Invest In India » Personal Finance

Housing finance a priority sector for weaker sections

Malvika — Mon, 30 Jan 2012 14:10:42 +0000

The apex bank of India, Reserve Bank said it is considering categorizing housing finance for weaker sections as priority sector lending by early next month to ensure adequate flow of credit.

“We are trying to put housing finance for weaker section as a part of priority sector. There is a committee which is looking into it. Hopefully, by the first week of February this report will come,” RBI Deputy Governor H R Khan told reporters.

The committee is headed by Union Bank of India Chairman and Managing Director M V Nair, was constituted by the RBI to look into various issues related to priority sector lending, including review of loan limits under the segment.

The committee has sought to address issues like desirability of simplifying the approach to direct lending, inconsistencies or ambiguities in the existing guidelines, nature of activities, presently classified as priority sector, that need relook and new areas, which should be incorporated.

The terms of reference of the Nair committee is to revisit the current eligibility criteria for classification of bank loans as priority sector with reference to nature of activities and types of borrowers (individuals versus institutions, corporate and partnership firms) of loans.

It will review nature of activities and types of borrowers (individuals versus institutions, corporate and partnership firms) of loans which can be brought under priority sector segment.

The terms of reference of the panel include review of limits on loan amounts.

It will also review appropriate documentation and due diligence thresholds to ensure that loans extended by banks are for the eligible categories of purposes and borrowers, which need special attention and treatment, the terms of the report state.

As much as 40 per cent of the bank’s total lending is for priority sector including agriculture and small sector industry.

Source – Agencies

How to choose the best available Mutual Fund?

Ziaulla Namani — Mon, 30 Jan 2012 13:36:08 +0000

If you want to invest in mutual funds, you will be required to flip over 1,000 mutual fund schemes that are offered by all the fund houses put together. In this scenario, how do you go about choosing the best available Mutual Fund?

In order to dig the answer you need to answer simple questions like:

* What is it that I am trying to achieve from my investment? – Am I looking at generating X amount of returns or do I want a steady appreciation on the capital invested or is it my objective to generate some wealth from the investment which will help me achieve a particular financial goal.

* For how long do I want to stay invested – is my investment for a short period or am I willing to stay invested for long, say 10 years?

* How much risk am I willing to take on the investment – Will I be able to cope up with momentary loss or would I prefer selling off the investment instead of taking any loss

* Am I in a position to invest one time or will I be more comfortable investing in bits over a period of time.

If you diligently answer the above questions, the long list of available options would automatically get curtailed to a far more manageable number. Answering the above questions would also allow you to pursue those schemes which are more relevant instead of trying your luck purely on the basis of past performance or other ad hoc factors. As Ralph Seger, an Investment Guru once said

“An investor without investment objectives is like a traveller without a destination.”

Having zeroed down on your investment goals and preferences, you need to dovetail these with the investment objective of the scheme. Every mutual fund scheme has a clearly defined area of investment which it focuses on. You need to make sure that your investment goals are in line with the investment objective of the scheme.

Another important aspect that you need to consider is the risk profile of the scheme. There could be a situation wherein the scheme’s investment mandate matches your requirements however its risk profile may not be in line with yours. For example, you may be someone who avoids highly risky situations but the scheme which you have chosen may be investing in say small and mid-sized companies which are relatively more risky. In this case, you would be better off staying away from it as you may not be able to cope up with its volatile performance. To quote Warren Buffet, “The most important quality for an investor is temperament, not intellect.”

The third factor that you need to consider is the investment horizon. While most equity mutual fund schemes are open ended i.e. without a specific investment time frame, debt schemes generally have a specific investment horizon which is reflected in the instruments that they invest in. Even in case of equity, you need to be clear that you are willing to wait for a reasonable period of time, say 3 — 5 years to allow your investment to fructify and generate returns instead of bothering about the day to day variations in terms of its performance.

Courtsey Indian Express and GIRISH KALRA ( Head, Marketing and Corporate Communication,Mirae Asset Global Investments)

©2009 Copyright by Invest In India

Indian tycoons put Dubai in Billionaires list

Ziaulla Namani — Fri, 27 Jan 2012 07:32:42 +0000

Superrich business tycoons from India has strengthen Dubai’s position as the city with the most billionaires in the Middle East, according to a latest index that ranks Mumbai fifth largest hub of billionaires.

The emirate is now home to the highest concentration of billionaires in the region – there are 14 of them — and ranks 18th globally, fresh data from WealthInsight, which analysed more than 1,300 billionaires, showed.

New York was ranked as the city with highest number of billionaires, followed by Moscow, London and Hong Kong.

“In terms of competition with Dubai, it has more to do with the Indian business,” Stephen Gross, a senior analyst in WealthInsight, was quoted as saying by The National newspaper.

The UAE has a number of foreign national billionaires in the country, coming from countries including Bahrain, India, New Zealand, Pakistan and Saudi Arabia.

“There’s a lot of Indians who are not residents in India, and those are the ones that Dubai and Singapore are both competing for. Both locations are also courting billionaires seeking a haven from having to pay taxes, particularly after scrutiny increased over accounts in Switzerland.”

“Dubai could benefit from wealthier individuals coming into the emirate following the Arab Spring, and if more unrest in the region continues — but there had not been such an effect among billionaires as of yet,” Gross said.

Since 2007, the average per-capita wealth of billionaires residing in the UAE has dropped 10 per cent, though the number of billionaires has doubled, WealthInsight said.

Source – Agencies

©2009 Copyright by Invest In India

Financial Planning Lessons from Republic Day

Malvika — Tue, 24 Jan 2012 13:10:27 +0000

Independence Day

India obtained its independence from British Rule on 15^th August 1947. India became independent and wants to develop and prosper with its own decisions.

Constitution

Though we are independent, we were not having our own constitution. Without constitution it is difficult to take the right decisions for growth. So we needed our own constitution which will be the principles and guidelines, based on which we will be able to take the right decisions at the right time. Constitution also deals with the procedures and methodology of taking decisions.

Republic Day

The Constitution of India came into effect on 26^th Jan 1950 which we call it as Republic Day. Since 1950 we were able to continuously grow with the guidance from our Constitution. Without an effective constitution, this exponential growth could have become impossible.

Amendments

So far we have made 96 amendments in our constitution in the last 62 years. Amendments make the constitution more dynamic and implementable in the changing times.

Financially Independent

You will be financially dependent on your parents till you complete education. Once you get a job you will become financially independent. You can take your own financial and investment decisions. You may want to financially grow and achieve financial goals like buying a car, buying a property, children education and marriage, and having a comfortable retirement.

Financial Constitution

Do you have your own financial constitution? That is you need to have a set of financial principles guiding you to take the right financial and investment decisions. Without these guiding principles it is difficult for one to financially grow and achieve financial goals. This financial constitution or financial plan details the step by step procedures and methodologies of taking sound financial and investment decisions.

Illustrating a case:

Rahul would like to retire in 25 years. He would like to have (when retiring) investments which can generate lifelong, the equivalent of Rs.50000 per month and additional Rs. 2 lacs per annum at today’s costs.

A Mediocre Approach:

Rahul may choose invest now and then. He may contribute Rs.3000 in one month, Rs.15000 in another month. He may skip investments at times. So his financial picture will not be very clear. He will not know how much he will be accumulating when retiring. He will have insecurity throughout.

Financial Planning Approach:

Financial planning approach has got some principles and guidelines. These principles and guidelines are like a light house for a ship. They give you the right direction at any point in time.

Investment Principles and Guidelines in Financial Planning Approach:

1)      A good investment need to generate a decent inflation adjusted return.

2)      Not investing in risky avenues like stock market is also riskier.

3)      When doing trading, you are not investing.

4)      Asset allocation is a proven strategy to reduce the overall risk of the portfolio. Periodically rebalancing the assets will enhance the potential of wealth creation.

In the financial planning approach, the situation will be detailed with more facts. As you have well established procedures and methodologies in financial planning, you will be able to do a sound plan and course of action to be taken to achieve the financial goals.

Present Age
30

Retirement age
55

Life expectancy
85

Expected Annual Income

(Post Retirement in today’s value)

800000

Inflation
6%

Pre-retirement return
12%

Post-retirement return
8%

FV Expected Annual Income
3433497

Retirement Corpus
79582501

Required Annual Investment
596866

Required Monthly Investment
49738

If Rahul is able to invest Rs.49738 per month, he will be able to accumulate the retirement corpus easily.

Alternatively Rahul can start with Rs.22000.per month, and increase the contribution every year by 10%. Even in this method he will be able to accumulate enough towards his retirement.

Amendments Vs Review:

Financial planning reviews are what amendments to a constitution. When there is a change or deviation from our original plan, we need to do a review to control the change. The reviews of financial plan accommodate the changes and deviations and make the whole plan achievable.

When celebrating the Republic Day of our country, why don’t you create your own financial constitution /financial plan for a better prosperity?

Long live Republic.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

Indian Inc optimistic about growth

Ziaulla Namani — Wed, 18 Jan 2012 14:40:30 +0000

The business outlook of Indian entrepreneurs for 2012 is resilient despite economic turmoil the world-over, with “unreserved optimism” for the growth prospects of the Indian economy this year, says a survey by global consulting major Grant Thornton.

“Amidst widespread gloom, India appears to be the sole provider of cheer, where the outlook on human resources is concerned, as all six cities that was covered under our survey showed almost unreserved optimism for the growth prospects of the Indian economy in 2012,” the Grant Thornton report said.

In the year 2011, India retained its position as one of the fastest growing economies of the world and even though the growth was toned down by the global slowdown, the scenario continues to be bright in comparison to the global outlook.

Barring Kolkata, where 31 per cent of the respondents expressed pessimism, cities such as Bangalore, Pune, Delhi, and Chennai remain optimistic about the Indian economy.

India’s financial capital, Mumbai, was the most optimistic, with 95 per cent of the respondents expecting a positive economic environment over the next 12 months, the report, titled, ‘India Ahead: A Quarterly Snapshot of India’s Economic and Business Outlook’, said.

However, Indian businesses are struggling with a shortage of right people with the right skills and needs a thorough overhaul of its education and training system, Grant Thornton Partner Vinamra Shastri said.

“The extent to which India can derive economic gains by increasing its workforce will be only be constrained by the lack of integration between education and skilling. India still lags far behind the developed economies and many other emerging economies in terms of education and training,” the report said.

As per the survey results, Mumbai and Chennai had the highest availability, while Kolkata seemed to display the most acute shortage of a skilled workforce.

This report by Grant Thornton India draws on survey results from Grant Thornton’s International Business Report, which is an international survey of the opinions of medium to large privately held businesses

Source – Financial Express

©2009 Copyright by Invest In India

Guide to NRIs taxation.

Ziaulla Namani — Wed, 18 Jan 2012 13:19:18 +0000

Here are some exemptions and tax-saving tips that non-resident Indians can avail of

Taxes applicable:

Income which is earned outside India by an NRI is not taxed here. An NRI doesn’t have to pay tax on the interest income in a non-resident external (NRE) account or foreign currency nonresident (FCNR) account. But you must be careful about taxes you pay in your new home country as some income that is exempt in India is taxed abroad.

Filing returns:

There is no need to file income tax return if you don’t have any income here. However, if the income accruing in India through capital gains, rent, dividend or interest is beyond the threshold limit, you will have to file tax returns. Here, too, you can claim certain deductions. So, for 2011-12 , an NRI (male, below 60 years) whose income exceeds 1.8 lakh and a person above 60 years who earns more than 2.5 lakh should file returns in India.

Investments

If, as a resident, you made some investments and redeemed them after becoming an NRI, these will be treated differently . For instance, NRIs cannot extend the tenure of their PPF account. Capital gainslong-term or short-term-will be applicable when you redeem/sell your past investments. If you sell shares that are listed on a recognised stock exchange in India after holding them for more than a year, you will not have
to pay tax on the capital gain provided the
securities transaction tax has
been paid.

Tax-saving tips

NRIs can save on these taxes by investing in pension plans, life insurance policies and tax-saving mutual funds. The repayment by an NRI towards principal amount of home loan is eligible for deduction up to 1 lakh, while the interest payment is also allowed as a deduction. NRIs can also buy a health insurance policy here for themselves, their family and dependent parents , and claim deduction up to 35,000 for the annual premium paid.

If you have been repaying an education loan, the interest paid can be claimed for deduction . NRIs can put their money in tax-saving bonds too. Capital gains up to 50 lakh earned from selling a capital asset can be invested in bonds of NHAI or REC. Investment income foreign currency bonds, are subject to tax at 20% as against the maximum rate of 30%. NRIs can invest in such assets and benefit from the lower rate. Also, an NRI can avail of lower tax rates on interest income through beneficial treaty provisions.

Source – Economics Times

©2009 Copyright by Invest In India

Principles and Decision-making for wealth creation

Malvika — Fri, 30 Dec 2011 10:29:22 +0000

Whenever people have surplus money, they want to invest. When they invest, they just want to act or execute. They don’t want to spend time on understanding the product and various investment strategies. They would like to take investment decisions without doing any homework. There is no plan of action. Their attitude is “I have surplus money; just tell me where to invest”.

Misselling:

These kinds of investment decision making will make you fall prey for misselling. As you are not interested in doing the homework and if someone comes with a long chart and calculations for 20 years, then you may find it interesting and end up buying products like ULIPs. When you realize that you have invested in a mediocre product, you will blame the agent or broker and not yourself and your wrong decision making approach.

Market Moods:

When you just want to act, your investment decisions will swing based on the market moods. If the stock markets are highly volatile and it is comes down day by day then you may think that instead of investing in stock market investing in debt funds are fixed deposits are safe and wise. If the stock market goes up and everyone is investing in the market including your driver, then you may think it is opt to invest in shares or equity funds. So in this case you will never buy low and sell high. In fact you end up buying at peak and avoiding the market when the share prices are low.

Aggressive Trading:

Blindly, some investors believe that by doing aggressive trades in shares and derivatives are the quick way to make money in the stock market. They enjoy their higher degree of involvement with the stock market. They feel very happy about the few successes in the stock market which give them comfort in accepting many losses. They don’t go back and calculate how much they have made or lost in a trade; what is the total profit or loss they have made in a particular year. These investors will learn very old lessons of investment after losing a huge amount of their hard earned money.

Wealth Creation Secret:

The mistake investors do is they don’t understand the basic investment principles. They simply try to make some investment decisions. How can these investment decisions be right? Very difficult. As an investor, you need to understand the investment principles. Then based on the investment principles, you need to take the investment decisions. These investment decisions will be right for sure. Without right investment principles, right investment decisions become impossible. Without right investment decisions, long term wealth creation is just a day dream.

Sound Investment Principles:

Asset Allocation:

Depending upon your financial goals, you need to arrive at the required rate of return from your investments. You need to decide what kind of allocation needs to be given to different kind of investment avenues (like Fd, Debt funds, Equity Funds, Gold ETF..) in order to achieve the required rate of return. Once decided, don’t change this asset allocation ratio depending upon the market movement.

Risk Vs Safety:

Whatever the long term savings you have got you can invest in risky assets like equity funds. You will be adequately rewarded for taking risk in the long run. Whatever the short term savings you have got you can park it in FDs or debt funds.

Investing your long term money in safe avenues will be a destruction to create long term wealth. You will not be able to beat inflation. Similarly investing your short term money in risky investments is also dangerous.

Fundamental Factors:

The returns an investment generates will be based on its fundamental factors. Analysing fundamental factors only will lead to a long term success. There is a lot of difference between taking one right investment decision by fluke and taking right investment decisions regularly by analyzing the fundamental factors.

These investment principles are very simple and straight forward. At the same time these principles are very authentic and profound. The magic formula for creating long term wealth is “Sound Investment Principles + Right Investment Decisions = Long Term Wealth”.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

©2009 Copyright by Invest In India

How to be proactive on your potential financial problems?

Malvika — Fri, 30 Dec 2011 08:52:31 +0000

Most of today’s problems are yesterday’s challenges overlooked. It is always considered a wise thing to perceive problems before they arise and attend to them at the earliest. By doing so, you will be spared from the trouble you may have to undergo in the later stages. Here are few pointers to assist you in identifying the problems related to your spending and saving patterns.

Potential problems related to your spending habits

You are finding it difficult to repay your debts.

Potential Problem: You decided to splurge in on your salary and went ahead purchasing everything you ever wanted on monthly installments and did rest of the shopping on your credit card. A few months later, you come to terms with reality not being able to service all your debts.

Possible Solution: You must take into consideration the fact that all your loans combined should not go beyond 30-40% of your salary. It is imperative that you bore this fact in your mind before taking any new debt.

You find yourself in a tight financial corner every next month.

Potential Problem: You spent a little too much on your vacation and are now feeling the pinch for not being able to pay up for the insurance premiums that you are required to pay the next month.

Possible Solution: In order to deal with such a situation, you need to monitor your accounting constantly on a monthly as well as annual basis to see how the cash flow is. This will help you to manage your cash flow in an effective manner.

You are unable to determine what you really need and whether you can afford it.

Potential Problem: You probably got a little too excited when received your bonus amount and made up your mind to purchase a big and brand new refrigerator or an advanced split air-conditioner to tackle the summer heat or a car to swing along the countryside. But, what you failed to assess initially was whether you would be able to meet up with the increased electricity or petrol bills generated in your monthly budget.

Possible Solution: You can deal with such problems by planning well-ahead and deciding firmly on entities you regard as relevant to your needs. You need to assess before you buy whether the recurring expenses of the equipment you’re going to buy in fits into your monthly budget.

Potential Problems related to your investment habits

You are unable to contemplate or relate to the product you’re in possession with.

Potential Problem: You have decided to invest in the real estate sector after seeing your peers make good returns, especially when the prices were rising. However, nobody explained to you the fact that your money could get bottled-up in there in the absence of a good deal. In the same way, you may have five insurance policies but not enough life insurance coverage.

Possible Solution: It is important that you know the purpose of buying a financial product is it will help you solve your financial problem. Not all products in the market will solve your required needs. By setting yourself goals, you will be able to zero in on the perfect asset choice.

When you need money, your portfolio is in negative:

Potential Problem: You worked hard and even managed to save up regularly cutting away all your unwarranted costs. Yet, when you come close to meet your goal (say buying a property), you realize that your portfolio doesn’t support your need.

Possible Solution: Before deciding to go in for the kill, you need to choose your assets wisely keeping your goals in mind. For example, it is quite risky to keep all you money in equity in case you are aiming for a short-term goal. As a result, your capital may get exposed in the event of the market falling.

You focus your investments in only one asset category:

Potential Problem: You made huge returns from the stock market last year. So you decide to concentrate your investments only in stock market. You have suffered in the 2008 crisis or 2000 technology bubble burst and incurred major losses and are quite suspicious if things would work out; and decide to stick just to debt investments. It must be noted that neither of the strategies will pay off.

Possible Solution: You may decide to go by your insticnt, but it is not always advisable to blindly invest everything you’ve got in a single asset class. In order to reduce the risk factor and still be on the charts, you are required to broaden your time horizon of investment. Also you need to diversify across various asset classes to reduce risk.

You have understood how to be proactive on your financial problems. Unimplemented knowledge is a burden. Our problem is not ignorance but inaction. You can be different from other by being alert to your financial problems well in advance.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

Have You Done Your Financial Spring Cleaning?

Malvika — Thu, 29 Dec 2011 16:04:37 +0000

A Financial Planning experience with a client:

It was just another day that a new client came to us for financial planning. He wanted to know if he had planned well for his family financial goals. As a general procedure, I suggested that a study would help me come out with a comprehensive financial planning to meet his goals.

Explaining the Financial Planning Concept:

I told him that financial planning lies in addressing 4 important areas namely, risk management, wealth creation, wealth preservation and wealth transfer. It is an ongoing process throughout life. Financial spring cleaning done regularly helped to stay focused and keep track of your finances.

It is best to understand that financial spring cleaning involves collecting and assimilating data. This included various investments, present financial situation of the client. Then an appropriate plan was prepared and reviewed regularly considering changes. It is best to get a financial plan prepared by a certified financial planner or advisor that has the expertise, education and ethics and believes the plan would work for you.

Analyzing Life Insurance:

My collection of data told me that my client had more insurance coverage on his wife and dependent children than on him. In addition he had been sold certain unit linked plans by his investment consultant. These ULIP’s were disguised like profitable part of his overall portfolio.

So the first thing that I emphasized to him was to increase the term insurance coverage on him, so that his family was secure in his absence caused by sudden death. This was essential considering that he was the sole earning member of his family and still had various financial commitments before his children settled down.

Online term policies with nominal premium rates would be best for the purpose. I then told him that buying ULIPs are not good investments because of its heavy front loaded charges and under performance. As a part of portfolio revamp, i suggested to the client that he surrender certain policies and take up more of online term coverage on him.

Evaluating Health Insurance Requirements:

Client already had a general health insurance policy for him and his family. I also suggested that he should take additional health insurance coverage in the form of critical insurance. An additional critical insurance coverage would provide for income in case of critical illness eventualities.

Examining other investments:

Stocks and MFs: A closer review of his investments in stocks, mutual funds and other portfolios convinced me that my client had gone wrong in many of his investments. I was surprised to find that he had been misguided to invest in penny stock and closed ended NFOs of mutual funds. These stocks and mutual funds were not just risky but also lacked adequate liquidity and profitability to cater to long term inflation.

PMS: His portfolio management that was done by 2 portfolio managers lacked consistency that was vital for growth. They had repeatedly bought and sold stocks of big stocks like Larsen & Toubro, Tech Mahindra and Siemens just to book minimal profit and paid high costs on entry, taxes, brokerage and exit.

It was also seen that my client had an unwieldy portfolio that consisted of certain stocks that were bought on momentary emotions. In addition both his portfolio managers were buying similar stocks and mutual funds that made for laying all eggs in a basket. In addition to lack of diversity in stocks, they had sold off more profitable funds to invest in least known. I suggested that he invest more in diversified large cap and mid cap funds.

Fixed Income investments: We suggested moving of fixed deposits that earned just 6.5% post tax to fixed maturity plans that yielded 8.75% post tax. We also suggested that he increase his contribution to Public Provident Fund and in the senior citizen account of his parents.

Client Reaction

My client understood very well that his broker had not suggested investments taking into consideration his financial goals, risk tolerance and return expectations. We also rendered the service was to help our client create a cash flow management strategy. This would help him ensure surplus funds were appropriately invested in a diversified way.

To conclude once the first step was taken to embark on his new journey to a strong financial backing, we advised him to keep himself well informed about financial planning with knowledge from various sources. Finally he understood that it was worth taking help in financial spring cleaning due to the rich long term gains that would accrue to him.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner at Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

Financial Resolutions to keep in 2012

Malvika — Thu, 29 Dec 2011 07:23:47 +0000

As we are coming to an end of 2011, this is the time to reflect on the year gone by and the time to look forward for the New Year. You may use this chance to review your financial scorecard for the last year and need to make necessary changes and create an action plan to improvise the score for 2012.

Here’s the list of financial resolution for 2012. You may pick and choose a few among these and implement to improvise your personal finance management system.

1)      Would you like to prepare a workable budget for the year 2012?

You may choose to create a workable budget for 2012 by projecting your income and expenses. Also consider investments committed earlier like insurance premiums, SIPs and other commitments like EMIs. Is there any other financial goal you are going to meet this year like buying a car or buying a property? Have you made the provision for down payments?

2)      Would you like to do a portfolio rebalance?

2010 ended with a sensex of 20509. This year it is trading around 16000 levels. So definitely there will be a requirement to balance your portfolio to restore your predetermined debt equity ratio. Probably you may need to increase your equity exposure. You can make this market fall as an opportunity.

3)      Would you like to resist the temptation to make quick profits?

Temptation to make quick profits is the biggest enemy of wealth creation. This temptation leads to speculation and gambling which in turn will lead to a huge loss. If you could take a resolution to resist this temptation you will not fall prey for bogus schemes that seem to offer huge returns.

4)      Would you like to repay your high cost loans?

Do you have credit card debt, personal loan, or car loan? These are all definitely high cost loans. Why don’t you chalk out a plan to repay these debts well in advance? This will reduce your debt burden. You can become debt free earlier. You will have more investible surplus if you are debt free.

5)      Would you like to review your insurance?

You may decide to check the life insurance and health insurance already taken is sufficient or any additional coverage is required. If you have taken a term insurance policy through an agent, now compare the premium with an online term insurance plan. By changing to an online term insurance plan you will definitely save up to 60% of your offline premium.

6)      Would you like to do an early tax plan?

If you have not done your tax saving investments for the current financial year, you may decide to do it now without any further delay. As soon as the budget session is over create a tax plan for the next financial year. Doing tax saving investments in the last minute may force you to think only on saving tax and not on your financial goals and choosing a best scheme in sync with your goals.

7)      Would you like to prepare a retirement plan?

Don’t put off today what you can’t afford to do tomorrow. In spite of the world wide pension crisis and a growing acceptance that we must plan and save for our retirement, the harsh reality is we are actually not saving enough. Research reports reveal that only 15% of the individuals are saving sufficiently for their retired life.

Have you started planning for your retirement? You may be saying ‘who me? I am too young to be thinking about retirement”. It is not so! Rethink. You should have started thinking about it yesterday. Because time flies quickly. If you were smart, and planned for retirement when you are young, your retirement years will be really those “Golden years”. If not you need to compromise and you need to work longer and retire later than others.

8)      Would you like to avoid resolution pollution?

You need to be very cautious about setting too many financial resolutions and also need to avoid setting unrealistic financial goals. You need to set resolution which is workable. You need to keep realistic expectation on the outcome of the resolution. Over expectation may demotivate you. New Year resolution is not a magic. You will be able to progress it only over a period of time with constant practice.

Now you have all the information needed to create the New Year financial resolution. So go ahead and create one for you and your family.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

Investment Advisor Vs Financial Planner

Malvika — Wed, 28 Dec 2011 12:18:19 +0000

A few decades ago, there was confusion with what sales and marketing are. People thought they are one and the same. But it is to be understood that sales is just an important ingredient of the functions of marketing. Sales lies in persuading and convincing a person to buy a product that is suitable. Marketing involves all the activities right from the conception of the product, to branding, advertising and retailing. It is an all pervasive function from the product being ready to reach the market and ultimately to being sold to the customer.

Today here prevails a similar confusion with who is an investment advisor and who is the financial planner. It is quite common to find these terms used interchangeably, but it is necessary to understand that an investment advisor and a financial planner have the similar and vast differences as between sales and marketing.

Why is this confusion?

There is a real confusion among the investors regarding who a financial planner is and who is an investment advisor. These terms are used very loosely, so it is necessary that one understands the function of each of these professionals and approach the right people.

The main confusion in these terminologies arises out of a person’s own perception. This arises due to most professionals offering financial services like insurance advisors, mutual fund distributors and stock brokers calling themselves financial planners. This term has been used very loosely by many to suit their own convenience and image. This is more like a compounder professing to be a doctor, when he/she knows purely only about the medicine that one has to dispense. A compounder will not have the expertise to diagnose the disease that needs to be treated.

Who is the Financial Planner?

Financial planner is involved in planning all the finances of a person. His job includes drawing up an appropriate plan that covers all financial needs and goals in the short, medium and long run. Such a planner is like an architect of a building and helps to analyze and draw a complete map of how his or her client’s finances need to be planned. It includes considering the need for liquidity, cash management for various needs, goals planning and feasibility, long term cash flow, estate planning and risk management.

Who is an Investment Advisor?

In contrast an investment advisory/advisor is a person or group that helps his client to decide on the financial products that he or she should invest in. Such an advisor understands what his or her client actually wants after communicating with him or her and understanding the need. An investment advisor makes a thorough analysis of the various securities before doing so.

Hence investment advisory is just one of the ingredients of financial planning.

Goal Achievability:

A financial planner will be able to tell you, is it possible to achieve all your financial dreams with your current and projected earning capacity. If it is not possible, then the financial planner will be able to tell you what could be achieved with your earning capacity and to achieve all your dreams what kind of earning capacity you should have.

Risk Management Plan:

A financial Plan also covers creating a risk management plan. A risk management plan includes creating an emergency reserve, assessing the human life value and suggesting a term insurance; identifying medical insurance cover required and suggesting a health insurance plan; and also suggesting a general insurance policy to cover the natural perils like fire, flood, earthquake … against your properties.

Investment Plan:

A financial plan that suggests investments comes only after all the aspects have been analyzed fully. The best investment advice can only flow out after a deep analysis of a client’s need and after the preparation of a financial plan. Financial Planning should precede the investment planning.

Existing Portfolio Revamp:

It is also necessary to understand that a financial planner also looks at past investments. He then makes necessary changes to make them amicable to achieve a client’s financial goals over a period of time. Also he will assist you in restructuring your existing outstanding loans. If necessary he will create a debt pay-off plan also.

Tax Planning:

A financial planner should assist you in creating a tax plan also. This tax plan will be in sync with your overall financial plan.

Review:

A financial planner will do a periodic review on your financial plan and investment plan. If you are preponing or postponing one of your goal or if you have got a job promotion, then you may need a financial plan review. If direct tax code has got implemented or one of your investment schemes underperforming, then you may need an investment review.

In a nutshell a financial planner will not only give you an investment advice he assists you in managing your personal finance in a complete, comprehensive and a holistic way.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

A Step by step Guide for Buying Resale Property

Malvika — Mon, 28 Nov 2011 11:11:29 +0000

A resale property:

Who does not wish to live in a house of their own? Buying a new flat will take a long time, so some of us may wish to settle for buying a resale property. However buying a resale property could involve many legal and other procedural requirements. It is prudent to first understand the various procedures and safety measures for buying resale property to avoid hassles in future.

Buying Resale Property –A Guide

Consult Experts:

It may be ideal to engage a good real estate agent to locate a resale property. He would be in a position to locate sellers as well as guide you regarding the price of such properties in different localities. They would also be in a position to tell you about the seller of the property. Most real estate agents charge a fee and also help with registration, payment of stamp duty and other paper work involved in the purchase of resale property. In addition, taking the help of a good lawyer would also help to make sure that things are clear legally also.

Title of the property:

It will help engaging experts like real estate agents and lawyers to help you, but it is always better to be well-informed yourself when entering into deals for buying resale property. The first step in this regard would be to establish the title of the seller; whether he is the real owner of the property or has been given the power of attorney to transact the deal. All the documents with regard to the property need to be clear. In addition you need to make sure that all the original documents with regard to the property that were given by the builder or original developer are in order.

Documents:

Buying resale property seems great, but it could become a big problem if the documents regarding the original purchase and subsequent transfer of title are not properly stamped. Firstly it could pose great problems especially if you want to apply for a loan for purchase of the resale property. Subsequently it could prove to be unacceptable in case you wish to transact further on the property.

Existing Loan:

It is also necessary to make sure that the property documents are not lying mortgaged in the bank’s custody against a loan taken by the seller. The bank will consider a loan only once the loan taken by the seller is repaid and the documents released.

Loan Eligibility:

Buying a resale property would definitely provide you with a bigger space in case of older properties. However it is best to note that some banks may not lend money on buildings older than 10 years. This may be due to the reason that they may not want to take the risk of the price of the property going down. Banks also make sure to ensure that the bank’s outstanding loan should always be lower than the value of the property in the market.

Property Valuation:

Next it is imperative to note that the loan amount is highly dependent on the cost of the property. Technical experts would evaluate the property. However it would be useful to yourself avail the services of a property valuator at a small fee before approaching the banks. The bank’s property valuator may valuate the property at a much lower rate. They would also like to safeguard their interests against the fall in the price of the property in future.

More Down Payment:

Most banks wish to make sure that you be responsible for the maintenance and good upkeep of the resale property. So banks would expect you as the purchaser of the resale property to pay a certain percentage of the price as down payment. You may have to pay about 20% of the price as down payment; property of 50 lakhs requires 10 lakh as down payment.

Age of the property:

This down payment could be more in case of older properties. In addition, banks usually lend only on properties that are unto 50 years old. The tenure of the loan also decreases with the age of the property.

Flat Society:

The bank may grant the loan and you may make the down payment, but there could be another problem. It arises out of the need for some Flat societies that require the payment of a heavy price for change of ownership. It is best to consider this cost also when coming to a conclusion while purchasing resale property in cooperative and other societies.

Conclusion:

Buying resale property would give you a chance to settle in your own house fast and save you of high rents paid and the need to frequently shift your place of living. Taking a loan from the bank could give you tax deductions on the interest paid soon. You would not have to wait till the possession as in the case of new flats. It is always prudent to be well   informed about the various details of the resale property.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

7 Insurance Myths Debunked

Malvika — Sat, 26 Nov 2011 05:54:05 +0000

Planning for contingencies like death and hospitalization also forms an important part of financial planning. Buying life insurance provides for the living expenses of bread earners family in his absence on death. Let me debunk a few insurance myths today so that you will be able to take better financial and investment decisions.

Myths about insurance:

Myth 1: Life insurance is a waste of money. But it is good to understand that it is bought to protect ourselves from the contingency of untimely death. It would give finances for living expenses of your family if you die young. Life insurance is an investment that is more a safety mechanism; it is to provide financial security on death. Term policies that cover the risk of untimely death only are cheap and most ideal for providing life coverage alone.

Myth 2: Life insurance is taken to save taxes. This could probably be a selling point for agents. But far from the truth tax savings is one of the benefits arising from life insurance. The main benefit is the provision of finances in the case of the death of the policy holder. Saving taxes alone can be done by other tax saving instruments like mutual funds, tax saving bonds and Government bonds, post-office savings schemes and PPF. So paying premium to cover the full financial needs of the family in case of the death of the bread-earner is very important. This is about 7 to 10 times the annual income.

Myth 3: There is no need for life insurance in case of very young people. This is a wrong notion for death is something that could happen to anyone at anytime and in any way. The common notion that people die when they are old may be true to a large extent. But covering of risk of death is definitely better than to be left financial bereft in case of an untimely death. In addition it is smart to take benefit of the lower premium rates offered to the young. Also you may find it difficult to take life insurance when you are old due to higher premium rates or being refused because of ill-health.

Myth 4: Life and medical insurance is provided by employers, so we need no life insurance. This benefit is available only until you are in a particular company or till retirement. Also life insurance provided by employers may not adequately cover the living expenses of your family in case of your untimely death. It is smart to buy medical insurance young, as fresh medical insurance taken just prior to retirement could be refused on medical grounds. Critical illness policies help meet additional living expenses of the family in case of critical illness.

Myth 5: Unit linked plans for a limited period seem attractive. I would say that this is more of a sales gimmick in many cases. Most insurance products are so designed that the major costs are incurred in the first few years and deducted from premium. There are charges that the company wishes to recover over the entire tenure of the policy. So very less is actually invested in units. So it is best to look at unit-linked insurance plans with an open mind and consider a commitment of periodic investment for the whole tenure of the insurance policy. Paying for a longer tenure could result in a more profitable proposition.

Myth 6: Buying a policy in the name of a minor child is best. This emotional sentiment selling point has helped many to sell insurance. Also the premium paid on child policies may be much less than an adult wanting the same coverage. A life insurance policy is taken to replace loss of income to the family, so taking a policy where the child is a beneficiary or nominee may be smarter.

Myth 7: Pleasing your friends/relatives/associates is very important.

Kindly avoid taking policies just for the sake of satisfying your friends and relatives who are insurance agents. Also you need to avoid taking policies just to maintain the relationship with business associates like bankers.

Insurance policies need to be taken to based on the need. Now a days online term insurance are 50% cheaper when compared to the term policies taken through agents or brokers.

Having understood these myths I am sure dear friends you would make insurance a very valuable and useful proposition for you.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

A Layman’s Guide To Reverse Mortgage

Malvika — Fri, 25 Nov 2011 08:36:24 +0000

What is reverse mortgage?

Increased life expectancy has lead to the increase in the costs of living and medical expenses. This makes it difficult for many senior citizens that lack a regular income to live a life of dignity. Reverse mortgage is the solution introduced by the Union Government of India in 2007 helps senior citizens.

Understanding the concept of reverse mortgage better:
Reverse mortgage is the opposite of a conventional housing loan that needs to be paid back with interest over a period of time. Reverse mortgage helps senior citizens having a residential property to receive a regular income against its mortgage. The borrower and his/her spouse are allowed to stay in the place of residence until both die, aiding the living of a dignified life by senior citizens.

Workings of reverse mortgage:
A senior citizen couple should necessarily own a flat or house. Then they can pledge the property for a monetary value agreed upon by the bank. The value is generally fixed considering the present property values, demand and also the condition of the property. The bank starts periodic payment as a loan that is decided after consideration of margin of interest costs and price fluctuations in the property. It is an ideal solution for senior citizens that have residential property, but no finances for regular day to day expenses and medical aid. The borrower’s interest in the property decreases once the reverse mortgage EMI begin.

Guidelines for reverse mortgage:
The guidelines set by the Reserve Bank of India state:

The maximum amount of the loan given generally as EMIs cannot exceed 60% of the property value. In addition the minimum period of the mortgage is 10 years, and maximum 15 years. However some banks have been recently offering tenure of about 20 years.

The borrower can avail of the loan in parts every month, every quarter, every year or in a lump sum.

The lender/bank would revaluate the property once in 5 years. If the value of the property has increased, the borrower has the option to ask for an increase in the amount of loan. He can also ask for the additional amount to be given in a lump sum.

The installments or lump sum received in a reverse mortgage is a loan and not an income. Hence no tax is payable on it. However he has to pay capital gains tax when the property is taken for the borrower for the repayment of the loan on the mortgage.

The interest paid on the reverse mortgage could be floating (fluctuating) or fixed, with this rate depending largely on the interest rates prevailing in the market.

Eligibility for reverse mortgage:

A senior citizen can avail of reverse mortgage on his/her house or property when:

He/she is above the age of 60 and his spouse that is a co-applicant is above 58 years of age.

The property is the permanent residence of the individuals and is self-occupied. The property should be self-acquired and located in India. The title should be clear of the borrower’s ownership.

It is mandatory for the property to be free of encumbrances and it should have a minimum life of about 20 years.

Settlement of reverse mortgage:

The reverse mortgage loan is payable on the death of the last surviving life partner. It could also become payable when the borrower sells off his/her property. In such cases the bank gives the choice to the heirs to settle the loan with accumulated interest. Otherwise the bank arranges to recover the same with the sale of the residential property.

Any extra amount that remains after the loan with interest and expenses has been settled is passed on to the legal heirs. If the sales proceeds are much less than the loan, the bank. In case of losses that could occur due to wrong estimation by the bank is borne by them.

The loan could be foreclosed when the borrower has not continuously stayed in the house for a year or has failed to pay property taxes or insure the house. The loan is also foreclosed when the borrower turning bankrupt, donates or abandons his property. In addition renting a part of the house, adding an extra name to the ownership could all affect the lender’s interests and lead to foreclosure of the mortgage. Government statutory provisions could also require it.

Some other highlights of reverse mortgage include the borrower’s option to prepay the loan with interest. Also one or both spouses could outlive the period of the tenure. Then the bank will stop payment of monthly installment. They will however wait for the both the borrowers to die before settlement. Reverse mortgage involve long, tedious, difficult and complicated procedures. In addition they have no provisions for increase in monthly payouts.

Lastly reverse mortgage has failed to gain much popularity in India, with marketing strategies being inadequate. The reason is also that many banks are fixing the maximum limit of loan. The resentment among the heirs and family sentiments are also some of the other reasons. It is true however that reverse mortgage is the solution for financial sufficiency in lives of most senior citizens.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the r and Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

A Step by step guide to choose a right mutual fund scheme

Malvika — Wed, 02 Nov 2011 06:50:27 +0000

“Models work when they are appropriate for the particular circumstance, but some of the best investment judgments over time have come when people recognized that models derived in other periods were broken or not directly relevant.”   Abby Joseph Cohen

Investing in mutual funds seems interesting, with number of websites, TV and other finance and wealth magazines publishing various information. However it is a challenging task and involves   knowledge regarding the shares and securities market and various laws that govern mutual funds is necessary before investing in them. Understanding the principle of mutual funds; the investment of the money of a large number of investors in stocks, bonds and money market instruments that are managed by managers makes one feel relieved. However it is best for you as an investor to make a right choice of the mutual fund that suits your need.

Choosing right MF:

Investment Objective & Time Horizon

The objective of the fund or the use to which the funds would be put to would be a vital deciding factor. Mutual funds investing in stocks would suit those that are ready to take more risks; stocks means more exposure to the volatile market though higher returns. The length of time that one has to wait to get reasonable returns also plays a vital role. So it is best to read the offer document or fund brochure carefully before making the decision.

Liquidity:

In addition whether a fund is an open-ended or close ended one points out to how liquid your investment is. Open-ended funds are preferable to close ended ones as they can be converted to cash more easily than close ended ones that involve waiting for a period of time. Historically open ended funds have performed better than closed ended funds.

Diversification:

It pays to check for diversification in mutual funds, for an optimum diversification makes for a good choice. Opting for a diversification over 8 to 10 securities would be more risky than going in for diversification of 20 to 30 stocks. The diversification of stocks over 80 to 100 securities may mean difficulty of management to the fund manager. In addition making sure to ensure that there is a balanced diversification helps.

Fund Performance:

After getting comfortable with the fund’s objective, it becomes equally important to know and analyze the fund’s performance. This involves looking at the fund’s short term and long term performance and comparing it with larger market indices or benchmarks like BSE Sensex and NSE Nifty. A higher market index over a longer period indicates better funds, however past performances in case of mutual funds can never be a guarantee of future returns and can serve only as an indicator.

Level of Risk:

The level of risk involved would be another important indicator, with higher returns available only at higher risk levels. Would you like to go for a low risk debt fund or to go for a moderate risk balanced fund or a high risk equity fund? Look before you leap.

Volatility & Consistency:

Next it is to be understood that any 2 funds giving the same return are not necessarily the same, as one fund could be more subject to market ups and downs than the other. Volatile nature of funds is more a standard deviation meaning more risk involved. In the same category of funds, an investor needs to choose funds performing consistently.

Fund management:

The management of the fund plays an important role in deciding the best mutual fund for you, with professionalism being very important. The experience of the fund manager and the number of years he/she has been associated with the fund matters. With a new manager and frequent turnover are not good for investors.

Charges:

Things seem pleasant in mutual funds; however the charges like entry load, exit load, administrative charges and fund management charges on an annual basis are to be carefully looked into. It is significant to note that these charges cannot exceed 2.5% of the fund’s assets. Most funds have uniform charges, however hidden charges need to be looked into and carefully analyzed

To conclude mutual funds may be the best investments as they can be done in small amounts as compared to other types of investment and carry a comparatively lower risk. But your ultimate success in the form of good returns can only be assured with following these steps of smart mutual investment planning.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Director and Chief Financial Planner of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in

©2009 Copyright by Invest In India

Present Age	30
Retirement age	55
Life expectancy	85
Expected Annual Income (Post Retirement in today’s value)	800000
Inflation	6%
Pre-retirement return	12%
Post-retirement return	8%
FV Expected Annual Income	3433497
Retirement Corpus	79582501
Required Annual Investment	596866
Required Monthly Investment	49738