HOLI: Various Colours of Life

Holi is the festival of colours. Colours are very important in life; they make the things beautiful and vibrant. Without colours life is like black & white TV of 80s. Every colour has its own aroma and importance. Let’s understand what they indicate and how it impacts our lives.

Black

Black is the colour of power, elegance, formality, death, evil, and mystery. It is associated with fear and the unknown (black holes). It also has a negative connotation (blacklist, black humour, 'black death'). However Black is also the signature colour of sophistication & royalty (the black party-wear), it dominates high-end makeup packaging and can even make inexpensive blushes and lipsticks seem more upscale.

White

White is associated with light, goodness, innocence, purity, safety, purity, cleanliness and virginity. It is considered to be the colour of perfection. As opposed to black, white usually has a positive connotation. In branding, white suggests simplicity and purity. (Seventy-five percent of top skin-care brands are packaged in white.) It also stands for modernity and honesty, which may be why Apple swears by it.

Red

Red is the colour of fire and blood, energy, war, danger, strength, power. This colour also shows the determination as well as passion, love and desire. Red is a very emotionally intense colour. It enhances human metabolism, increases respiration rate, and raises blood pressure. Although plenty of shops embrace this colour (and still find financial success), market experts warn that, just like a stop sign, a red placard can make consumers hit the brakes. It serves as an alarm, triggering a more careful consideration of our outlays.

Orange

This colour is associated with joy, sunshine, and the tropics. Orange represents enthusiasm, fascination, happiness, creativity, determination, attraction, success, encouragement and stimulation. To the human eye, orange is a very hot colour, so it gives the sensation of heat. Nevertheless, orange is not as aggressive as red. This colour is associated with equality and affordability, which is why we’ll find it at stores offering good value, like Big bazaar etc.

Pink

Pink, a delicate colour that means sweet, cute, romantic, nice, playful, charming, feminine, and tenderness, We see this colour with, flowers, babies, little girls, cotton candy, and sweetness. Pink is the colour of universal love of oneself and of others. This is the favourite colour of ladies especially the young girls.  It has calming effects, seeing pink slows people’s endocrine systems and tranquilizes tense muscles. How that might influence your wallet: Feeling relaxed may make it less painful to part with cash.

Green

Green is the colour of life. It represents renewal, nature, energy and is associated with meanings of growth, harmony, freshness, safety, fertility, and environment. Green is also traditionally associated with money, finances, banking, ambition, greed & jealousy. This is the colour of people who have eco-friendly and environment preservation in mind. Shoppers keep this colour to impress eco-minded clients.

Blue

Almost everyone (especially men) likes blue. Blue is the colour of the sky and sea. It is often associated with depth and stability. It symbolizes trust, loyalty, wisdom, confidence, intelligence, faith, truth, and heaven. Blue is considered beneficial to the mind and body. It slows human metabolism and produces a calming effect. No wonder it signifies trust and dependability and is a favourite logo colour for financial institutions to assure its customers for safety. Blue also improves customer loyalty: As per one Research Patrons are more likely to return to stores with blue colour schemes than to those with orange colour schemes.

Purple

Purple combines the calm stability of blue and the fierce energy of red. This colour is often associated with royalty, nobility, luxury, power, and ambition. Purple also represents meanings of wealth, extravagance, creativity, wisdom, dignity, grandeur, devotion, peace, pride, mystery, independence, and magic. Purple reigns in the beauty industry, especially in the category of anti-aging products. When people see it, they think of royalty. Consequently, a purple box may help persuade us that the product has special properties and is worth a princely sum.

Burgundy

Burgundy is a deep shade of red. It is named after Burgundy wine. This wine is named after the Burgundy region of France. This colour reminds us of all things rich and refined (just like red wine), so don’t be surprised if a dress in this colour costs more than a white one in a similar style. Its prismatic cousin, brown, has similar connotations of luxury.

Yellow

This is the colour of joy, happiness, intellect, and energy. Yellow produces a warming effect, arouses cheerfulness, stimulates mental activity, and generates muscle energy. Yellow is often associated with food. Bright, pure yellow is an attention getter, which is the reason taxicabs are painted this colour. A mainstay at fast-food restaurants, yellow evokes energy and increases appetite, perhaps explaining why your stomach may start to growl when you pass those golden arches.

As we can see that different colours have their own importance and impacts on our life, so next time when we are choosing something we can keep this in mind to have right impact for the same.

Woman's are Laxmi, They should also learn about Money

Generally, on an average, women live about a couple of years more than men. So in the older days of their lives, many of the women live alone for a few more years. Normally many of the women have relatively less knowledgeable about finance and investing, hence they face problems. So it's important that women should start learning about investing and participate in the family's financial planning process. There are some more reasons why, woman should know about investing and financial planning, like:

Lately we have seen that lot of women are becoming single mothers and without proper knowledge about money management they face financial difficulties. Women should learn about finance and investment so that they can address such issues.

We have seen various instances where after the sudden death of the husband, the lady has no idea about where and how her husband had invested. Hence women should insist on being part of the financial planning process for the family from the start so as to avoid such situations in future.

And yes, we all know that women are better savers then men, yet they don't invest properly. That is why they should learn to invest so that they can, on their own, create wealth in the long run.

Here are some easy steps which can be taken for starting the investments in a proper way.

1. Decide the purpose or goal of the investments, what for and how much you want to save.

2. Bifurcate the goals into short-term or for long-term goals

3. Look at your cash flows and the amount available for investments

3. Check your risk capacity (i.e. loss you can bear) so that proper investment instrument can be selected

4. Create an emergency fund and have Health Insurance

5. If you are a working woman and need to invest for tax saving purpose investing in ELSS scheme could be a good idea. You should also have Term Insurance if you are working woman.

6. If you don't have the knowledge it's always better take a guidance from the financial expert

7. Start saving in the different instruments available in the market based on expert’s advice and above mentioned parameters.

Many of the women are financially independent but still hesitate to take investment decisions on their own without their husband or father. However with little learning and guidance they can do better and be self-dependent with the matters related to money.

Manage your Wealth Smartly

In the current busy life many of us are so much occupied with our routine work that we keep on postponing the decisions related to our own wealth and money.  The pending nomination in the demat account; the incomplete change of address request; the matured deposits that are hopefully renewing or so many investments without properly tracking them are some of the issues which are very common with many of us.

It is very common to not to take any decision fearing it could be a wrong decision. Sometime multiple choices actually result into not opting for any and we keep on postponing. So what could be some action points so as to come out of this, let’s discuss them here:

1. Keep it Simple and Straight:

We should try to limit the number of saving accounts, Demat accounts etc. Now with PAN and Aadhar linked with all accounts it does not makes sense to have so many accounts. It is better to have one or two saving accounts (one for expenses and income and one for investments etc). For Demat accounts also its better to have one until unless we need other for some specific purpose. Make sure that nominees, address, email and mobile no is always updated.

2. Optimize Not Over diversify

We should optimize our assets/investments with limited no of stocks/bonds/mutual funds. There is no need to have a long list of investments to create big wealth in fact it could be counterproductive. As if good investments aren’t sizeable they won’t make any big difference, and bad investments will keep dragging the portfolio down. Keeping hundreds of stocks in small-small quantities won’t serve any purpose and will be difficult to track and manage also.

3. Plan when we won’t be here

We don’t know what will happen tomorrow. It is better to plan the things when we are in right shape of mind and body.  We should write a will so that there won’t be disputes later on. It is not required to identify each item of our wealth and list it. We can primarily indicate who will get what (beneficiaries) and who should ensure that the distribution is made according to the will (executor). The executor will take up the tasks of probating your will, making the lists, completing the paperwork, and ensuring that everything is settled as indicated.

4. Take an Expert’s help

We cannot do everything even if we have time as we may lack the expertise. So it is always better to take some expert’s help to get full picture of our assets/investments. Now days we can get consolidated statements from NSDL which could be useful to get a full and clear picture.

These simple and easy steps can actually make our life easy and simple for managing our wealth if done properly.

New Budget and New tax Planning

Recently announced budget gives lot of relief to those who are in middle income having annual income in the range of ₹ 7-10 Lakhs. Let us understand the same in more detail.

The additional Relief:

This budget has increased the limit under section 87A to give relief who are earning upto ₹ 5 lakhs. Till now, those earning up to ₹ 3.5 lakh a year were eligible for a tax rebate of ₹ 2,500. This year’s proposal has hiked this to ₹ 12,500 and raised the eligibility to ₹ 5 lakh.

However to get this relief we need to do some smart tax planning and need to plan the things in advance. Below are some fine prints regarding the same.

1. Plan Carefully: The proposal of this Budget needs to be carefully watched for as if a person’s income increases even a single rupee from 5 lakhs he is required to pay the entire tax and will not get any tax rebate.  Right now, anybody with an annual taxable income of up to ₹3.5 lakh is eligible for a tax rebate of ₹2,500 under Section 87A.

2. Consider all Income: Further all the taxpayers should know that the interest from fixed deposits, bonds and small savings schemes (except PPF) are fully taxable. It is added to the income of the taxpayer and taxed at the normal rate. If a person skips declaring this income in their return and claim the rebate they may get a shock if the addition of this interest takes their total income above the ₹5 lakh threshold and makes them ineligible for the rebate. Hence people have to plan in advance so that they actually are eligible for the rebate.

3. There is further Scope:  Budget proposals also encourages taxpayers to save aggressively in tax saving options. For instance, apart from the NPS benefit available under 80CCD(1) there is another Section 80CCD(2) which can further reduce the taxable income significantly. Under this, up to 10% of the basic pay of the employee put in the NPS by the employer is tax deductible. Further it makes sense to use the pension scheme for saving tax now as 60% of the maturity corpus of NPS is tax free and one can also withdraw for emergencies,

4. Benefit on TDS:  As per the new budget no TDS will be deducted from the interest income up to ₹ 40,000. A higher limit of ₹ 40,000 means that TDS will not be deducted till your interest income from bank FDs and post office deposit schemes crosses this limit. However, these interest incomes will still be taxable as per current income tax laws." If the bank fixed deposit holder does not have taxable income, he can declare so by submitting Form 15G or Form15H applicable. For example an individual with total income of less than ₹ 2.5 lakh in a financial year can submit Form 15G clearly stating his income and the interest received to avoid the TDS. 

5. Some other Deductions: If we also consider the deductions available on Housing Loan & Education loan interest, HRA and Standard deduction for employees and mediclaim benefits available to self and parents, an Individual having income at around 10 lakhs can manage to be zero tax payer, If planned smartly.

Yes; even if we are earning more than 10 lakhs a year we don't need to pay any tax but for that we need to plan properly and in advance so that there are no surprises.

My Personal Financial Constitution

1. I will keep all my expenses upto maximum 75% of my total net income

2. I will take loan only upto maximum 40% of my net income.

3. I will pay my all EMIs on time.

4. I will pay my entire credit card dues on or before due date.

5. I will save minimum 25% of my income for our future

6. I will keep minimum 3 months expenses as emergency funds

7. I will file my tax return on time.

8. I will take term insurance to cover my working life income.

9. I will buy health insurance to cover my own and family members’ medical expenses.

10. I will take risk based on my own personal appetite.

11. I will not invest in those things which I don’t understand.

12. I will commit only those expenses/investments which I can pay comfortably.

13. I will save for the things first rather than taking it on EMI.

14. I will plan my major expenses like buying a home, my retirement or children’s education/marriage well in advance.

15. I will review my investments once in a year.

16. I will keep the nominee names updated in all my accounts/assets/investments.

17. I will make a Will.

18. I will keep all my financial records at one place and update it regularly.

19. I will inform my nominee/family members about my financial records.

20. I will take all my financial decisions on time and will not procrastinate them.

21. I will take the experts advise for my investments.

Eleven Income Tax Saving options beyond 80C

As we reach in the last quarter of the financial year, HR departments of the companies start asking for tax saving declarations. Hence we rush to find out various avenues to save tax, the first option comes under section 80C where the limit of Rs. 1.50 lakh is available for each individual. This includes investments in life insurance premium, employee's contribution towards EPF (Employee Provident Fund), PPF (Public Provident Fund), ELSS Mutual Funds, Children's tuition fees, Pension Plans, Principal Repayment on home loans and a host of other investment options.

Generally most of us know about this and exhaust this limit Rs. 1.5 lakh. If have invested more under these options we won’t get any additional benefits. So what are the other options wherein we can invest and reduce our tax burden further, let’s find it out:

1. New Pension Scheme

New Pension Scheme provides an additional income tax deduction of Rs. 50,000 under Section 80CCD. This extra deduction of Rs. 50,000 on NPS increases the total deduction allowed under Section 80C and 80CCD to Rs. 2 lakh. Now government has allowed the withdrawal of 60% totally tax-free which makes it further attractive to reduce tax burden and save for our future.

2.  NPS investment made through Employer

We can save further under NPS if investments are made under corporate model. Under the NPS corporate model, an employee can deposit the contribution directly or route the contribution through the employer he or she is working with. Employer's contribution to NPS up to 10 per cent of basic salary (plus DA) is allowed deduction under Section 80CCD (2). There is no cap for this deduction but the total deduction claimed for contribution by the employer should not exceed 10 per cent of the salary.

3. Deduction of Housing Loan interest

If we have purchased a home by taking loan, we get exemption up to Rs. 2 lakhs under Section 24B of the Income Tax Act. If the purchased property is put on rent then, the borrower can only claim deduction of up to Rs. 2 lakh per year after adjusting for the rental income. And the amount above Rs. 2 lakh can be carried forward for eight assessment years.

4. Additional Deduction for first time home buyer

There is additional benefits to those persons who are buying a house for the first time (the person must not own any other residential property on the date of sanction of loan). An additional deduction of Rs. 50,000 is available under Section 80EE, over and above the limit of Section 24B on interest paid on home loans.

5. Deduction for Education Loan

A taxpayer can claim deduction for interest paid on education loan under Section 80E of Income tax. This deduction is available for self, spouse or children. There is no upper limit on the amount of deduction.

6. Mediclaim deduction for self, family and Parents

An individual can claim deduction of up to Rs. 25,000, if he or she is below 60 years of age, and Rs. 50,000 if above 60 years of age, towards medical insurance premium paid for self, spouse and children under Section 80D of Income Tax Act. Additional deduction of Rs. 25,000 is available if one has bought medical insurance for his parents. This deduction can go up to Rs. 50,000 if parents are above the age of 60.

7. Deductions for differently-abled

Government has provided extra deduction for differently-abled people under Section 80DD of IT Act. If an individual has dependants who are differently-abled, he or she can claim additional deductions up to Rs. 75,000 for expenses on their maintenance and medical treatment under this section. This deduction can increase to Rs. 1.25 lakh in case of severe disability.

8. Deduction under specific diseases

For certain critical diseases, an individual can claim additional deduction of up to Rs. 40,000 under Section 80DDB of IT Act, for treatment of certain diseases for self and dependants. The deduction can go up to Rs. 60,000 if the taxpayer is above 60 years and up to Rs. 80,000 if above 80 years.

9. Exemption for HRA

HRA stands for House Rent Allowance.

It is taxable under the IT Act subject to specified exemption limits. 

If you do one of the following then your HRA is fully taxable, not exempt if you:

       i.          Reside in your own house; or

      ii.          Do not pay rent for house occupied by you.

However, if you are living in a rented house and paying the rent, then HRA exemption can be availed for the period during which you occupy the rented house during the relevant tax year. 

Also, to claim the exemption, your employer is required to obtain appropriate and adequate proof of payment of rent for the entire period for which you want to claim exemption. 

An exception to the 'proof required' HRA rule is that, if you are a salaried employee drawing HRA up to Rs. 3,000 per month, you do not have to provide a rent receipt to your employer.

The maximum amount that can be claimed as an exemption under HRA is the least of

       i.      Actual HRA; or

      ii.      Rent paid in excess of 10% of basic salary + Dearness Allowance

             (DA) if in terms of service; or

     iii.     50% of basic salary + DA in case of Chennai, Delhi, Kolkata, Mumbai

             or 40% of salary + DA in case of other cities

10. Exemption for Rent payment

If you don't receive HRA from employer and make payments towards rent, you can claim deduction under section 80GG towards rent that you pay. The deduction is lowest of the following:

(a) Rs. 5,000 per month

or (b) 25% of total income

or (c) Rent paid less 10% of income

11. Donations for Charity

If you contribute to the society you will get some tax benefits also. Government allows, under Section 80G of Income tax up to either 50 per cent or 100 per cent deduction for the donations to charitable organisations subject to overall highest deduction allowed is capped at 10 per cent of the donor's total income.

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.