How to stick to New Year’s Resolutions !!

Last year I have written an article on Resolution for 2018: Be Healthy & Wealthy.  Similarly many of us make resolutions every year, but as the time goes by motivation to stick with those resolutions weakens and after a couple of months we are back to our old life style.

So what should we do to keep them actually working?

Generally we make resolutions in terms of what we shall not do and end up thinking more about it and reinforcing the earlier habitual decision. On the other side we decide to do certain things in a particular way and make it so rigid that slipping up is the final outcome leading to disappointment.

We human’s understand the reward and punishment/ pain easily. We want rewards for our actions and dislikes the pain. Hence if a new actions do not result in pleasure or positive outcomes, we lose the interest.

So how should we make resolutions which are easy to implement and keep us motivated to continue with it? Let us take few example from the world of Personal Finance.

1. Can’t Control your Spending Spree, Let’s Try this!

To Control Spending we make a resolution to limit our use of credit card or EMIs for purchases. But it does not work as we try to restrict the things in our old habit. So let us change this by making a resolution to use Debit card instead of Credit card. This way we are creating new habit where we would be spending money which we already have in our Bank Account and as we spend our bank balance goes down, which means we see the immediate outcome of our expenses and have a limit only up to the money in our bank account. This could be more effective way to control our expenses.

2. Want to Save but don’t left with money at the end of the Month, Try this!

We all know saving is very important so as to have money for future requirements, and most of us want to save but by the end of the month when we check our bank account we find nothing is left to save. So how to change this habit. Let us change this habit by saving on the day we get our salary rather than waiting for last day of the month. Systematic Investment Plans or better known as SIPs are the best way wherein we can decide the date and amount to invest in and the money gets debited directly form the account. We can also target our savings to a specific goals and have a picture on mind that by this money we will get this particular thing, this will further motivate us to save more.

3. Want to upgrade with new things on EMIs, Try this!

We get attracted to new things in the market. New Smart TVs, Mobiles, New Cars and so on. Even though we may have brought it just last year we want to buy new with the new features. Companies market them in such a way that we just get carried away with their new features. Let’s us check whether we are using all the features of our current mobile rather than just running behind to buy a new one. Do we actually need that item with new feature? Here what is more important is to focus on what we already have and are we enjoying/utilising it fully so as to redirect our attention on using things effectively rather than acquiring them. We need to take time and enjoy the things which we already have rather than focussing on what we don’t have by this we may be able to redirect thinking on more positive way.

Saving is a decision where we deny our self the pleasures of spending. The money we save is set aside for an unknown future which can be used to enjoy something in the present. Our human brain cannot trade off the immediate joy for a distant good very easily. Many of us make a virtue of living for the present, to guise our inability to save. Investing is a long term activity that does not show up gains too soon to keep us motivated hence we need to make our savings more attractive and target oriented so that we have the reasons to save and not spend.  

Should you invest Yourself or take an Expert’s help

In today’s world technology has made investing easy. Lot of information is available; in fact there is overload of information and also various online platforms provides smooth execution of investments. But should we invest on our own just because it is so simple?  It is a matter of investing your hard earned money to make it grow hence it would be wise to know that whether we can actually handle it properly. 

Let us understand the basic requirements which we are required for our own investing:

1. Do we know about various investment options and their pros & cons?

2. Can we analyse various investment options and their suitability for our own specific requirements?

3. Can we identify our various financial goals and the priorities and calculate the money required for fulfilling them?

4.  Can we link our financial goals with specific investment instruments based on time, risk and return perspective?

5. Do we have the courage and conviction to select the right investment options and stick with it during ups & downs in the financial markets?

6. Can we plan for emergencies and unforeseen events?

It is not the knowledge but the emotions which are difficult to control by most of the investors. There are lot of studies which shows that investors return is generally mower then the market returns as most of them enter/exit at wrong time. This is where financial advisers can help–providing dispassionate suggestions.

It is not necessary that everyone needs an advisor, those who have just started earnings and have small savings can do themselves by simple investments , however who have different goals and limitations in cash flow will be better off to take an experts advise to achieve their goals easily.

Are you In Debt Trap: How to come out of it !

While discussing the investments and financial planning with a young couple I found that despite having good salary he was not comfortable to put aside a decent amount for his retirement planning. When we discussed more I found that he has got lot of EMIs running for CAR, TV, and IPhone etc. which were eating a substaintial part of his monthly cash flow.

It is not uncommon to find these kind of young couples, borrowing anything and everything to meet their needs or actually the wants. Now EMI on credit cards makes it further easy to buy the things and paying in future. Many people live in pay cheque to pay cheque and in complete denial of the burden they carry on. Over dues on Credit card are killer, there not only the due amount increase at usurious rates of interest, but the repayment gets tougher as the loan gets bigger. In that situation the person goes to more discreet lenders like family and friends, informal lenders, etc, only to find that they have run out of friends. Informal lenders not only seek higher interest rates but sometimes use questionable means for recovery. So, what can a habitual borrower do to come out of this DEBT TRAP and move forward to the path of saving for long-term goals?

1. Don’t Borrow to Repay the Old Loan

The starting of a debt trap is when new loans are taken to repay older loans. Therefore no further loans should be taken to repay what has already been borrowed. The repayment of a loan should be made out of income not from new borrowing. The person should find new ways to increase his income, for example he can do some part time weekend job to generate extra income or if spouse is not working she can take some job to improve household income etc.  

2. Control the Expenses

Once we realise that we are paying more in EMIs then the normal monthly expenses we should reduce our expenses to fit in the remaining cash flows. To start with we should curb the discretionary expenses, weekend outings and other items which are not necessary till we come out of this trap. We should stop using credit card if dues are not paid as it will carry very high interest charges on the fresh purchases. We need a firm determination and proper budget to come out of this trap as there are several instances of psychological damage like depression and suicidal tendencies which come up due to it.

3. Negotiate and Restructure

We can negotiate and restructure the existing loans which can reduce our burden and fit in to the cash flows. Banks/Credit Card Companies do offer debt restructuring and advice for appropriate payment plan to help chronic borrowers. There are also external professional agencies who can also provide assistance for the debt restructuring. If you are not able to find out the right way it is always better to seek professional help to see what is due, and how it can be reworked. There are some easy way to convert costly loans like Credit card dues into personal loans; penalties can be negotiated for waiver; repayment schedules can be structured in line with capability of the borrower.

3. Sell the Assets to get out of the Mess

Some time we get so much emotionally attached to the things we poses that we don’t want to sell them even though by that we can reduce a significant burden and get a great relief. We should understand the reality and make our existing assets work, like an empty property can be put on rent, we can take mortgage gold/jewellery to raise money or can use our bank/PF balance to reduce the debt burden.  We feel a social stigma about selling assets or mortgaging our ancestral assets but taking some tough decision can be of great help as there may be short term costs but have long-term benefits.

There is a famous Bollywood movie “EMI: LIYA HAI TO CHUKANA PADEGA”, this is the fact and we just cannot escape from it.  We should also understand the fact that loan can be reduced only by repayment not by taking other loan. We will be getting our self in deeper mess if we are borrowing more to pay the older loans. The solutions lies on to figure out how to restructure and reduce the debt by existing cash flows in a disciplined manner. It is always better to take professional guidance before it is too late.

How should we save money for our Kid’s future

Most of us, the moment we become parent, start thinking of the future of our child “ Mera Beta (Beti) bada hokar mera naam karega “ is a famous Indian saying.

To make his future bright we do everything so as to give him the best education and organize a stylish wedding and for all this we need money in fact lot of money. Here comes various things in mind; how to build the corpus for these expenses, some of them are:

1. Which instruments are suitable for my requirements?

2. Will these help me to build an adequate corpus for my all goals?

3. Are ULIPS/Child Insurance Plan are right investment option for future goals, or should we take PPF or Sukanya Samriddhi Yojana for my daughter?

4. What about real estate? Is this a good deal, or Gold is better option?

5. Or should I simply put all my money in fixed deposits?

Most of the time people keep on randomly putting their money in various options due to ignorance and/or wrong advice without understanding the long term implications of the same. The common mistakes people do while investing are:

1. Thinking too much about safety then return

2. Inconsistent Investments

3. Not starting early

4. Ignoring their own health

5. Not taking proper life insurance

These mistakes results to in-adequate corpus to fulfil child’s ambitions or then digging out the retirement corpus to compensate the same.

So what is the right way to create sufficient corpus for the child’s future and how should we go for it. Let’s understand this.

1.  Firstly we should know how much amount in current value is required based on his/our ambitions.

2. We need to calculate the future value of the corpus based on the time horizon

3. Based on time horizon we need to decide the right asset allocation for the investments. i.e. how much amount or percentage should be invested in debt, equity, gold, real estate etc.

4. Based on asset allocation we need to decide about the instruments i.e. which company’s equity? Should we invest direct equity or through mutual funds, In debt whether FD or PPF or Sukanaya Samridhi or Debt Funds or Balanced Funds, In Gold should we take physical gold or ETFs? In Real Estate residential or Commercial, and in which City? Etc..

Now let us find out the answers of some of the common questions.

(a) What is the right options for investments?

Mutual Funds could be one of the best option for regular investments through auto pilot mode. We need to construct an optimum portfolio with right mixture of equity and debt based on investors risk appetite and time horizon. For a long-term goal, it is better to have investments inclined towards equity, whereas for short-term goals, have more exposure to debt. Once the scheme/portfolio is finalised we can let the money keep on investing in those funds on regular basis through SIP route. For more details read my previous post the link of which is given below.

 Mutual Funds are not just Right, they are Better also

(b) PPF, FDs, Sukanya Samridhi Yojana (SSY) are Safe and Secure, So should we go for it?

These are debt products which are relatively safe and can be invested if our time horizon and risk appetite demands so. However we should remember that although PPF and SSY but there interest rates also changes every quarter based on the current interest rate scenario and we should not expect very high returns from them. Further PPF is 15 year instrument and SSY is also 10-15 years instrument so we should also keep in mind the future requirements.

(c) What about ULIPS or Child Insurance Plans, how good are they ?

Investment and Insurance are two other things and we should not mix them. All the Child insurance normal endowment plans gives 5-7% returns, while ULIPS are equity debt mix and give market return less of various expenses i.e. morality charges policy admin charges etc. and there will also be GST on the premium amount. We should always remember that It’s not the children who need insurance, but parents. A prudent option is to go for a combination of a term cover and mutual fund investment. For further details read my previous posts Mutual Fund Term Insurance: Best of Both Worlds .

(d) What about Real Estate, is this good investment option?

For last several years real estate has given almost negligible return. Apart from that it is kind of illiquid investment which cannot be sold in short notice in case of urgent The rental yields are 3-5% which are very low and unattractive. Besides, there are various other charges that we need to pay like property tax, maintenance cost, high transactional costs, or capital gains when you sell it. Further a property is not divisible and we cannot sell one room in a flat or a house to meet an immediate expense.”

All those issues makes real estate an un-attractive investment option.

(e) Is Gold better to invest for long term?

Normally we all Indians need gold for our Child’s wedding, but buying physical gold has its own draw backs. One is if we buy gold jewellery it may be outdated by the time our child marries or he/she may not like it. Secondly there are storage expenses and purity issues. 

So what could be the better option to buy gold? The answer is Either ETFs or Sovereign Gold Bonds, further as Sovereign Gold bonds gives interest of 2.5% besides paying back the market price of gold at the time of maturity so this could be better option if we need to buy gold in future.

(f) Should we take Education Loan or dig out form my Retirement Corpus to fund my Child’s Education?

Taking education loan is better option due to following reasons,

·        This keeps our Retirement Corpus safe,

·        Our Cash flow from existing corpus remains intact

·        By taking Education Loan we create sense of discipline and responsibility in the child that he should be sincere on his studies and take up the repayment responsibility

·     Education loans are easily available for good course, both for Indian and foreign higher education.

·      The interest rates start at a low 8-10% and no guarantor or collateral is required for loans below ₹4 lakh.

·        Education Loan has tax benefit also as the entire interest portion of the loan is eligible for deduction under Section 80E of the Income Tax Act.

·        There is grace period of one year, as mandated by the RBI, after the child finishes his education and starts repaying the loan. Hence child will have sufficient time to start repaying the loan

For further details read my post, the link of which is provided below.

Education Loan: An option to enrich your skills even if you can’t afford it right now

As we can see from above points it’s better to take loan rather than digging out from retirement corpus.

Nothing is impossible in this world, If we plan it properly and timely we can achieve great goals and dreams for our kids in a very easy and simple way.

DIWALI- An Ancient occasion to enlighten your Money Management

Diwali is a very old festival which is celebrated on the return of Lord Ram to Ayodhya after fourteen years of exile. Diwali is celebrated on a new-moon day and the lightening of lamps indicates the destruction of darkness and evil. For all Indians Diwali is one of the most popular Indian festivals which is celebrated with lot of pomp and splendour. “Lakshmi” The Goddess of Wealth is worshiped on this festival. It is an important occasion for many reasons like the importance of human bonding, celebrations in family, reunions of friends and relatives, etc.

This is an occasion not only for a traditional reason, but also for its significance to organise all the financial information. This tradition is equally significant for the business as well as many business starts new account books on this day, in Stock exchange also there is Muhurat Trading, a special occasion for the stock markets.

The Diwali festival also gives us a great learning about money which we have tried to discuss as below:

1. Dhanteras: Bringing home the “Wealth” –

The first day of Diwali, Dhanteras (“Dhan” meaning wealth and “Teras” meaning the “thirteenth day”) falls two days before Diwali. The day pays homage to Lord Dhanwantari who is associated with Ayurveda and various healing practices for the good of mankind. This day marks the day to make new purchases and investments and can also be referred as start of financial wellbeing. This day is considered to bring good luck and prosperity to the family. The popular belief is that any investment made on this day will grow and multiply throughout the year. It is the day chosen by most people to make investments in gold, silver, platinum or any other metal.  Regularly investing in precious metals, every year during this special day also helps you in growing and accumulating wealth over a long period. Off late, stepping aside from the traditional definition of investing in physical metal, it is seen that many investors also invest in gold ETFs, or financial instruments which is akin to investing in physical gold. It teaches us that “we should keep on accumulating wealth regularly to achieve financial wellness.”

2. Narak Chaudas: To Clean the “Mess” -  

The significance of this day is grounded in the story of Lord Krishna's overwhelming triumph over a ferocious demon named 'Narakasur', who kidnapped the 'gopis' This is the second day of Diwali wherein every one cleans up their home/work place and remove all the unnecessary things.

Similarly we should also check our portfolio thoroughly to ensure that it is aligned with our financial goals along with unforeseen/emergency expenses and also remove those investments which are no longer required. It teaches us that “we should identify and eliminate the financial mistakes committed in the past” be it availing high cost debt, wrong financial products purchase like endowment, ULIPs, etc.

3. Lakshmi Pujan: Respect the “Money” –

This is the day when Lord Rama finally returned home from exile and was welcomed with a glittering row of lights radiating from every household. It also coincides with the Pandavas' return from the forest. Lakshmi Puja is performed on this day. Lakshmi  is the Goddess of Wealth and her worship shows the respect of wealth and to preserve it in a pious way. This teaches us that “We should do hard work with clean heart to earn so that goddess lakshmi will stay in our home forever.” This day we also play with firecrackers and exchange sweets and presents which shows to celebrate happiness and share the joy of wealth with others. However we need to be careful and should not indulge into show offs which could be very dangerous.

4. Govardhan Puja or Padva: Nothing is “Impossible”-

The fourth day is Govardhan Puja or Padva. It is the day when Lord Krishna defeated Indra by lifting the huge Govardhan Mountain. This teaches us “that we can achieve everything if we believe in our self and put hard work.” This is also New Year for many communities in India and symbolises a new start by overcoming past mistakes. We can start a new financial plan and make new commitments to ourselves so as to come out of our old perils and achieve new success in life.

5. Bhai Dooj : To share with our “Loving Ones”-

The fifth and last day is Bhai Dooj. On this day sisters invite their brothers for a lavish meal and perform a ‘tilak’ ceremony. Sisters pray for their brother’s long and happy life while the brothers give gifts to their sisters. This teaches us that “we should share the things with our loved ones” like employers giving bonus/ESOPs to employees and employees promise to work hard to make their company more successful. Bhai dooj occasion teaches us that everyone has a role to play and if all of us do our duties with sincerity great success can be achieved easily.

Diwali is celebrated on a new-moon day and the lightening of lamps indicates the destruction of darkness and evil. Everybody aspires for a good time, and spending for the same is human. However we should remember that celebrating a festival or an occasion should never be a onetime affair but should be done every year. Meaning although spending now can add to the celebration, it may adversely impact the saving potential thereby resulting in weak financial planning habits which in turn may compromise the financial goals in the future.

The best financial practice on this front is to allocate a budget for non-committed or discretionary expenses such as a festival, occasion or a celebration every month/year and comply by the budget. Strict adherence to the budget negates the possibility of overspending thereby enhancing surplus which in turn leads to a higher likelihood of celebrating these occasions regularly and not just one time.

Dussehra : The ten truths and myths about the Mutual Funds

In the occasion of Dussehra let us understand the ten truths and myths about mutual funds.

1.       It is too Complicated

Most of the people feel that mutual funds are complicated instruments and not meant for me. The truth is that mutual funds simply invest the money on debt, equity and gold or mix of these assets and there is nothing so much complicated on this.

2.       We need lot of money to invest in Mutual Funds

Many people feel that mutual funds are for riches and we need lot of money to invest in mutual funds. However the truth is that we can invest in monthly SIP for as low as Rs. 500 only. Mutual funds are for everyone how big are small the amount is, It can always be invested in mutual funds.

3.       We need a Demat Account to invest in Mutual Funds

There is misconception that Demat account is compulsory for mutual funds. The truth is that we can invest in mutual funds without any Demat account, although we can take the mutual fund units in Demat account also however it is not compulsory. Even without Demat account the investment and redemption is very east through online mode.

4.       Mutual Funds are for long term investment purpose only

We can invest in mutual funds for a week also as well as for years. There are various different type of schemes based on the investment horizon and risk appetite wherein we can invest for short medium or long term based on our specific requirements.

5.       High rating Schemes earn better

There are various portals/agencies which gives ratings to mutual fund schemes, We generally are under impression that higher rated scheme will be doing better as compared to lower rated schemes. However the truth is that rating and performance keeps on changing and there is no scheme which can always be at top rating or bottom rating. Therefore we may not be totally dependable on the ratings of the schemes.

6.       We should invest in Equity mutual funds only

Many investors feel and mutual fund means equities and we should invest only in equity schemes. However, even today more than 50% of the total mutual fund corpus is in debt /debt related funds. Mutual funds are best for diversification purpose. We should invest in debt/balanced and equity schemes based on our investment horizon and risk appetite.

7.       Investment in Mutual Funds is cumbersome

There is a common myth that we need lot of documentation to invest in mutual funds, KYC is required for every time we want to invest in mutual funds. Investment in mutual fund is actually very easy, we need to do basic formalities and KYC only one time and after that we can invest in any mutual funds. Nowadays there are various online platforms available through that we can invest in mutual funds from anywhere and anytime.

8.       Lower the NAV better to invest in

There is a general miss-conception that if a scheme’s NAV is lower than it is better to invest in. However the fact is that the price of NAV actually does not makes a difference. For example if a schemes NAV is Rs. 10 and we have invested Rs. 10,000 then we will get 1000 units. Another scheme NAV is Rs. 100 and if investment amount of Rs. 10,000 then we will get only 100 units. Now if the market goes up by 10% it means first scheme’s NAV will become Rs. 11 and our investment value will become Rs.11,000 (11X1000) and for second scheme NAV will become Rs. 110 still the total investment value will remain Rs. 11,000.  So it is more important to study the performance and portfolio of the schemes rather than the NAV of the schemes.

9.       Stop SIP when Market falls

Many people get scared when the market falls and stop there SIPs during that time. That time is to continue your investments as you will get more units at cheaper price reducing the average cost of investments. This will help to improve overall return when the market rises. It is always better to continue with your investments and not get over-influenced by the market movements.

10.   No need for an Expert

Every products has its unique features hence suitable for few people and not necessarily suit for other person. Experts are there to help a person to find out right product mix based on his own specific requirements/financial goals /risk appetite and family needs. It is always better to seek expert advice so as to select right schemes which is most suitable to achieve your own specific financial goals.

What should we learn from the Crisis?

We get panicked when we see that our whole life’s savings/investment reduces to half its value in a just a year. But yes this is also the reality and faced by many investors during 2008-09 crisis. The investors’ money reduced by almost 60% (assuming the money was invested in BSE Sensex) within January 2008 to March 2009 period.   It needs extra ordinary courage and patience to digest such kind of loss and remain invested. However those who continued for next two years they were back in profit  If we see the historical returns the market since has given approx. 10% average annual return if my holding period is more than five years. So what should we do where there is a bloodbath in the Dalal-Street and how to survive this kind of situations, lets us find it out.

  1.  The most important lesson we should learns from past crisis is that Stock Markets goes ups and down but will finally react to the underlying economic signals. It will recover back if the underlying economy grows. However the small retail investors typically buy when markets are high and sell when markets crash. We have seen it in 2008 crisis. The mantra is: Buy Right products and hold, don’t get into panic selling. Usually there is a sharp recovery after a crash which cannot be encashed by the immature investors except may be few experts and hence small investors are most likely to miss the recovery. Unless we are invested, we could not gain from the market recovery. The strategy should be holding a well-diversified portfolio (through diversified mutual funds) rather than just a few stocks.

  2.  The old saying “Never keep all the eggs in one basket” is always relevant especially in case of the investments.  In the past we have seen various themes like IT, Pharma, Infrastructure funds which have done exceptionally well for some time but also turned huge negative when the hype related to these sectors waned out. We need to diversify our assets in different asset class like equity, debt, gold, real estate etc., not just that within asset class also we need to diversify further like in case of equity we should spread our investments in Large, Mid & Small cap Diversified Funds, Sector funds have higher risk and should be limited to only a small portion of the total portfolio. Diversification is very important and while analysing the return part we should see the portfolio return rather than one particular class of the assets.

  3. Portfolio Rebalancing is another important thing need to be practiced in investments. Normally  when the market rises we get carried away with it and forget the prudence while increasing the allocation in that particular asset class, rebalancing has a purpose and should be practiced in a systematic way. First we should decide how much debt and equity we are comfortable with based on our risk appetite and financial goals.  Once it is decided it should be practiced and rebalancing should be done when one asset class goes up. For example if we have decided 50:50 as equity and debt and due to rise in equity market the portfolio moves to 65:35, in that situation we need to redeem the excess equity exposure and brought it back to originally decided allocation.  As we reach to our financial goals we should reduce exposure from high risk category to low risk category.  By rebalancing we also tend to book profits in between while reallocating the assets.

We have seen a very sharp growth in mutual fund investments in last two three years. These are those new investors who have not seen a long and deep market crash like in 2008-09. The points mentioned above are very important for those investor. If an investor has begun to invest just by looking at the past few years’ returns and don’t have a proper plan/strategy, he will panic and sell at the first whiff of a longer market crack. Panic selling and greed-based buying will costs much, not just money but also the trust in the markets. Hence it is always better to take proper guidance from an expert.

Are you Financially Fit?

In the monsoon season it is very common to have fever, chills, muscle aches, cough, congestion, running nose, headaches etc. Even some times people get dengue and malaria also due to change in weather conditions and high mosquito breeding. To avoid these problems we take certain precautions like not getting wet, drinking boiled water, avoiding outside/open food, keeping our surrounding clean etc.

But what about financial health, did we ever bother to check whether we are financially healthy?

As we need to be physically healthy, being financially healthy is equally important. Financial health determines how our future life will be, will it be comfortable and tension free or otherwise.

Our overall financial health comprises of many elements, like maintaining budget and living within it, spending within budgets, paying debts on time to build a good credit score, have proper defined financial goals be it short term or long term, investing properly etc.

So how should we maintain proper financial health and how to find out the symptoms of bad financial health? Let’s understand the points which can help us to be more financially healthy.

1. Don’t know where the Money is

In the current digital word spending/transferring money is very easy and fast. We make payments through Credit/Debit cards, online transfer through mobile apps and so on. In this process we forgot to keep control where our money is and how much actually is in our different accounts. Sometime this results into paying various charges/fees which can be avoided.

It is always better to keep a regular check on various transactions and balances of various online/offline accounts. Further we should be vigilant about the charges and fees levied so as to avoid them.

We should keep our bank passbook updated regularly or have the latest statements with us. It would be better to maintain our bank accounts in ms excel with us so as to review cash flows and have control on them.

2. Buying anything and everything by Credit Card

Many of us get into habit of using credit cards for buying everything. This sometimes leads to buying those items which are actually not required. As we don’t have to pay the money immediately we don’t feel the pinch of it. But remember nothing comes free and if we don’t pay our credit card dues on time there is a very high interest rate (36-48% annual) as well as the penalties.

By spending unnecessarily we will not be saving enough for our more vital future financial goals and perhaps drowning in debt.

We need to control our spending habits we are spending beyond our budgets by cutting down unnecessary expenses like dining out, buying expensive gadgets etc. The other option could be to increase our income by doing some part time job etc. However controlling our spending habit will still remain crucial.

3. No/Little Savings

Many people believe in today without bothering for tomorrow. They have very little savings although they are working for quite some time. We call it a bad savings habit. Those who have this habit should be careful as this can be just a start to a big financial crisis of the future. This can lead to the person in such a situation that he may be left with no money to meet vital financial goals, one of them is retirement.

To be financially healthy savings is the first and most important step. We should have habit of saving first then spending. Further we need to invest the money with a proper strategy so that it can accomplish our short-term, medium-term, and long-term financial goals.

4. Not planned for Emergency

The world is full of uncertainties and nobody knows about future. Emergencies such as hospitalization of family members, loss of job, etc. can knock the door anytime, so it is very important to plan for something which we never planned for. If we do not have emergency fund and proper insurance cover, it is a sign that we are not prepared for the worse in life.

We can keep our 6-12 months of regular living expenses, including EMIs as emergency Fund which can be kept in liquid funds so that it can be used if the situation arises. Financial security at those difficult times gives us more courage and strength to come out of it graciously.

5. Poor Credit Score

Some people have habits of using credit cards carelessly like buying items in EMI by credit card, paying minimum dues of credits cards or taking one loan to pay of the other loans. These habits lend a person into vicious circle of debt trap and a symptom of bad financial health.

This leads to poor credit score. Currently all lenders check credit scores and consider it as one of the most important deciding factors for sanctioning loans. A low credit score reflects bad credit worthiness and behaviour, and reduces the chance of a getting a loan at the best interest rate when a person needs it the most.

If someone is facing these issues then probably he need professional guidance to get out of it as soon as possible.

As we need to be physically fit to enjoy the life, financial fitness is equally important for a stressfree life. If we have any symptoms or poor financial health we need professional guidance to take corrective measures before it is too late.

Investments Sahi Hai Par Financial Advisor Jaruri Hai

This week many of us have paid respects to our teachers on the occasion of teacher’s day. Most of us will agree that teachers are very important in everyone’s life. Many of us will also agree that whatever we are today, our teachers have played a great role on this. Even in sports also every player thanks his/her coach after winning. Similarly our parents and elders have advised us on various stages of our lives since our childhood and many people also have gurus or mentors who have given a direction to their lives.

In this age of internet and especially the Google, anything and everything is available on a click of a button. So whether we want to buy something or invest or even want to cure for a disease it is just a click away. But is it really workable; think about this—can we cure ourselves by googling except may be a basic problem like cold and will that be right? Similarly, for investing, while we may have an idea about the type of investment to own, most of us lack insight and expertise.

Let us understand the reasons why we should have financial advisors:

1.    Investment products are becoming more dynamic and complex. Two decades back we use to have few products like Bank FDs, PPF and Post Office Saving products etc. That time the investment decision revolved mainly around comfort with the bank, rate of return and tenor of the investment. However, now there are so many options that selecting the right option itself is a tedious job. For example in mutual funds there are equity-Large, Multicap , Mid cap, small caps, thematic, tax savings etc, hybrid, dynamic asset allocation, arbitrage funds, debt funds- liquid, duration , credit risk funds etc. Further there are different PMS products, derivatives, direct equity, insurance, Alternate Investment Funds etc. So what is right for one person may not be suitable for the other. Just by googling it may not give you what actually fits in your specific requirements.

2.   Another important point which we should always keep in mind is that investing is not just about making money but also about avoiding mistakes. While taking investment decisions we often get influenced by emotions, past experiences, advice from friends/relatives and our own attitudes etc. During negative markets, most common cognitive bias of investors are loss aversion, panic sell, and herd mentality. Many of us have heard how people were crazy in equity market investing during 2007 and early 2008 and then the panic sale in late 2008. People have invested in real estate market in 2010-13 with the hope of 2005-10 kind of bull return but actually landed up in no return assets. An advisor can actually help the investors in those times to see beyond the current hype and help him to take a rational decision.

3.  We should understand that investment is not one time decision but a lifelong process and is different for every individual. A person stars investing when he/she starts working i.e. generally in mid 20s, and keeps on investing till he stops working i.e. retirement. As a person keeps on investing for his entire working life similarly he needs constant advice and different strategies for different life-stages. Every individual have different income/expenses/requirements, risk appetite and cash flows and accordingly his investing requirements also differ and needs to be customized base on his own specific need rather than a general solution.

4.      A Financial advisor not just helps an investor to take right decision about where to invest, when to invest, how much to invest and how long to invest but also performs various other things. Like keeping track of performance, analysing the funds doing asset allocation and rebalancing, risk profiling etc. He also helps in providing consolidated picture of investments, taxation and capital gain calculations and to keep the record in proper and systematic way.

Every profession needs its own expertise and no one other understands their roles & responsibilities better than the one who is in charge of the respective role. Hence It will always be better if we spent more of our time in our primary roles rather than getting into some serious trouble by trying to save some money.

And lastly remember the youdh of Manabharata was won by Pandavs despite Kauravs have the biggest army and great warriors and this happen because they have the great advisor Shri Krishna.

This Raksha Bandhan gift your sister something different

Tomorrow we will be celebrating Raksha Bandhan. The festival of love and protection between brother and sisters. We all know that on this ceremonial day of sibling love, a sister knots a sacred thread, Rakhee, around her brother’s wrist and wishes the best for him. The brother in return promises to protect her through every situation of her life.

We find brothers searching for the best possible gift from the market to get the best for their beloved sister(s). Most of us usually get some accessories like, smartphones, jewellery, apparel, cosmetic kits, boxes of sweets or dry fruits etc. So, for this year let’s consider something different and unique gift for our sister, something unconventional but useful for her whole life. This year let’s give her a financial gift which can be remembered by her forever.

1. Open a bank account in her Name

Most of the time we give money to our sister. Instead of that let’s open a Saving Account her name and deposit the money in that account, not just in Raksha Bandhan but we can deposit in other occasions also. 

If the money is significant enough then we can invest in a term deposit also. By this she will earn interest; which can provide her a source of income, may be pocket money.  Further the bank’s debit card can empower her to use the money lying in the saving account as per her will.

2. Buy a Health Insurance for her

The ladies work tirelessly first with their biological family before marriage and continues to selflessly shower care and love on her in-laws later on. During this, she often ignores her own health while making things possible for everyone else. 

Considering today's lifestyle of long working hours, stress, lack of physical exercise, skipping meals, indulging in junk food etc, we are always at a risk of serious diseases. A critical illness cover is very much essential in today’s lifestyle.

So, let’s buy a health insurance in this Raksha Bandhan for our sister so that she is adequately insured. 

3. Gift Her a SIP 

Rather than just a onetime gift we can give a gift of life time. We can do this by gifting her a SIP or Systematic Investment Plan of a mutual fund scheme.

SIP is a contemporary and effective mode of investing in mutual funds. It allows us to invest a certain sum of money regularly—say monthly or quarterly—instead of all in one go, and helps us to simultaneously plan for many financial goals. We can start with a monthly SIP of as little as Rs 500 and can gradually increase the amount with a Step-up SIP facility. 

However we may need an expert’s guidance on selecting the right mutual fund(s) for SIP based on our investment time horizon and risk appetite.

This can be an effective medium to fulfil her dream’s to buy something of her choice later on like: to start her own business, buying jewellery or going for holidays etc. By this we can help her build that corpus systematically via SIPs. 

4. Gift her the favourite

Gold is always a favourite for the girls. So why not give the gift which she always wants to have it. However this Raksha Bandhan not in physical but in paper form.

Gold Bonds issued by the government, Gold ETFs and gold saving funds are smart as well as efficient ways to invest in gold. These can be easily liquidated as per the market price.

We all know that Gold is always considered as a safe haven and a saviour in times of economic volatility. The investment in gold can strengthen our sister’s financial security over the long-term, and it is, indeed, a very much deserving gift for her in this Rakhsha Bandhan.

By gifting these financial gifts to our sister we will not just make her happy but also add to her financial security and financial freedom.

So this Raksha Bandhan; let’s think differently and think wise!!

Dynamic Asset allocation Fund: A New Animal with Smart Strategy in Volatile Market

When market is volatile and investment period is short or medium term (i.e. 2-3 years) the choice of investments need to be very carefully selected. The reason being if we invest in pure debt funds it may not give very high returns and for less than three year period the capital gain is directly added to the investor’s income making it unattractive for high tax bracket investors, on the other hand 2-3 years period is a too short period for full equity investments. For this period even hybrid funds (balanced funds) which have min 65% equity also reflect same kind of risk return profile as of equity funds.  

So what could be the other option in this kind of scenario?

The answer could be dynamic equity asset allocation funds also called as balanced advantage funds. These funds manage the equity and debt part more dynamically through certain model based portfolio allocation by which they try to give better risk-adjusted returns using predefined formula.

What are the USP of these schemes?

The basic USP of dynamic allocation funds is the active portfolio management between equity and fixed income securities, depending on the market conditions.

These funds shift more money into bonds when market valuations look expensive, and do the reverse when valuations are cheap. The funds typically keep equity portion vary between 30% - 80%, although they can go beyond these limits also.

Normally these schemes use valuation metrics to determine the level of exposure to equities at any given point. The funds uses one or multiple parameters to decide the equity exposure Like (P/BV) Book Value Model, P/E (Price to Earnings) model, Dividend yield of the index etc. Some funds also uses technical analysis like trend lines etc. along with fundamental ratios to fine tune there equity exposure.

By using model based approach, the discretion in the hands of Funds manager is limited and more rational in these funds.

The basic objective of all these type of schemes is to buy low and sell high, helping the investor ride out the volatility over the long term.

These funds also take arbitrage positions through equity derivatives. Arbitrage exposure allows them to keep the actual equity exposure low in a heated market, still maintaining the effective equity allocation above 65% to reap tax benefits, which is applicable to equity and equity related schemes.

This means the long term capital gains after one year from the investment date is exempted (upto Rs. 1 lakh) from LTCG and taxed at the rate 10% beyond that amount.

What are the advantages of these Funds?

These funds are more flexible in asset allocation which helps the investor to make the most in high market volatility situation.

Currently the valuations are high and earnings are uncertain so it makes more sense to invest in model based portfolio which reduces human interventions and emotions.

And the dis-advantages are

These funds may not give higher returns when equity market is riding high. They will generally under perform in rising market situations.

Every fund/schemes has its own unique model so the returns/output will vary scheme to scheme. This makes it little confusing and difficult for the investor to select the right fund.

Dynamic Asset allocation funds are a better choice for managing risk for most investors. In these schemes the model based asset allocations helps in riding the volatility of equity market with more rational and balanced approach. There are other balanced funds categories also where the equity asset allocation is predefined as per the category like—65-80% for aggressive hybrid funds, 40-60% for balanced hybrid funds, and 10-25% for conservative hybrid schemes; however they are not managed very actively.  Dynamic funds allow for higher wealth creation in the long run, while limiting volatility to some extent.   These are better option for conservative investors even for longer time frame, whereas investors with a moderate/higher risk profile can go for hybrid equity funds if their time horizon is medium to long term.