as the same amount of money buys lesser goods/services with time or to buy same quantity of goods/services you need more money due to inflation. In India inflation trend is broadly measured by Wholesale Price Index popularly known as WPI, tracking wholesale prices of basket of goods. This tracks prices at wholesale level and not the prices at which consumers buy goods. RBI mainly tracks WPI to take decisions regarding interest rates & money supply. In recent times too much fuzz is created around inflation numbers as it remains at elevated level of around 9 – 10% range which is not desirable for a growing economy like India. But why so much attention is given to WPI numbers and what is their significance in context of Indian economy?

WPI in India has very wide implications as many nodal agencies use WPI number to arrive at many important policy decisions. RBI uses this number to decide on interest rate & money supply measures, movement in WPI indicates price trend of essential commodities.

What causes inflation in a country ? As said earlier, inflation is nothing but general trend of price rise in a country. There can be multiple factors responsible for this trend of price rise:

Excess Money Supply: If money supply is increased due to loose monetary policy & low interest rates, prices go up as too much money chase too few goods. That is the reason why central banks increase interest rates in inflationary environment to reduce money supply.

High Level of Economic Growth With Low Investment: If economy is growing at healthy rate then income level of working population goes up and people start buying more goods and services which result in higher demand. To match this higher demand country needs to invest heavily in manufacturing sector to increase supply to match increased demand. If country fails to increase supply of goods & services against rising demand then it results in inflationary trend. Classic example is India where economy grew at a healthy pace of 9% in 2006-08 but manufacturing growth failed to keep pace with economy growth, and this resulted in higher inflation during the period between 2008 to 2012.

Deficit Financing : Emerging economies like India always remain in need of capital to finance various growth projects. As their imports remain higher than exports many a times governments of these countries lean towards deficit financing as a tool to fill the gap and narrow down the deficits. Deficit Financing means printing more currency to fill the deficit. This results in increase in money supply.

Impact of Inflationary Trend on You & Me (As Consumer - As Investor) With rising prices from food to vegetables to petrol, common man like you and me always remain at the receiving end during high inflation environment. As discussed earlier in high inflationary environment on one end RBI keeps raising interest rates in an attempt to control inflation & on other end rising prices pinch common man's household budget. CPI (Consumer Price Inflation), the inflation number that impacts common man more than WPI as it is the measure of price rise at end user level has remained at around 9 to 10% level in last few months.

Higher inflation, rising interest rates, higher input cost & lowering demand affects corporate profitability and results in lower production, eventually affecting the economic growth of the country. If inflation remains at the elevated levels for longer period of time it affects investors as investment in fixed income instruments end up generating negative real return. With CPI hovering around 9 to 10% and your investment in Bank F.D., PPF or any other Postal instruments generate 8 to 9% return, as an investor you end up generating negative return.

The logical alternative for investor is to explore investment avenue with possible inflation beating returns like equity & gold. Investing systematically & in a staggered manner help investors in yielding inflation beating returns.

Financial Planning & Inflation: Inflation is the single most important factor to be considered while planning for all your future goals. Considering an appropriate inflation number while estimating future cost of your financial goal determine your asset allocation & return expectation.

e.g. If higher education costs Rs.5 lacs today with inflation expectation of 7% this can grow to Rs.9.8 lacs in 10 years time if your kid is of 7 years of age and higher education age assuming at 17 years.

With ever rising cost of living due to inflation it is very important for investors to look at investment class which can consistently generate inflation beating returns. Time & again it is proved that equity can consistently beat inflation over a long period of time and so it is imperative to have equity allocation in your portfolio to keep your investment portfolio floating above inflation level.

Because of the negative cascading effect that high inflation can have on overall economy, high rate of inflation is not favorable specially for a growing economy like India. High growth rate with reasonable inflation of between 4 to 6% could be an ideal scenario for the economy and that is the reason why RBI is desperately trying to bring inflation level down to around 5 – 6% range.

Due to widespread implications of high inflation, it is mandatory for any emerging market economy to keep inflation under tight control. Controlling inflation is of course beyond control of you & me, but we can definitely add equity flavor in our portfolio and follow asset allocation to keep our investment floating above inflation.