SHOULD YOU CONTINUE YOUR ULIP POLICY?

SHOULD YOU CONTINUE YOUR ULIP POLICY? 

Let’s look at the parameters on which you can evaluate your ULIP Policy and take
a decision if you should continue paying the yearly premium, go for a premium
holiday or surrender the policy.

Let’s look at the parameters on which you can evaluate your ULIP Policy and take
a decision if you should continue paying the yearly premium, go for a premium
holiday or surrender the policy.

Charges structure: ULIP Policies normally levy Premium Allocation & Policy
Administration Charges. The extent of these charge vary in each policy. From the
premium you pay premium allocation charges are deducted and net premium is
invested in the fund as per options selected by you. Policy Administration Charges
are normally levied on a monthly basis. If your policy was taken few years before, it
is likely to be a high cost structure. Generally, if these charges are exceeding 1% of
the annual premium, then it makes us uncomfortable and we normally raise a red
flag.

Lock in Period: Normally most ULIPs come with a lock in period of at least 3 years.
So even if your cost structure is high, but lock in period is not over, then you would
need to continue the policy at least till the lock in period is over.

Surrender Charges: While you make a decision if you should continue your policy,
please also have a look as to how much surrender charges you will have to incur.
Your policy may have zero surrender charge after about 5 years. So based on the
surrender charge currently being applicable, it may be a good idea to wait for a
year or so and then surrender your ULIP policy.

Fund Performance: Your policy is costly but is your fund is doing well? If yes, then
you may end up with a positive ROI, depending upon market situations. If your
policy is costly and the fund is not doing too well, then this may further worsen the
situation. Please also check if your funds are invested appropriately mapped to
your risk profile? Say if you are in early 30’s and have 5+ years to go before this
policy matures, then it’s likely to be a good idea to invest a major part of your fund
corpus in this ULIP in Equity. Most ULIPs allow 4 fund switches free in a year. So you
could accordingly switch your funds

Insurance Cover: Do you still need the Life insurance cover available in the ULIP
policy? Your Life Insurance corpus is a function of your financial liabilities. If you
have sufficient assets to take care of your financial liabilities, then you may not
need a life insurance cover. On the other hand, if you have a sizable cover in the
ULIP policy, then you should check your overall need of Life insurance and assess if
you will be able to get a new life insurance cover. If you have a medical situation
(e.g. Diabetes) then getting a new cover may be difficult or expensive.

Expected benefits: Some ULIP covers give Sum Assured+ fund value. Some ULIP
covers provide Highest NAV guarantee. Some ULIP covers have a premium
continuance option i.e. the policy continues even if you die mid-way, no further
premiums are to be paid and the policy cash flows are paid to the nominee. Some
ULIP covers provide additional benefits like 102% premium credit after 10 years.
Some ULIP covers allow you to take a loan against fund value. So, please consider
such factors while you make a decision to continue or surrender the policy.

If you do happen to take a decision to surrender or go for a premium holiday, then
please communicate your decision in writing to your Insurance Company, fill up
required forms and follow up with them to get a confirmation response. You may
seek help from the Advisor or Customer Support Executive from the Insurance
Company to guide you while you make this decision though they may be biased
in you continuing their policy. Alternately, you can consult your Financial Planner.

Happy Investing
Source:Gettingyourich.com

6 SMART TIPS TO TAKE HEALTH COVER

6 SMART TIPS TO TAKE HEALTH COVER


A health cover is one of the most important insurance covers you should

necessarily have. However many people do not consider purchasing a health

insurance as they think the cover provided by their employer is sufficient. Here are

some smart tips for you to purchase a secondary health cover.


Many people think, “I don’t need to take Health Insurance separately as I am

getting covered by my Company”. We strongly recommend you to consider a

secondary health insurance for below reasons:


. The amount of the Company Cover may not be sufficient

. Your Company can change the Medical scheme in future

. As you grow, you may develop medical problems and may not get a new

health policy

. If you change the Job, the new Company may not have a good scheme or

may not have a scheme at all, if you join say a start-up

. Not all Companies cover your parents


Now, if you decide to go in for a secondary health cover, then here are few tips to

determine what kind of cover and amount you should opt for:


Current insurance cost: First, review your current cost of insurance as a % of your

total income. As a broad guidance, we suggest that your total yearly cost of

insurance should be around 10% of your yearly take home income.


Keep in mind your Age & Medical History: If you are in your 40’s, it’s a good idea to

start investing in a solid secondary health cover. Based on your present health

condition and family history, you can decide the type of cover and amount of the

coverage. In addition to the normal health cover, now there are specific policies

for Diabetic& Heart patients.


Go for smart features: As you are likely to continue using your Company’s policy as

a primary health cover, we suggest you opt for a high no claim bonus policy.

Private sector leads with innovative features like high amount of no claim bonus,

combination of Individual + Family Floater cover and no sub limits for the claim

purpose.


Take the right amount: You can decide the amount of the coverage based on

your current lifestyle, medical situation, your location (i.e. Tier 1, Tier 2 or Tier 3 town)

and available budget. As a broad guidance, it is good to take a Rs. 10 Lakhs

family floater health cover. Based on situations, this can be far higher or even

lower.


Select the right Company: You could go with National Insurers, Private Sector

Players or opt for the Group Health cover by Nationalized Banks. With competitive

pricing and innovative features, private sector policies generally score higher.

Group Health cover by Nationalized Banks are cheap and often the only option

for people above 65 years of age. You can check comparative analysis available

on many personal finance blogs.


Prioritize: You should prioritize Health Insurance before Life Insurance as the

probability of hospitalization is higher than death. Again this depends on client

specific situation.

Happy Investing

Source:Gettingyourich.com

11 SMART TIPS TO BUY YOUR LIFE INSURANCE

11 SMART TIPS TO BUY YOUR LIFE INSURANCE


Before you buy such a long term product, let's get some smart checks done.

Follow a rational approach to decide the cover, look at the features and your

requirements and select the Company, try and split the cover across two

companies, avoid tenor beyond your retirement age, buy through an adviser if he

adds value, fill in all information yourself, avoid combining insurance and

investment, prefer online for cost inefficiencies, opt for MWPA and avoid single

premium policies.


I recommend you to consider the following guidance before buying life insurance-


Decide the amount of the cover and your budget: You can use popular calculators

available on the Internet on various personal finance websites and arrive at a

value of the additional life insurance you need for yourself. Remember that

Insurance works on a principle of indemnity. This means that you should look at

Insurance to indemnify against the loss, and not to make a profit.


LIC or Private Sector Players: LIC has an excellent goodwill and a track record. This

also generally means a significantly higher premium you pay, for term plans, as an

example. The Private sector players on the other hand are far more price

competitive due to online model and other factors. Based on your budget,

preference and amount of cover, you can decide if you like to go for LIC or one of

the Top Private Sector players.


Split the cover: If the amount of cover is high, say Rs. 50 Lakhs or above, then you

should split the cover across two companies. This has two important advantages. If

your family makes a claim upon your death and if one company rejects the claim

and if the other one settles the claim then your family has a stronger case to

approach the regulator and ask for intervention. Another advantage is that you

can have flexibility to continue one policy after few years and surrender the other

one, if your insurance requirement has reduced.


Duration of the Policy: Your life insurance need is a function of your financial

liabilities. If you have surplus financial assets to take care of your financial liabilities,

then you don’t need to spend on life insurance cover. In most cases, with

increasing age, your financial assets increase and your financial liabilities

decrease, progressively. Once you retire, the economic dependence on you

reduces drastically. We normally advise to take cover with a duration that ends

near your retirement age.


Declarations: Remember that honesty is the best policy in life. We suggest you fill in

the application forms yourself and take adequate care to disclose all material

facts. Hiding information about your present medical status (e.g. Diabetes, High

BP) is not in the best of your interest. With medical advancement, insurance

companies have access to superior techniques that bring out the true picture of

your health.


Buy through an Adviser or Direct? Check with your adviser on the level of service

that he can provide and ask him to present you a comparison of product with his

recommendations. Your adviser may add value in case of premium loading,

medical tests, MWPA, Insurance Demat account opening and most importantly,

help your family to raise a proper claim when you are not around. You should

understand if going through an adviser would increase your total cost. Based on

this, the level of services being provided and value being added, you could

decide if you need an adviser to assist you.


Which Policy to buy? Study the comparison of leading insurance policy on various

websites on the Internet. Compare your requirements against the product features

and narrow down your search to 2-3 good policies. Consider visiting 2-3 websites

and review their recommendations. Review the benefit illustration table before you

finalize a policy. For a term plan, there is obviously no benefit if you survive the

policy maturity. However, we still recommend you to review the benefit illustration

table, as you will be able to identify any hidden costs.


Insurance and Investment: Normally, treating your insurance and investment

separately works out far better for you. When Insurance and Investments are

combined, you are likely to be going in for a complex product structure like ULIP

which could be expensive. In the best of your financial interests, taking an online

term plan and using rest of the surplus for goal based investments as per your risk

profile, is likely to be a far better option.


Buy in Online or Offline mode? Buy an online term plan from any of the top players.

Buying online is convenient, efficient and likely to save a lot of money for you.


MWPA: Getting a policy issued under Married Women’s Protection Act (MWPA) will

ensure that upon your death the insurance proceeds go to your family and

cannot be used to pay your liabilities, if any. This is helpful when you are a

businessman or a professional with a liability exposure.


Regular Premium or Single Premium: Regular premium is likely to give you a better

opportunity to absorb the tax benefits. In a single premium policy, your effective

cost of insurance may work out higher if you die in the early years, as you would

have paid in advance for all the years. You may have a better use of money for

other financial goals. With more and more innovative features coming in, it makes

sense to retain the flexibility with you. In case you do not have a regular income

source and would conservatively likely to ensure that insurance is in place, once

and for all, then single premium policy may be your preference.

Happy Investing

Source:Gettingyourich.com

THE WHY AND HOW OF LIFE INSURANCE

THE WHY AND HOW OF LIFE INSURANCE


We have tried to answer these questions like

. Why do you need life insurance?

. How to design your life insurance corpus?

. How to account for your current financial assets and expected outflows in future?

. What are the critical factors to keep in mind?



If you are not sure if you at all need a life insurance, then you are not the only one.

So here is a rationale to decide if you need a life insurance or not.


Insurance is a function of your financial liability. If you have adequate assets to

take care of your liabilities, then you don’t need to spend on life insurance. Now,

the question here is how do you determine your financial liabilities? Well, you need

to take a stock of what kind of financial goals & financial responsibilities your family

will have, in your absence. The areas like children education & marriage, 1st or 2nd

Home etc. are easy to estimate. The difficult part may be in arriving at a value for

income replacement. This is simply a sum total of all money that your spouse will

need for monthly household expenses between today and end of his or her life,

adjusted for inflation and expected return, net of tax. We normally recommend a

life expectancy of 85 years. You can use present value formulas in excel for such

calculations or ask your Financial Planner.




Now, you know how much money your family will need if you are not around

today. So let’s look at how much money your family will get if anything happens to

your family today. So total up the sum assured in your insurance policies and also

see if your Employer has any life cover for you. Don’t forget to also calculate the

value of net assets that you hold today. Now, while you do that, remember to

exclude the consumption assets like your house where you stay and the Gold &

Jewellery that your family uses. From this, subtract, outstanding liabilities so you

have net assets figure. Ensure you include current values of your retirement

accounts. A critical assumption here is that your financial assets will be liquidated

by the family as and when needed to meet the financial goals.



So, now, you should know how much your spouse will ‘need’ and how much your

spouse will ‘have’. We are sure this is complicated for you, so let’s try to give you

an example.


Suraj and his Wife Chanda have an 8-year Son, Joy. So here is how Suraj

calculated his Life insurance corpus need:



Education Corpus for Joy  Rs. 13 Lakhs

Marriage Corpus for Joy  Rs. 5 Lakhs

Income Replacement  Rs. 82 Lakhs

Total Needed [A]  Rs. 100 Lakhs

Sum Assured total of all Insurance Policies  Rs. 25 Lakhs

Value of Financial Assets  Rs. 42 Lakhs

Current Liabilities  Rs. 7 Lakhs

Net Financial Assets  Rs. 35 Lakhs

Total Available [B]  Rs. 60 Lakhs

Insurance Corpus Gap [A-B]  Rs. 40 Lakhs


Suraj can buy an online term plan for Rs. 40 Lakhs to bridge the current gap in his

Insurance Corpus. Kindly note that this is a simplified illustration and you may have

other factors to be considered. There are alternate methods to calculate your life

insurance need. As an example, say 10 times your current annual income or

corpus taking your future income in account.


Key factors to keep in mind:

1. Don’t forget to include the investments that you may have made (e.g. ULIP

Policy)

2. Consider your spouse’s profile as the money will have to be managed by her /

him as you will not be around

3. Involve your spouse as you work on your insurance corpus

4. Balance between the need to cover the financial risk v/s. the cost of insurance

5. If your insurance corpus works out very high, then revisit the outflow in each of

the goal and see if you can optimize. See if your spouse can partly work & see

if a higher ROI can be assumed in the insurance corpus.

6. It may help to take a psychometric test to know risk tolerance for your spouse

and yourself

7. Take a tenor that goes up to around your retirement age. As your financial

liabilities will be fulfilled and financial assets will grow, the need of insurance will

go down drastically.

Happy Investing

Source:Gettingyourich.com

EMERGENCY CORPUS: WAYS TO SET IT

EMERGENCY CORPUS: WAYS TO SET IT 

Emergency corpus helps to financially manage contingencies. Additionally, it can
also help to safely learn mutual fund investments, save on tax, increase returns on
portfolio, facilitate career move, fast track financial planning and to teach saving
habits to children.

Having an emergency corpus helps to financially manage a job loss, illness,
accidents and so on. The corpus should help you survive the contingency. So the
corpus size can be 3 months to 18 months of the monthly expenses, which one
needs at minimum to survive. To determine the corpus size, the number of months
depends upon the overall financial situation, age, health and insurance status,
nature and stability of the employment and spouse’s earning. In general, six
months size of corpus works for most families and can possibly be a good starting
point.

Having strength in one’s own finances gives confidence and allows helping close
family members as well, without disturbing your finances. It’s basically like building
a war chest and being ready for unforeseen contingencies, not likely in one’s
control.

Setting up money aside for emergency corpus should be like the way people use
to save money in a hidden jar, in olden days. Emergency corpus can easily
become a stepping stone for that ‘another flat’ that the family wanted to buy. The
trick here is that this money should not be coming in an individuals’ line of sight,
every day. Else, one may just end up spending it.

 Now, to say that the emergency corpus is helpful for emergencies is like a
commentator saying in a cricket match that 'Today the team that will play better
will win the match'. Yes we all know that. So is that all to the emergency corpus?
No, it’s actually bigger than that. Here are few additional benefits of emergency
corpus that the families can get when they leverage liquid mutual funds (MFs) for
part of the corpus.

Save tax 

Emergency corpus being in liquid assets, earns relatively lower returns. One way is
to invest 1/3 of the corpus in an online Bank Account linked FD and 2/3 in Liquid
MFs. Unlike FD, Liquid MFs (growth option), don’t need one to calculate the tax
liability on interest every year. If one withdraws after 3 years, then the long term
indexation reduces the tax liability, unlike in FD. This is helpful for investors in the
high tax bracket.


Increase Return on Investments (ROI) on your portfolio

Many families do have the requisite liquidity, partly if not fully. The problem is that
mostly the money lies idle in the savings bank account earning ~4%. By creating an


emergency corpus structure, a family can earn higher return in Fixed Deposit and
Debt MFs, thus increasing the family portfolio ROI. This avoids duplication of savings
and liquidity across the accounts by both the spouses. Thus, when the emergency
corpus investments are carved out, it’s easier to make the long term goal savings,
fetching even higher ROI.


Get safely started on the mutual funds 

Want to get invested in mutual funds but not sure? Get started with the Liquid
Mutual Funds for the Emergency Corpus. For conservative families, Equity MF may
be a difficult proposition. So leveraging Liquid MFs will give a feel of how MFs work
as an investment tool. Some liquid MFs also allow Systematic Investment Plan (SIP),
thus getting one used to the feel of regular savings.


Go, make that career moves 

It’s often observed that lack of emergency corpus and non-availability of personal
heath cover are common obstacles for youngsters in changing the job. In the
transition period, one often observes a tremendous financial pressure. Similarly
when one wants to venture out on his or her own, adequate liquidity gives lot of
financial confidence. The emergency corpus must be reviewed in such a scenario,
though.


Get Started on the Financial Journey

The first thing that financial planners recommend is to create an emergency
corpus. By setting up this corpus, one creates the base and one of the high priority
actions in a financial planning exercise is completed early on, leaving one to focus
on larger issues. When the basics are in shape, one can strategize and quickly
embark on the financial journey.


Lead by example 

This is one good way to teach children about controlling spending habits, savings,
being ready for contingencies, tax planning and importance of planning personal
finance. When one is himself prepared, then teaching children with his or her own
experience and example is so easy.


The contingencies cannot be avoided but reactions to the contingencies can be
planned. Being prepared helps to reduce stress and anxiety and allows managing
in a best possible manner. Leveraging Equity MF compliments and augments to
the emergency corpus benefits.

Happy Investing
Source:

I AM RETIRED AND I HAVE SURPLUS MONEY

I AM RETIRED AND I HAVE SURPLUS MONEY

You should review your overall finances. See if you have enough liquidity and
adequate health cover. Check for financial goals that may be still left. See if you
would like to make an estate plan, invest in yourself or contribute to a social cause.
If you still have funds left, check your risk tolerance, try to leverage equity and go
for the best alternatives on the Fixed Income avenues.

So you are a Senior Citizen with some extra money? Wow, that’s impressive. You
can go for a dream vacation, gift money to your grandchildren, buy a senior
citizen friendly gadget or just call for a big party. But then, as usual, I like to take a
structured approach. Here are a few tips on how you can utilize this surplus:

Do you have enough liquidity? Do you get adequate cash flow from your
retirement corpus or does it vary? Based on how you get the returns from your
retirement portfolio, you may need a corpus for 3 to 12 months of your monthly
expenditure. So, accordingly, first utilize the extra funds for this purpose. You can
invest in FDs with Senior Citizen Rates or go for Liquid MFs.

Do you have an adequate Health Cover? Based on your health situation and
existing health cover, you may need to invest in additional health cover. It
depends on specific situation but generally we recommend a family floater of at
least Rs. 15 Lakhs for a Retired Couple. It may be a good idea to spend on
preventive health care.

What about your Financial Goals? You may not have a significant financial liability
or a financial goal remaining now. But think through your wish list. Ask your spouse.
Do you need to save for a dream vacation? Are you expecting a grandchild and
would you need to spend money there? Would you like to contribute seed funding
and let your children take the loan to buy the house? So review your financial
goals, liabilities and aspirations and see what is feasible.

Would you like to make an estate plan? If yes, then invest the surplus funds in long
term asset class for growth opportunities. It may be a good idea to hire an estate
planning professional and make a plan.

Invest in yourself: You may like to work part time and create an additional income.
So see if you can take up any courses that will help you to market yourself better.
Learn a new skill, go take up a leadership course or attend a decent training.


Consider a social cause: Consider repaying to society or community givebacks in
your religious or professional area. See if you can join hands with an NGO working
on your preferred social cause and you may like to donate some funds to them.

Thought through all these options and you still have surplus money to invest?
Alright, then here we go.

First, assess your Risk Appetite: First, use a psychometric test on the Internet or ask
your Financial Planner for a Risk Assessment exercise. This will give an idea of your
risk tolerance. Based on this, you could take a position in growth oriented assets
like Equity MFs which generate decent returns in the long term but can be volatile
in the short term.

You must Leverage Equity: It’s hard for anyone to stay away from Equity, we
believe. This is likely to generate best performance on a real returns basis, in the
long run. So to beat inflation, you must take some exposure to Equity through MFs,
based on your risk appetite. Consider investing in Large Cap funds that invest
predominantly in Bluechip stocks. If you like to tone down the aggression, then look
at Hybrid MFs with Aggressive Equity component. If not, then look at Hybrid MFs
with Aggressive Debt component. These will have a minor component of Equity
that is likely to provide a higher ROI, overall. In retirement stage, after initial 10-15
years, the corpus starts to drop as inflation catches up. If you use these 10-15 years
to invest in Diversified Large Cap Equity MFs, then you may be able to build a
significant corpus that will help you in later years.

Fixed Income Avenues: Well, you could consider Senior Citizen Savings Scheme,
Post Office MIS, Fixed Deposits, Tax Free Bonds or Debt MFs giving regular income.
For Fixed Deposit, consider splitting the corpus equally between Nationalized Bank
FDs and Corporate FDs with high rating. For Post Office savings, keep in mind the
physical visit and other logistics. Prefer online facilities so that you could manage it
even remotely. If you like to invest regularly, then see if you like the ‘Step Ladder”
approach. Here, you can invest say Rs. 5,000 PM in a 1 Year FD. From 13th month,
your investment will double, as the earlier FD would have also matured. This way,
you can build a sizable corpus over a period of time. Based on your overall
income, keep the tax implications in mind while you make the investment.

Happy Investing
Source:Gettingyourich.com

THE SIP FORMULA FOR MR. & MRS.RETIRED

THE SIP FORMULA FOR MR. & MRS.RETIRED

Post Retirement period means a cautious outlook and conservative investments.
Given the inflation and longevity being the real challenges, it would be helpful to
leverage Equity MF in post-retirement period, keeping in mind:

1. Safety of principle
2. Beating Inflation
3. Tax savings
4. Leveraging Magic of Compounding


At this age, one often has either been fooled in to a poor investment or has lost
money in stocks. So naturally the attitude is ‘I don’t want equity’. What one should
try in this situation is to leverage the retirement corpus.

FD Interest = Equity MF SIP Formula.

Let’s say ‘Mr. & Mrs. Retired’ receive a pension that takes care of their expenses
and leaves a little bit of surplus. They also get some financial support from their
children and also receive lump sum money once in a while. They also have an
additional flat on rent. They combine these savings and convert these to FDs. They
can consider leveraging the Equity MFs in below manner:

1. They can invest in FDs with monthly interest pay-out and invest the monthly
interest amount in Diversified Equity MF SIPs. The capital is intact in FDs and
growth is invested in Equity MFs that can grow further

2. Let’s say that they are doing FD of Rs. 5,000 a month for a year @ 9% p.a. with
a cumulative interest option. From Month 13 onward, they will have FD
maturing every month for Rs. 5,450. They will also have the original FD Budget
of Rs. 5,000 p.m. on. The maturity interest of Rs. 450 can go in to SIP from month
13, to 24. From month 25-36, the maturity interest will be Rs. 900 and the SIP
budget can thus be increased. Here, with a same saving of Rs. 5,000 p.m.
every year, the FD investment as well as MF SIP will keep increasing and hence
both the FD and Equity MF kitty is growing, assuming no tax.

3. The rental returns in real estate are often around 3%. One tends to hold the
real estate even at this age in expectation of a capital gain. If there is no
dependency on the rental income, then this can be invested in Equity MFs.

4. Let’s say they would like to gift Rs. 5 Lakhs to their Grand Children. Again, a
better way can be to keep the capital with them via say Fixed Deposits and invest
the monthly interest pay out in Equity MFs in the name of Grand
Children. This will allow them to use the capital in case of any emergency.

5. Their Daughter keeps worrying about their financial support for last years. She
can invest a small amount of money in Equity MF via SIP and in 8-10 years this
can possibly grow to a sizable corpus.


How the retirement corpus gets utilized?

A typical post retirement period is likely to be ~25 years. Initial period is normally
comfortable with substantial corpus generating returns more than the expenses.
It’s only in the later years when the inflation catches up, the corpus returns are not
sufficient and hence one starts eating away from the corpus. Below diagram
explains this. So if one uses the initial 12 years or so in building Equity MF portfolio,
then this can generate a sizable corpus and it can come handy in later years.


Where to invest in Equity MFs?

Diversified Equity Mutual Funds are preferred. Given the low risk tolerance at this
age, one should look for Mutual Funds with low volatility and auto asset balance
structure. So one can start with investments in Hybrid Mutual Funds. These have
majority of investments in Debt component and a small component in Equity.
Once one becomes comfortable, then the Hybrid Mutual Funds with majority in
Equity component can be invested and then finally 100% Equity Diversified Funds
can be invested. Based on the age, one can also look at Index Funds.



Precaution

The Equity MF investments should be made for a period of at least 5 years. The
portfolio should be reviewed at least once in a six month. The taxation angle
should be kept in mind. As an example, the recent budget has increased the tax
rate and holding period for Debt Mutual Funds. Instead of FD, postal savings can
also be leveraged in a similar way. Before starting Equity MF investments, one
should revisit the cash flows and only use surplus funds.

Happy Investing
Source:Gettingyourich.com

Investing In Mutual Funds... An Overview

INVESTING IN MUTUAL FUNDS ...AN OVERVIEW

5 Personal Finance Rules Everyone Should Memorize

5 Personal Finance Rules Everyone Should Memorize

Planning your financial future is important in how you live now and what plans you have for the years to come. Being fiscally responsible means taking steps ahead of time to plan for career changes, retirement, and unexpected emergencies.

There are hundreds of ways that you can learn fiscal responsibility and perhaps hundreds more on how to manage your personal finances. However, there are some important rules you should memorize to help you start managing your personal finances more efficiently. Here are five rules of personal finance that everyone should memorize.

1. Time is a very important factor

Time is a key factor in finances, whether that is an investment, money in your savings account or putting in money for retirement. Interest rates are always fluctuating so keeping on top of where your money is going will be very important in the long run.

If you begin to save now, you are setting up a better financial situation for yourself years from now. In addition to this, your spending in the present will become a factor for the future so keep in mind that time is a very important thing to consider when managing personal finances.

2. Ensure you have a plan

Ensuring you have a plan is a very important rule. It isn’t something you can take as an optional choice, especially because everyone has to have a financial plan. Keeping track of money and putting aside for the future will allow you to have flexibility in financial decisions you make in the future. For example, what if you decide to switch jobs in five years and need to fall back on your savings?

Having a rainy day fund in this situation would give you some breathing room while you figure out the next step in your career. Even something more sudden like a death in the family or a house fire might require you to think quickly. Having a plan will allow you to make decisions quickly and without concerns.

3. Discuss money with your family

A large part of having a plan is to be able to discuss your finances with your family. For example, creating a joint bank account with your spouse might allow you to save more if you come up with a smart plan on how much each person will put in and where your expenses are. You might decide that because your spouse has a higher percentage of student loans left, that you might pay a bit more towards expenses each month. Discussing your personal finances with your family will help you develop a future plan and may help you avoid running into financial issues in the future.

4. Keep updated on your Credit Report

Make sure to review your credit report and stay updated on it. If it is not so great, come up with a plan on how you can get it up higher. A credit score typically ranges from 500 and 850. A credit score is a reliable way for banks and businesses to ensure that you are on top of your credit and that you are handling your finances well. Your credit is your line of trust that proves you are fiscally responsible.

5. Pay monthly bills on time

Credit card debt is a very serious matter, as it is something that is very hard to get out of once you are already in. If you use your credit card on any large purchases, make sure you have the cash in your bank account to pay for it. This means having the means to pay all of your monthly bills on time. This includes, your credit card bills, your electricity, gas, and heating expenses as well. Get ahead of the curve and stay on top of your monthly expenses.

Happy Investing

Why to choose Mutual Funds as an investment option

Why to choose Mutual Funds as an investment option


We as Indians loves to save money, however, when it comes to investing many restrict themselves with the fixed income securities or with insurance policies. People ignore mutual funds due to the volatility and risk associated with it. However, if one understands that this product offers Diversification, Liquidity, Low management costs, etc. then there is no reason why anybody would not invest in it.


Indians are best known for their saving habit. Most of the savings are either in the form of Bank FD’s, Post office schemes or are routed towards Insurance Policies. Mutual funds and other equity related products although not new but are still considered risky.


Research shows that despite being available in the market from a very long period, less than 10% of Indian households invest in mutual funds. Most of the investors in India hold back their investments in mutual funds due to perceived high risk and a lack of information of how mutual funds work. And those who know about this product are happy with their investment. The kind of features this product has, there is no particular reason why an investor would not choose mutual fund as an option for investment.


Among people having high savings rate, more than 40% of those who live in the cities consider these
investment risky and close to 33% did not know how to invest in such assets. Choosing mutual funds
requires a conscious choice and comfort in dealing with the opportunities and risks in the securities market.

Let’s look at some of the reasons as to why an investor should choose mutual funds as an option for
investment:


1. Channel one's savings into productive investments: In case of a bank deposit wherein a depositor
lends money to the bank and then the bank lends it to the borrowers based on which they decide
an interest rate for the depositor. This transactional arrangement though pre-defined becomes
rigid at one point of time, whereas, when money is invested in mutual funds, the returns fetched by
the underlying security like stocks or bonds, gives flexibility to investments and to the returns. Thus
the rigidity of transactional arrangement gets defeated by the market arrangement.

2. Expert advice will cost a fee but not at the sake of severe loss: How difficult it is to call up a broker
and directly invest into securities market? Why one can’t just trade or buy shares and bonds
directly using electric platforms? In other words, does it add value to the investment of an investor
if he directly gets access to the market? Mutual funds only become useful when accepted with the
psychology of long term investment through a formal process. Getting expert advice may require a
particular amount of cost, but with the right guidance investors may get saved from incurring heavy
losses. Their experience and investing strategies play a very important role in marking the returns
and saving from heavy losses. Selecting the right securities, decision of how much amount to be
invested in each of them, when to invest and how to invest, when is the right time to sell or
purchase shares, which company is suitable enough to be invested in so that one's goals are met
within a specified period of time, all these factors require quite a lot of efforts to be put into and an
entire portfolio is made, for which a nominal amount of fee is charged.

3. Liquidity: - This feature has made mutual fund very attractive. Leaving apart few close ended
schemes, an investor can anytime invest or redeem money out of mutual funds. The money is
available to an investor in a very short period into bank account. However, one should also look out
for the exit load charges if any.

4. Diversification: For small investors diversification with a small amount is not possible. In a mutual
fund scheme, fund manager invests the money into different asset class or in different category of
stocks, thus giving benefit of diversification to an investor. This feature also ensures stability in the
portfolio in long term.

5. Rates are not pre-specified: The main advantage of investing in mutual funds is that the rates of
returns are not pre-specified. For example when invested into stocks of a particular company and if
the performance exceeds the expectations of the investor, then this appreciated value is available
to the investor. This is applicable even in the case of debt funds where the returns are fluctuating.

There is no particular reason as to mutual funds are not worth investing for. They offer many option of one's convenience from low risk taking capacity to high risk taking capacity based on which returns are earned. To earn a possible upside return the risk must also be considered. One way to achieve positive returns with low risk is to focus on asset allocation. A person holding a mixture of equity, debt, gold deposits is likely to earn higher returns than the one only investing in bank deposits or equity. However, before selecting any particular scheme to invest, one should always consult an investment advisor for an expert opinion.

Happy Investing

5 COMMON MISTAKES EVERY SMART INVESTOR SHOULD AVOID

Investing Mistake #1 – Buying the stocks at high valuations

The difference between an investor who makes money and the one who losses money is his understanding of valuations of the stocks.

When a stock is trading at a high valuation, the possibility of more upside is unpredictable and therefore a common investor gets stuck in this trap and losses money once the stock undergoes a correction.

On the other hand a smart investor reads the valuations of the stock and understands whether the stock is trading at high or low valuations and makes his decisions accordingly.

To avoid committing this mistake always evaluate whether the stock is trading at high or low valuation and then take a decision.

Investing Mistake #2 – Buying more of losers (Price Averaging)

This is another common mistake investors make due to emotional reasons. How many times have you bought a stock then see it go down in value and you bought more quantity of the stock with the motive to average out your buying price. This is called Price Averaging. This strategy makes absolute sense only for high quality stocks and if you’re ready to be patient in long term.

Best example to illustrate here is of TCS. It makes complete sense if you continue buying shares of TCS while it is correcting because given the premium fundamental value of the company it will positively recover from its lows. But by pouring in more money in a company like Suzlon with high debt on its balance sheet will get you nothing but losses.

To avoid committing this mistake, continue price averaging only in stocks with great fundamental value which you can hold for long term. But in case of a bad decision, where the fundamentals of the company is deteriorating, just exit from it and move on.

Investing mistake #3 – Following hot tips or a TV guru

There are lots of TV channels and newspapers around. You get free hot tip every minute. This creates a sense of urgency and forces us to commit an emotional decision.

The so called gurus give you a hot tip every day as the next Multibagger. Have you ever thought ‘If there were so many good stocks around, shouldn’t everyone be rich?’

To avoid this common mistake you can follow an investment guru but before making a decision do your own analysis after all its your money at risk.

Investing mistake #4 – Inadequate research about the stocks you invest in

The most important reason you’ll lose money in stocks is this. One can’t stress enough the research one needs to do before buying a stock. If you don’t have the time or knowledge to do the research, then opt for some reputed advisory firms and let them do the work. If you don’t do proper research, then all you’ll have is a bunch of laggards in your portfolio.

When you buy low quality stocks, you risk your capital to permanent loss. On the other hand, when you purchase a good stock after doing proper analysis you can make sizable profits.

To avoid making this mistake, either opt for a reputed stock market advisory company or invest some time and study in depth about the stocks you want to invest in.

Investing mistake #5 – The price of falling stock can’t go down any further

The price of a stock falls either due to deteriorating fundamentals or market momentum. If it is due to market momentum, the price will eventually be recovered after certain period. It can be the next day or next few years based on when market recovers. But when a stock falls due to deteriorating fundamental, it hardly recovers unless the fundamentals improve.

Many stocks get converted to penny stocks due to changing fundamentals. And they stay there forever. An investor who decides to buy just because a stock has fallen by so much will be in for a big shock.

To avoid this mistake, do some digging and find out the reason why the stock has cracked. If it is because of market momentum, then it is a safe bet.

If you avoid committing these 5 basic mistakes, you will be on a high road to making exceptional gains in your portfolio.

Happy Investing

5 GOLDEN RULES OF INVESTING

1) Don’t get greedy

If you have been avoiding equity all these years, don’t jump into the market too enthusiastically. Move cautiously.

Be cautious about investing in stocks that are riding on a momentum, such as real estate, banking and infrastructure. If you ride the wave now, chances are you will drown again.

2) Remember, you are buying a business when you invest in a stock

We believe that reality sector does not change as fast as the stock market may lead you to believe. Be careful of the kind of businesses you are planning to invest in and don’t get cheated by what the stock prices are indicating.

A complex economy like India won’t change in a year or two, however good the governance may be.

3) Stick to fundamentals, not FII behavior

Going by the latest inflows, it appears that Foreign Institutional Investors, or FIIs, seem to be rediscovering their love for the Indian stock market. Everybody seems to be highly optimistic about the new government.

Governments may come and go but the stock market is here to stay, so we suggest you do not take decisions only based on the government changes but focus on investing in high quality fundamental stocks at reasonable valuations.

4) Don’t ignore quality

According to Benjamin Graham, in the short run, the market is like a voting machine – finding out which firms are popular and unpopular. But in the long run, the market is like a weighing machine – assessing the performance of a company.

The message is clear: What matters in the long run is a company’s actual business performance and not the investing public’s fake opinion about its prospects in the short run.

5) Don’t concentrate complete investment in few stocks

Many investors make a common mistake of investing huge portion of their equity portfolio in just 1 or 2 stocks. This mistake not only creates a very risky and a dependent portfolio but also burns away all the chances of taking the advantage of other great quality stocks.

At max an investor can spread his investments in over 12-15 stocks belonging to different sectors with equal fund allocation for every stock.

We hope that our 5 simple but extremely important rules will help you become a safer and a much more aware investor.

Happy Investing

THE MYTH ABOUT HIGH-PRICED AND LOW-PRICED STOCKS

THE MYTH ABOUT HIGH-PRICED AND LOW-PRICED STOCKS

In one of our previous articles, we had spoken about the misconception about Large-Cap stocks being the only type of stocks which can provide secure and steady returns. Today we have another interesting and broadly talked about topic – the myth about High-priced and Low-priced stocks. To just give you a feel of this topic, let us look at an example right away.

1.  High-priced stock – Eicher Motors, CMP: Rs 22,000

2.  Low-priced stock – Ashok Leyland, CMP: Rs 75

Both of the above mentioned stocks belong to Auto industry and are big market players.

The myth that we are talking about here is that most investors have this understanding that high-priced stocks are always expensive investment and low-priced stocks are always cheap investment. Now, we being a complete fundamental research driven advisory company, we know this is not true. So we decided to clear this myth.

Below mentioned is a table of the past performance record of Eicher Motors, Ashok Leyland and BSE Sensex in last 3 years.

Yes, the details mentioned are true as we picked up this data from BSE official website.

In India, we have this mentality to determine the value of things based only on its price or the definite figures. In some areas like an exam mark sheet, it is accepted because we can clearly conclude if the student has passed the exam or no based only on his marks. But it does not hold true in stock market.

In the table above you can very clearly see that Eicher Motors having its stock price 250 times of Ashok Leyland has delivered 4 times the returns compared to Ashok Leyland or 11 times compared to BSE Sensex.

3 years back, only if you could peep into the future and see that Eicher Motors will be delivering such astonishing returns, we are sure you would have bought as many shares of it as possible even it was trading at Rs 2,500 back then.

So on an ending note, what we want to arrive at is the fact that an investor should not be a very conservative investor and should never blindly accept the myths and misconceptions about stock market community. An investor who wants to amass great wealth on a longer term will have to broaden his view about stocks and go beyond just the stock price. A smart investor should have the knowledge to determine the true value of a company, understand the company’s business and its fundamentals and take an informed decision.

Happy Investing

TRUE OR FALSE: ONLY LARGE-CAP STOCKS CAN PROVIDE SIZEABLE & SECURE RETURNS

TRUE OR FALSE: ONLY LARGE-CAP STOCKS CAN PROVIDE SIZEABLE & SECURE RETURNS

We are a stock market advisory company and have been in this industry for the last 4 years. On a daily basis our executives speak with nearly 30 to 40 prospective clients. The most common discussion we have with them is our method of stock research and what type of stocks we recommend.

Majority of the investors who we speak with have this misconception that only Large-Cap stocks can provide sizable and secure returns and some of them request us to only recommend Large-Cap stocks. So, today we will take on this misconception about Large-Cap stocks and give you another perspective about stock picking.

Let us start by taking a quick view at the annual returns of BSE Sensex compared to BSE Mid-Cap and Small-Cap Index.

In the above table you can see very clearly that every year since 2012 the Mid-Cap and Small-Cap index have outperformed the BSE Sensex index.

Now, after showing you these figures, there will still be few investors with contradictory comments like:

1.  Small-Cap and Mid-Cap stocks are very risky, volatile and unpredictable.

2.  They have less volume being traded in them so it is difficult to make positions in them or exit from them.

3.  Because these companies are small and not in the focus of many Advisors or Analysts, it is not a good stock to invest in also because no one buys their shares.

There are many more reasons why investors shy away from Mid-Cap and Small-Cap stocks. To your surprise, we completely agree with you on all of these above points. Yes, there are many stocks from the Mid-Cap and Small-Cap universe which are extremely volatile and have unpredictable price movement, have a bad track record or have not been performing up to the mark. In most cases when an investor complains about the risk involved in these types of stocks, it is because he has burnt his hands already in such type of stocks and had decided then to not commit this mistake again.

The basic reason why these investors commit this mistake is because they decided to invest in “such” stocks based on someone’s recommendation, a close friend or a well known advisor from a News channel. Believe us, there are many stocks from Mid-Cap and Small-Cap universe that have great fundamentals, reputed track record and are trading at reasonable valuations.

Moving ahead, let us take a stock specific example- TCS from the Large-Cap universe and MindTree from BSE Mid-Cap Index(MindTree is also our Long-Term recommendation and has delivered 100% returns for our clients). Both of these stocks are from the IT Industry and have sound fundamentals.

We are confident that 5 years back you would have not even heard about a company called MindTree. It has great fundamentals, well qualified management and was trading at reasonable valuations. Now, looking at the returns from the above table, we are sure that given a chance to you 5 years back you would have invested in MindTree instead of TCS.

Adding to the stock price appreciation you would have received from MindTree, take a look at the dividend yield of the company. This is a perfect example of a Multibagger stock because along with stock price appreciation over the years, the company has also shared a big chunk of its profits in form of dividends with you.

On a concluding note, we would like to suggest that you should always prefer Mid-Cap and Small-Cap stocks for investments because they offer better ROI (Return on Investment) compared to Large-Cap stocks. To add to this, Large-Cap stocks are already big and developed companies where the upside is restricted, here as the Mid-Cap and Small-Cap stocks are growing companies they can become the next Large-Cap stock in the future.

So take some time out, do your own research or if you have shortage of free time, opt for a good, reputed stock advisory services and enjoy the fruits of investing in Mid-Cap and Small-Cap stocks!

Happy Investing

5 WAYS TO CREATE A REGULAR PROFIT-MAKING PORTFOLIO

5 WAYS TO CREATE A REGULAR PROFIT-MAKING PORTFOLIO

Back

1) Invest in 10 to 12 stocks in a year

Rotate your investment in at least 10 to 12 stocks in 1 year with average holding period of 3 to 6 months per stock.

By following this style you will be able to churn your money and that will create maximum returns on your investment.

2) Invest the same amount in each and every stock

By allocating equal amount of funds in every stock, you will be able to manage your risk effectively and cleverly.

The best way to approach this method is to invest 20% of your total investment amount in every stock and when the stocks achieve their targets, exit and re-invest that investment amount in your next stocks.

This way the investment cycle will be running and will deliver regular profits in your portfolio.

3) Maintain strict stop loss

Before you invest in any stock, define the target and stop loss for the stock. Once you have decided these figures, it is clever to stick to them come what may.

Most investors tend to continue holding on to the stocks which have breached their stop loss figures and hope that it will recover. This is the most dangerous thing to happen where you are trying to rotate your funds and create a regular profit-making portfolio.

4) Invest in good quality Mid-Cap and Small-Cap stocks

For creating a regular profit-making portfolio, it is very important to invest in Mid caps and Small caps because they are on their growth trajectory and hence they have higher stock price movement than the established large cap companies.

Historically it has been observed that the Mid caps and Small caps have always outperformed the large caps when the market is on a BULL RUN.

Now by saying that, it is wiser to go for great quality companies trading at reasonable valuations and are fundamentally sound.

5) Book profits at the first opportunity

Like in point no. 3, we suggested to maintain strict stop loss, it is equally important to maintain strict target as well.

Once the stock has achieved our target price, we suggest you book profits at this juncture and exit the stock. Booking regular profits is extremely essential for the rotation of funds in your portfolio.

I hope this essential but simple strategy will help you to create a regular profit making portfolio!

Happy Investing